Maharlika fund

Think tank: Maharlika fund needs ‘realistic funding sources,’ must avoid political risks

Lance Spencer Yu
Think tank: Maharlika fund needs ‘realistic funding sources,’ must avoid political risks


The Milken Institute finds that the country has 'many good reasons for launching a sovereign wealth fund,' but cautions that the Maharlika fund needs realistic funding sources and good governance

MANILA, Philippines – Just as the Senate is set to start deliberations on the Maharlika Investment Fund (MIF), the Milken Institute has released a report advising the government to find “appropriate and realistic funding sources” as it structures the MIF “into a robust, independent, efficient, and effective national treasure.”

“In the coming weeks, the government will decide where and at what levels it will acquire funding. Political risks accompany the use of existing government revenue funds, especially from national savings programs and pension funds,” the report said.

The report also added that using funds from these pension funds to start a sovereign wealth fund (SWF) also provides no additionality since they already count as existing funding.

The previous proposal to involve state pension funds such as the Social Security System (SSS) and the Government Service Insurance System (GSIS) drew criticism during the House deliberations on the Maharlika Investment Fund and from some experts, ultimately leading lawmakers to exclude SSS and GSIS contributions from the MIF’s start-up capital. 

The US-based think tank said that, instead, the government could raise start-up capital by privatizing some of its government-owned and -controlled corporations (GOCCs), such as the Philippine Amusement and Gaming Corporation.

“In the Philippines’ case, of 108 GOCCs, from insurance and financing to charity work and gaming, the top 31 GOCCs hold assets worth $323 billion, representing half of GDP,” the report stated.

The country can also tap its less tangible assets. Funding could come from the monetization of resource exploration rights, or the utilization of assets in telecommunication.

“Any legislation for the new SWF should disclose how it will ‘ring fence,’ or protect, the funding, both to minimize the risk of political conflict of interest and to allow flexibility for the inclusion of new revenue resources,” the report cautioned.

EXPLAINER: Will a sovereign wealth fund work for the Philippines?

EXPLAINER: Will a sovereign wealth fund work for the Philippines?
‘Many good reasons’ for SWF

The report, released on Monday, January 30, found that sovereign wealth funds have helped developing economies reach national development milestones, and that the Philippines could similarly benefit – as long as structure and guidance are in place.

“A sovereign wealth fund could serve as a long-term investment vehicle and attract foreign investment, thus boosting national savings and promoting economic growth and social development,” the report stated.

Sovereign wealth funds can come with different goals. For instance, countries such as Kuwait and Norway created their funds as a way to use their revenues from commodity exports. But many countries, including China, South Korea, Australia, New Zealand, and India, all have non-commodity funds.

For this reason, the Milken Institute does not see having a strong commodity export as a requirement for a country to launch a sovereign wealth fund.

“The Philippines may have many good reasons for launching a sovereign wealth fund. Even without natural resource revenue, foreign reserves have risen steadily over the past five years to a record high of $108 billion in 2021,” the think tank said.

The report said that the Philippines could use a SWF to attract foreign direct investment, which would help the government raise infrastructure development funds other than debt and taxes. It also suggested that a SWF could boost the investment options of the SSS and GSIS.

“A new SWF could also help fund existing government-controlled programs, serving as a foreign investment vehicle to the Social Security System and the Government Service Insurance System,” the report said.

Other recommendations

The Milken Institute focused its recommendations on three “crucial areas of concern”: purpose and funding, governance and operations, and investment and performance management. 

Aside from obtaining realistic funding, the Milken Institute also advised the government to set a clear objective for the fund, which would stand independently from political agendas. The government must expressly declare whether the fund would be for monetary and fiscal stabilization, for diversification of revenue streams, or for the achievement of sustainable development goals.

“Coordination between the fund and other government agencies outlined in the current bill could accelerate industry investment, but the fund’s structure must allow for independence from shifting political agendas,” it said.

Any proposed sovereign wealth fund should also have operational accountability and good governance, the Milken Institute advised. To aid in this, the government could appoint independent experts to oversee the funds to ensure political neutrality. 

The report cited the delegation of duties and systems of the Norwegian Government Pension Fund – among the world’s largest and most transparent SWFs – as a good example to follow.

The Department of Finance welcomed the findings of the Milken Institute, saying it “highlighted the value proposition of the Maharlika Investment Fund for both the investors and the country.” 

The Senate will be holding a public hearing on the proposed MIF on Wednesday, February 1. Senate President Juan Miguel Zubiri estimated that the bill may be passed after the Holy Week break. –

FAST FACTS: What is the Maharlika Investment Fund?

FAST FACTS: What is the Maharlika Investment Fund?

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