Insulate Maharlika Fund from politics, says US think tank

A sovereign wealth fund (SWF) will be helpful for the Philippines’ development efforts especially if it has flexibility in funding sources and is insulated from politics, according to United States-based nonprofit Milken Institute.

Milken Institute said that a well-structured SWF with strong governance would help attract foreign investment, increase the return on investment of national savings, and promote growth and social development.

The Marcos administration had approached the nonprofit group last year to help work out the suitable type of SWF. On Jan. 31, the US think tank released its report “Best Practices of Sovereign Wealth Funds: The Case for the Philippines,” which recommended how to structure the proposed Maharlika Investment Fund (MIF).

“The creation of the MIF will give the Philippines the opportunity to strengthen their economy, allowing for long-term investments in the nation’s infrastructure,” said Caitlin MacLean, Milken Institute senior director of innovative finance.

The MIF enabling law should “articulate a clear objective” and identify the sources of funding to allow for future surpluses or revenue as the country’s economy evolves, the think tank said.

“Create a ring fence around revenue sources to ensure flexibility and minimize political conflict of interest,” it said.

In addition, Milken Institute proposed a governance structure with clear delegation of duties, operational accountability and disclosure policies based on the Santiago Principles, referring to 24 internationally accepted principles and practices for SWFs. “Consider using investment professionals and independent experts to manage and oversee the fund for enhanced financial expertise and political neutrality,” Milken Institute added.

Further, the report suggested engaging community stakeholders, capital markets, government leaders and the public to help sustain buy-in and support in the years ahead.

Another suggestion is that the SWF should be equipped with a long-term investment strategy, along with performance benchmarks that are aligned with short- and long-term goals, minimal currency risk, as well as a range of indicators to measure financial performance, ESG [environmental, social and governance] risk, and developmental goals.

In a statement, the Department of Finance welcomed the report, saying it highlighted the value proposition of MIF for both the investors and the country.

‘Fire sale’ warning

Deputy Speaker Ralph Recto on Tuesday cautioned against a “fire sale” of government assets to raise funds for MIF.

“The rule in privatization is that we should not be selling the geese that lay the golden eggs,” Recto said. “We should be careful that what remains of state crown jewels are not included in a baratilyo (bargain) sale simply because we are raising funds for a project,” he advised.

The deputy speaker added that in conducting an inventory of what could be sold, the strategic value of a company “should come ahead of the chance to make a fast buck out of the sale.”

He pointed out that if “derelict assets” were successfully auctioned, proceeds should also be set aside for “activities [that are] high in both social and financial [returns on investment], like housing.”

Recto noted that the small share of shelter agencies to the national budget, at less than 1 percent, necessitated the use of “off-budget sources” to eliminate the country’s estimated 6.658 million housing backlog. INQ