IF the government is looking for a way to raise much-needed revenue, Ibon Foundation Inc. said creating the Maharlika Investment Fund (MIF) is not the best way to do it.
Ibon executive director Jose Enrique A. Africa said it would be better for the government to consider civil society organizations’ proposal to levy a wealth tax than to create the sovereign wealth fund (SWF).
Africa’s statement comes as other groups have also criticized the proposal (House Bill 6398).
For example, his organization sees in the SWF only the way to “concentrate wealth and power in the hands of few and make the country even more undemocratic”.
“If the government is really serious about raising revenue, a billionaire wealth tax or a windfall property value tax are much more logical alternatives for just the few thousand richest Filipinos and a few hundred largest companies,” Africa said.
“The ‘misprioritization’ of public funds, poor social and developmental returns, and the strong possibility of abuse and abuse are more than enough reasons to reject the Maharlika Fund proposal, which is being pushed by the largest and certainly the most powerful political dynasty in the country today . ” he added.
Ibon’s proposal has the backing of Nagkaisa’s union coalition, which also proposes levying a tax on “the idle wealth of the country’s wealthiest”.
“Now that the Philippines is beginning to recover, potential wealth tax revenues can now be used to fund ideas like SWF without risking workers’ funds,” the coalition said.
IBON expressed its reservations about the fund, saying the proposed law would seek exemptions from the GOCC Governance Act, the Government Procurement Reform Act and the Competition Act — all laws designed to protect the public interest.
Those exceptions, Ibon said, could create conditions for committing corruption. That’s worrying, Ibon said, since there’s so much money at stake.
The fund, Ibon said, will start with P275 billion from state financial institutions. This is made up of P125 billion from the Government Service Insurance System (GSIS) and P50 billion from the Social Security System (SSS).
It would also draw P50 billion from the Land Bank of the Philippines (LBP), P25 billion from the Development Bank of the Philippines (DBP), and another P25 billion from the state budget.
Ibon said this is just the initial amount as annual infusions from the state budget, Bangko Sentral ng Pilipinas (BSP), Philippine Amusement and Gaming Corp. (Pagcor) and other unidentified sources are planned.
Protective measures “doubtful”
IBON said the following year, as required by law, the 10 percent foreign currency equivalent of remittances could be at least P175 billion and 10 percent of business process outsourcing (BPO) revenue (around P165 billion); 10 percent of Pagcor’s revenues are P3.3 billion. These are based on Ibon’s interpretation of Article III, Section 9.
“The 275 billion pesetas at inception, potentially growing to at least 618.3 billion pesetas in the second year, [is a] huge amount of public money. Full disclosure, transparency and accountability must be of paramount importance – but that is what the law establishing the fund quashes,” Africa said.
Ibon said the safeguards put in place are also “dubious” and should not exempt the fund from safeguards under existing laws, and even reinforce or supplement them where appropriate.
Africa said if the government had excess tax and foreign exchange funds, they would be much better spent on more urgent ayuda, wage subsidies, small business support and public schools and hospitals.
These led to a more concrete and immediate social benefit than an explicitly profit and return-oriented investment fund. In fact, these returns are uncertain, especially given the current domestic and global economic conditions.
ACCORDING to an Ibon analysis paper, the lifting of regulatory restrictions on pension funds exposes the GSIS and SSS to “unnecessary dangers”. While the argument is that this potentially increases returns and profitability, it exposes these pension funds to volatility and even losses, the paper said.
The list of permitted investments includes, for example, risky unlisted shares and financial derivative instruments, apart from the ambiguous “other investments which may be permitted” (Article IV, Section 11).
“Most of the country’s millions of Filipino retirees are not from wealthy families. Their well-being should be protected and not subject to the whims of financial adventurism that strives for the “best absolute return”, as the MIF’s objectives expressly state [Article II, Section 6]’ said Africa.
Nagkaisa opposes the use of public pension funds for the proposed MIF.
In a statement released last Saturday, Nagkaisa said using funds from the SSS and GSIS could jeopardize the sustainability of both institutions’ operations.
“There’s a reason both SSS and GSIS are very cautious about their investment decisions, and that’s because it’s a way of safeguarding future generations of Filipinos,” Nagkaisa said.
“[The] GSIS should be aware of the risks associated with foreign money markets in particular, after all their exposure to the 2007-2008 global financial crisis may have cost the pension fund some of its resources,” she added.
There are currently more than 100 sovereign wealth funds from around 65 governments worldwide, valued at around $10 trillion. By number and value, most of these are funded by revenues from natural resources – particularly energy commodities such as oil, coal and natural gas, but also minerals – followed by pension funds.
Five Southeast Asian countries have six sovereign wealth funds. The two largest are from Singapore, which has accumulated massive foreign exchange reserves as a major financial and trading center.
Brunei, Timor-Leste, Indonesia and Vietnam also have sovereign wealth funds. If it catches on, the MIF will be the 6th largest SWF and possibly the 5th largest if our estimates of the additional contributions in the second year are correct, according to Africa.
The NGO Anakpawis also announced its opposition to the MIF, calling the SWF “dubious, prone to corruption and abuse”.
A statement expressed concern about “where the hundreds of billions of dollars will go to generate additional income for the country.”
Another group, the Pamalakaya, said that while the government now wants to spend money on the Maharlika Fund, basic social services such as education, health, public infrastructure and support for the poor are lacking.
The group cited their demand that the government provide a 15,000 pesos ($269.13 at current exchange rates) subsidy to help each fisherman cope with skyrocketing production costs.
“For us – the marginalized sectors such as farmers, fishermen and workers – it is clear that the aim and direction of the Maharlika Funds is not pro-poor,” the group’s statement said.
“Unless the proponents have concrete plans to protect the SWF from turning into a ‘Maharlika Wealth Scam,’ HB 6398 can’t just happen,” Nagkaisa said.