THE revised implementing rules and regulations (IRR) of the controversial Maharlika Investment Fund Act of 2023 that creates the country's first sovereign wealth fund were approved on Friday, November 10, 2023, paving the way for the fund's implementation which, President Ferdinand Marcos Jr. has said, will be within the year.
On Monday, Nov. 13, Marcos appointed Rafael D. Consing Jr., executive director of the Office of the Presidential Adviser for Investment and Economic Affairs, as president and chief executive officer of the Maharlika Investment Corp., the government-owned and -controlled corporation (GOCC) that will govern and manage the sovereign wealth fund.
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A sovereign wealth fund is a state-owned investment fund comprised of money generated by the government, often derived from a country's surplus reserves typically generated from commodity exports.
This has made the Maharlika Investment Fund (MIF) controversial since instead of having surpluses, the Philippines has been running on budget deficits which, in the first six months of this year alone, came in at P551.7 billion.
According to the Bureau of the Treasury, the full-year national government budget deficit was P1.6 trillion in 2022, P1.7 trillion in 2021, P1.37 trillion in 2020, P660.2 billion in 2019, P558.3 billion in 2018, P350.6 billion in 2017, P353.4 billion in 2016, P121.7 billion in 2015, P73.1 billion in 2014, P164.1 billion in 2013, and P242.827 billion in 2012.
A budget deficit occurs when a government spends more than it collects in revenues.
This begs the question of whether the MIF's stated sources of funding would not be negatively impacted by the transfer of their funds to the MIF, which does not guarantee returns.
There have also been fears that the fund would not be managed properly and that it would not be shielded from politics. Presidential sister Senator Imee Marcos herself raised concerns about graft and corruption in the fund’s administration.
Despite these concerns, Republic Act 11954 establishing the MIF was passed on July 18, 2023 and its IRR released last August.
In a statement Saturday, November 11, the Office of the Executive Secretary said the IRR was revised to buttress the discretionary powers of the Maharlika Investment Corp.’s board of directors to maintain its independence, “ensure that the MIC has a free hand to explore gainful investment opportunities, while adhering faithfully to the letter of the law; and, ensure that investments are of high impact and are in line with the socioeconomic development program of the government.”
But the revised IRR immediately drew a reaction from ACT-Teachers Partylist Rep. France Castro, who questioned its new provision giving the Philippine President increased authority to select the members of the MIC board of directors.
Here are some things to know about the MIF and the revised IRR.
What is the goal of the Maharlika Investment Fund?
It is to “catalyze economic development and accelerate the country’s growth by optimizing the use of government financial assets and promoting their intergenerational management,” according to the Department of Finance (DOF) last July.
Aren’t our government financial institutions (GFI) already doing that?
The MIF is an additional source of funding expected to “ease the burden on local funds, and reduce reliance on official development assistance in funding big-ticket projects such as those specified in the recently approved Infrastructure Flagship Project list,” the DOF said.
Who will run the MIF?
The Maharlika Investment Corp. (MIC) will be established to mobilize and use the MIF for investments to generate optimal returns. The MIC will establish a diversified portfolio of investments in the local and global financial markets and in other assets that promote the objectives of the MIF.
Who will comprise the MIC board of directors?
The MIC board will have nine members: the Finance Secretary, as chairperson; president and chief executive officer (PCEO) of the MIC, as vice chairperson; president and CEO of Land Bank of the Philippines (LBP); president and CEO of Development Bank of the Philippines (DBP); two regular directors; and three independent directors from the private sector.
Who will appoint the PCEO and the regular and independent directors?
The President of the Philippines will appoint them, upon the recommendation of the three-person Advisory Body composed of the Secretaries of the National Economic and Development Authority (Neda) and the Department of Budget and Management, and the Treasurer of the Philippines. The President may reject the Advisory Body’s recommendation and require the body to submit additional names of nominees.
What are the terms of the MIC board members?
It is three years for the PCEO and the regular directors and one year for independent directors.
Who may qualify to be a regular director of the MIC board?
A citizen of the Philippines at least 35 years old, who is of good moral standing and reputation, recognized probity and independence, and has substantial experience and expertise in any of the following: corporate governance and administration, investment in financial assets, and management of investments in the global and local markets.
Who may qualify to be an independent director of the MIC board?
One with proven probity, competence, expertise and experience in finance, economics, investments, business management, or law, and is highly capable to contribute to the attainment of the MIF’s objectives.
How often will the board of directors meet?
At least every two weeks.
How much is the capitalization of the MIC?
Its authorized capital stock is P500 billion divided into P375 billion worth of common shares and P125 billion worth of preferred shares.
Who can subscribe to these shares?
The P375 billion in common shares will be subscribed by the National Government, its agencies or instrumentalities, including government-owned and -controlled corporations (GOCCs) or GFIs, of which P125 billion will constitute the seed capital of the MIF.
As for the preferred shares, they will be for subscription by the National Government, its agencies or instrumentalities, GFIs or GOCCs, and reputable private financial institutions and corporations, except the Social Security System, Government Service Insurance System, Philippine Health Insurance Corp., Pag-Ibig Fund, Overseas Workers Welfare Administration, and Philippine Veterans Affairs Office Pension Fund.
Will holders of preferred shares have voting rights?
No. The preferred shares will be non-voting, non-participating, non-convertible, and may be issued from time to time by the MIC board of directors.
Who will contribute to the seed capital of the MIF?
The initial funding of P125 billion will come from the National Government (P50 billion), Land Bank of the Philippines (P50 billion) and Development Bank of the Philippines (P25 billion).
Where will the National Government come up with its contribution to the MIF?
It will come from Bangko Sentral ng Pilipinas dividends, government’s share in the income of the Philippine Amusement and Gaming Corp., proceeds from the privatization of government assets, and other sources such as royalties and shares of stock owned by the Republic of the Philippines.
How else could the MIC raise money?
It may issue bonds (debt), debentures (debt unsecured by collateral) and securities within or outside the Philippines. The bonds and debentures may be long-, medium- or short-term, with fixed or floating interest rate. The revised IRR states that such obligations shall be secured by the assets under the management of the MIC.
Are the bonds issued by the MIC guaranteed by the Philippine government?
No.
Where can the MIF invest in?
* Cash, foreign currencies, metals and other tradeable commodities;
* Fixed income instruments issued by sovereigns, quasi-sovereigns and supranationals;
* Domestic and foreign corporate bonds;
* Listed or unlisted equities, whether common, preferred, or hybrids;
* Islamic investments, such as Sukuk bonds;
* Joint ventures or co-investments, mergers and acquisitions;
* Mutual and exchange-traded funds invested in underlying assets;
* High-impact real estate projects, including agro-industrial estates, economic zones and estate infrastructure;
* Infrastructure projects directed toward fulfilling national priorities such as the national infrastructure program of the Department of Public Works and Highways and other infrastructure agencies, the inclusive innovation industry strategy of the Department of Trade and Industry, and the public investment programs of the National Economic and Development Authority;
* Health, education, research and innovation and other programs and projects that contribute to sustainable development;
* Loans and guarantees to, or participation in joint ventures or consortiums with Filipino and foreign investors in commercial, industrial, mining, agricultural, housing, energy and other enterprises contributory to the country’s economic development, or important to the public interest; and
* Other investments with sustainable and developmental impact, including those covering idle properties located in or outside the Philippines, owned by government agencies and instrumentalities.
How can the MIF be shielded against conflict of interest by the MIC Board?
Regular directors are prohibited from holding any other public office or post during their tenure. They must also resign from and divest themselves of all interests in any private institutions that would put them in conflict with the interests of the MIC.
Independent directors cannot hold any business or financial interests and other relationships that could, or could reasonably be perceived to, materially interfere with their independent judgment in carrying out their responsibilities as directors.
How can the MIC protect itself from fraudulent or dishonest actions of its directors?
The president and chief executive officer (PCEO), and regular and independent directors will be bonded to the government for the faithful performance of all duties imposed upon them and for the faithful accounting of all funds and public properties coming into their custody or control. They are required to secure a fidelity bond of P10 million. The IRR does not mention such bond requirement for the ex-officio members of the board.
Who may be considered for the position of PCEO of the MIC?
Someone with (a) exceptional expertise in corporate management, financial planning strategy, strategic planning and vision, market and business development, budget development; (b) at least 10 years of management experience, including extensive commercial lending/credit administration experience; (c) in-depth understanding of the industry, including risk management, compliance and regulatory requirements; and (d) strategic knowledge of cash flow and capital planning management.
Why so many requirements for the PCEO?
Because the PCEO is the one tasked to direct and supervise the operations and internal administration of the MIC. He or she is charged with the risk management, financial performance, human resources, accounting and legal affairs of the MIC.
Who else will work in the MIC?
A chief investment and operating officer (CIOO) shall be appointed by the MIC board and be coterminous with the PCEO. The CIOO is responsible for regular administration duties of all investment files, communicating investment strategy and policies, managing and developing a team of financial analysts and investment professionals, supervising risk management across portfolios and ensuring sound investment policies are followed.
Who will audit the financial reports of the MIC?
An internal auditor appointed by the board who shall be independent from the management of the MIC and reports directly to the board, an external auditor, and the Commission on Audit (COA).
Who will conduct oversight on the implementation of the MIF law?
The Maharlika Investment Fund Joint Congressional Oversight Committee to be composed of seven members each from the Senate and House of Representatives, co-chaired by the chairpersons of the House committee on banks and financial intermediaries and the Senate committee on banks, financial institutions and currencies -- to whom the MIC shall make a quarterly confidential submission of the MIF portfolio, and all investments planned or under negotiation by the MIC; and the internal and external auditors shall submit reports for each accounting period.
Can the public access these documents?
Yes. All documents of the MIF and the MIC will be available to the public, as may be allowed by law, including all investments by the MIC, the portfolio of the MIF; the Statement of assets, liabilities and net worth (SALNs) of the members and officials of the board of directors, board-organized risk management committee, and Advisory Body; the SALNs of those who appointed and designated these members and officials; audit documents from the COA; and similar documents and information.
Are there penalties for graft and corruption?
Yes. Aside from the penalties for those found with administrative, civil or criminal liability under existing laws, MIC directors and officers who don't sanction, report or file the appropriate action, or otherwise allow or tolerate graft and corrupt practices or fraudulent acts committed by a director, officer, employee, agent or representative shall suffer a fine of P5 million to P10 million, imprisonment of 20 years, and perpetual disqualification from holding public office.
Intermediaries used for fraud, or for committing or concealing graft and corrupt practices by the directors, officers or other employees of the MIC also face a fine of P1 million to P5 million, imprisonment of six years, and perpetual disqualification from holding public office. (CTL)
