MANILA – Philippine President Ferdinand Marcos Jr on Tuesday signed into law the Bill creating a multibillion-peso sovereign wealth fund.

This is seen as a legislative victory for his administration, which has harped on its economic benefits despite critics warning that the fund could be abused.

Mr Marcos signed the Maharlika Investment Fund (MIF) Bill – which was primarily authored by his relatives and allies – in Congress more than a month after it was passed by lawmakers on May 31.

In his speech, he said that the MIF will provide the Philippines with seed money for key investments without acquiring more debt.

The country’s ballooning national debt stands at 13.91 trillion pesos (S$337.8 billion) as at April 2023, with the Marcos government having added one trillion pesos to the overall sum since taking office in June 2022.

“For the first time in the history of the Philippines, we now have a sovereign wealth fund designed to drive economic development,” Mr Marcos said.

“Through the fund, we will leverage with a small fraction of the considerable but underutilised investable funds of the government, and stimulate the economy without the disadvantage of additional fiscal and debt burden.”

The MIF is a pool of money with an authorised capital of 500 billion pesos that the Philippine government plans to use to invest in foreign currencies, domestic and foreign corporate bonds, commercial real estate, infrastructure and other projects.

The fund is patterned after the sovereign wealth funds of countries such as Norway and Singapore.

But instead of sourcing the seed money from the nation’s excess funds – which the Philippines does not have – the MIF will instead source funds from the national government, the state-run Land Bank of the Philippines and Development Bank of the Philippines, and declared dividends of the Central Bank.

It will be managed by a company called the Maharlika Investment Corporation (MIC), with a governing board made up of several presidential appointees.

Maharlika means “warrior class”, but it is a word largely associated with Mr Marcos’ late dictator father and namesake.

Controversy surrounds a claim by the late Mr Marcos that he led a guerilla unit called Maharlika when the Japanese invaded and occupied the Philippines from 1942 to 1945.

The initial versions of the MIF were widely criticised over a proposal to source about 175 billion pesos from pension funds of Filipinos and a provision that would have appointed President Marcos as chairman of the MIF’s governing board.

Lawmakers later removed these contentious provisions amid public backlash. Instead of the President, the MIC will be chaired by the Finance Secretary.

Despite the changes, economists like Dr JC Punongbayan of the University of the Philippines maintain that the MIF is prone to graft.

They warned that the MIF could end up becoming like the 1Malaysia Development Berhad (1MDB) state fund.

Malaysian and US investigators have said some US$4.5 billion (S$5.95 billion) was stolen from 1MDB – started during Najib Razak’s first year as Malaysia’s prime minister in 2009.

Najib is serving a 12-year prison sentence for misappropriating RM42 million (S$12.2 million) from SRC International, a former subsidiary of 1MDB. Najib faces other trials related to graft at 1MDB. 

President Marcos said on Tuesday that the MIF will be used to invest in key sectors like agriculture and infrastructure.

But Dr Punongbayan noted that MIF’s provisions lack clear goals that the sovereign wealth funds of other countries have, as the MIF aims to earn from both commercial returns and investments in local development projects.

“It is also ill-timed because of the global headwinds that we are looking at, including slower economic growth globally, persistently high inflation, as well as interest rates.

“And this will definitely affect the returns that can be had from any kind of investment that Maharlika will make in the coming years,” he said.

Noting that members of the MIF board will be appointed by Mr Marcos, Dr Punongbayan added: “That violates basic principles in establishing sovereign wealth funds – that there ought to be an independence between politicians and those who will manage the fund.”

But Mr Marcos gave assurances that the MIF would be governed by highly competent people with good track records and outstanding integrity.

“Let us make sure that these are professionals. Let us make sure that the decisions that are being made for the fund are not political decisions, that they are financial decisions – because that is what the fund is,” he said.

In a joint statement on June 13, Mr Marcos’ economic team argued that the MIF had enough safeguards to minimise risks for shareholders and fund contributors.

The economic team includes Finance Secretary Benjamin Diokno, Budget Secretary Amenah Pangandaman and Socioeconomic Planning Secretary Arsenio Balisacan.

They said the MIF adhered to the Santiago Principles, which are 24 globally accepted guidelines on the best practices in the operation of sovereign wealth funds.

A risk management committee will be created to ensure there is a prudent balance between risk and reward for the business activities of the MIF.

The economic managers also said the qualifications required for the MIF board would be strict.

Anyone with pending cases related to fraud, plunder, corruption, money laundering, tax evasion or any crimes involving misuse of money or breach of trust will be disqualified.

“The MIF is not only beneficial but also necessary at this point in time. While the Philippines can offer investment opportunities, given that we are still a growing economy, we see that the cost of debt has risen, making the need to explore vehicles to attract equity financing such as the MIF urgent,” President Marcos’ economic team said.