[B-SIDE Podcast] More red flags raised by the Maharlika Investment Fund

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The current version of House Bill (HB) No. 6608, or the bill seeking to establish the Maharlika Investment Fund (MIF), still raises red flags, says Enrico P. Villanueva, a chief risk consultant and a senior lecturer of economics at the University of the Philippines Los Baños. 

In this B-Side episode, he tells BusinessWorld reporter Keisha B. Ta-asan that the MIF will weaken the Bangko Sentral ng Pilipinas (BSP) and other government banks.  

“BSP is not supposed to dabble in private enterprises … BSP cannot invest in development financing,” Mr. Villanueva says, adding that the MIF resurrects the ghost of what happened to the previous Central Bank, which had to be dissolved after being bankrupted. “Haven’t we learned from the experience?” 


The goal of the Maharlika Investment Fund remains unclear. 

Although the bill establishing the MIF was approved last month on the third and final reading at the House of Representatives, the initiatives to be funded by the fund remain unclear.  

“Is it better financial returns? Is it for development? If it’s for development, we have alternative ways to finance development projects. We don’t know what is really the goal, and that is quite a flag for me as a risk manager,” Mr. Villanueva said, adding that it should be thoroughly scrutinized since it involves the use of public funds. 

 The MIF will weaken government banks.  

To recall, the initial version of the bill included the Government Service Insurance System (GSIS) and Social Security System (SSS) among government banks and corporations that would contribute money to raise the P275 billion venture capital for the fund.  

But following criticism and public pressure, proponents took out the pension funds. The MIF will now be funded by resources from the Landbank of the Philippines, the Development Bank of the Philippines, and the dividends/profits of the Bangko Sentral ng Pilipinas (BSP).  

According to Mr. Villanueva, if government banks are forced to contribute to the fund and shoulder at least P50 billion from their capital, their capital adequacy risk ratio might drop below the prudential ratio.   

“DBP will fall below 10% and the capital adequacy ratio would be the single most important indicator of bank strength. So, if you have a bank which will go below that, it would be dangerous,” Mr. Villanueva said.   

“Here, we are subjecting this forced contribution from the government banks and in the process, we’re making them weaker. We should make these banks stronger, not weaker,” he added.   

He also noted that the money extracted from government banks could instead be used to fund projects related to agriculture, rural development, and small and medium enterprises. 

“[These are] proven models for development financing, and yet you’re taking away money from these proven modes of development financing into an unproven Maharlika Investment Fund,” Mr. Villanueva said.   

“We don’t even know if it would actually pursue development the way it said it would be. So that’s a big question mark,” he added.   

Tinkering with the BSP brings back bad memories. 

Mr. Villanueva recounted that when former President Ferdinand E. Marcos, Sr., left the country in 1986, the old central bank was bankrupt and loaded with debt.  

When the old central bank was replaced with the BSP, restrictions were instituted in its charter to strengthen its independence. 

“BSP is not supposed to dabble in private enterprises … BSP cannot invest in development financing. That’s how we kind of learn from the old central bank experience,” Mr. Villanueva said.  

“That’s why, when there was this talk about getting the reserves or asking the BSP to contribute, that’s a red flag again because that’s a violation in the charter,” he said.  

“Haven’t we learned from the experience? This is not just cited by local journalists and researchers. Even abroad, this is recognized. That the central bank was bankrupted and it was doing things beyond its monetary mandate,” he added.   

While the current version of the bill promises not to touch the country’s dollar reserves, it still raises red flags, he said.  

Mr. Villanueva recommends additional safeguards such as revamping management to make it more transparent and ensuring that corporate watchdogs are able to carry out their mandate.    

Recorded remotely in December 2022. Produced by Joseph Emmanuel L. Garcia and Sam L. Marcelo.