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BSP chief raises issues of governance, independence over Maharlika fund

Bangko Sentral ng Pilipinas Gov. Felipe Medalla has expressed reservations over the proposed Maharlika Investment Fund, a sovereign wealth fund measure being pushed by President Ferdinand "Bongbong" Marcos Jr.'s allies in Congress.

In an interview with Bloomberg TV, Medalla raised the issue of governance and the potential impact the fund would have on the BSP's dollar reserves.

Asked what he thought were the pros and cons of the Maharlika fund, Medalla said, "To me the experience of 1MDB Malaysia is the biggest risk, right?"

"Even if the current guys are okay, will the guys five years from now will still be okay? To me, it’s a governance issue," Medalla said.

Malaysia’s sovereign wealth fund 1Malaysia Development Berhad (1MDB), set up in 2009, was mired in a multi-billion dollar graft scandal with former prime minister Najib Razak sentenced to a 12-year jail time.

Medalla also raised the issue of how the proposed fund would affect the independence of the country's central banks.

"If they say we will take the central bank’s dollars, then what will you use now if your reserves are reduced because they’ve been taken for the wealth fund?" Medalla said.

"We will have less ammunition the next time there is international volatility that was related to the peso and the dollar," he added.

Medalla said that on a personal level, he was against investing foreign reserves into the fund.

"Will the BSP be willing to invest some of its foreign reserves into the fund? My personal view is unless we are compelled we should not," Medalla said.

"But I’m a law-abiding person. If the law says we will, we will," he added.

The House Committee on Banks and Financial Intermediaries approved House Bill 6398, whose authors include Speaker Martin Romualdez, via a voice vote two days after it was filed.

The bill aims to maximize investible state assets for improvement of social services. Under it, the MIF will get allocations from the following government financial institutions (GFIs):

  • P125 billion from Government Service Insurance System
  • P50 billion from Social Security System
  • P50 billion from Land Bank of the Philippines
  • P25 billion from the Development Bank of the Philippines and
  • P25 billion from the National Treasury

The bill also mandates BSP and Philippine Amusement and Gaming Corporation, among other government instrumentalities, to pitch in to the MIF.

One of the authors of the bill, House ways and means panel chairperson Joey Salceda of Albay, assured that Medalla should not be worried because BSP has a strong regulatory authority.

“The BSP has more powers over this fund than Malaysia's monetary authorities had over 1MDB. The BSP can sanction both the GFIs and the [Maharlika Investment] Fund itself, and even order the unwinding of the involved financial institutions themselves as the BSP's Supervisory Enforcement Policy allows,” Salceda said in a statement.

Salceda then said that the Malaysian central bank warned the Central Government about the risks 1MDB was taking as early as 2014 but couldn't do much on its own.

“In sharp contrast, the BSP does not need to warn the government. The BSP can conduct enforcement action on its own,” Salceda added.

In addition, Salceda said he is also open to an amendment that spells out that the Fund will remain a BSP-Supervised Financial Institution (BSFI) to ensure that BSP oversight will continue to apply.

Salceda also said that the bill also several layers of governance checks, audits, risk management, and accountability mechanisms to prevent a 1MDB scenario.

“Governor Medalla's proposals and suggestions are welcome because robust discussion is needed for a proposal of such importance. And, of course, the independence of the Central Bank's operations must be respected,” he added.

Think tank IBON Foundation, which has called for a wealth tax to fund government services, warned that the only a few will control billions of pesos under the Maharlika fund.

"If the government really were so serious to raise revenues, a billionaire wealth tax or windfall real estate land value tax on just the few thousand richest Filipinos and few hundred largest firms are much more logical alternatives," IBON executive director Sonny Africa said in a statement. —with reports from Llanesca T. Panti and Ted Cordero/NB, GMA Integrated News