Gov’t considers own sovereign wealth fund

The government may put up its own sovereign wealth fund as a vehicle for investing in the private sector overseas as part of efforts to put the country’s foreign exchange income to better use.

Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said there was enough foreign exchange liquidity locally to put up a sovereign fund.

“It’s a concept that can be pursued. Sovereign wealth funds can invest in different asset classes and even (government) projects abroad,” Tetangco told reporters on Tuesday.

Speaking at the sidelines of the government’s mid-year Philippine Economic Briefing, Tetangco said the country was in a good position to put up its own sovereign wealth fund due to the improved state of its finances and the continued accumulation of the central bank’s gross international reserves. “It’s possible to have it down the road,” he said.

The issues that need to be threshed out before a sovereign wealth fund is put up include the question of how to structure it and where to get the money. Sovereign wealth funds are typically funded by income from overseas or from foreign exchange reserves held by a country’s central bank.

The country’s reserves at the end of August reached a four-month high of $83.2 billion, good for at least a year’s worth of import needs. The country’s gross international reserves (GIR) serve as a last line of defense from possible external shocks. The BSP expects the reserves to reach $87 billion by year’s end.

However, BSP Deputy Governor Diwa C. Guinigundo said the central bank was currently barred by its charter from putting up investment funds. The BSP is only allowed to invest its reserves in low-risk securities such as debt paper of other governments.

“It will have to be the national government,” Guinigundo said when asked who would put up a sovereign wealth fund.

He said this would allow the government to increase its sources of income because sovereign funds are allowed to invest in foreign stocks, bonds both by the private and public sectors and even real estate projects.