Not a true wealth fund?
What those BSP ‘profits’ are must be adequately clarified, explained, and exactly defined to everyone’s satisfaction.
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What those BSP ‘profits’ are must be adequately clarified, explained, and exactly defined to everyone’s satisfaction.
Congress' overhyped political muscle caved into widespread stiff opposition of the real owners of pension funds to the planned Maharlika Wealth Fund.
A swift stunning victory of sorts for hard-pressed aging pensioners it was.
That's the initial political impression of the past eventful two days after MWF proponents scrapped moves to source some of MWF's P275 billion seed capital from the Social Security System and the Government Service Insurance System.
But it's more than that.
With the Lower House clearly sobering up, doubtful is the quick approval of the MWF. In fact, predictions abound the MWF proposal may already be dead in the water in the meantime despite Congress' brave front.
Such forecast is anchored on the simple fact, as I wrote in a previous column, that any sovereign wealth fund, including the MWF, must, first of all, settle tough complex questions about what exact type of underlying capital will be used to seed the fund even before it gets off the ground.
Finding out exactly what funds eventually seed the MWF will go so far as telling us if the MWF is truly an SWF as its proponents claim.
Instead of funding from state-run pension funds and the national budget, MWF co-author Stella Quimbo says profits of the Bangko Sentral ng Pilipinas would be added to the seed money provided by government banks Landbank and the Development Bank of the Philippines.
That is easier said than done, however.
For one, what those BSP "profits" are must be adequately clarified, explained, and exactly defined to everyone's satisfaction.
Nonetheless, whatever form those "profits" take it ultimately involve the country's foreign reserves.
In fact, the bill's explanatory note clearly says the MWF can be used to manage the country's foreign reserves.
Now, this means MWF proponents certainly believe this country's so far positive foreign reserve holdings are ample or adequate enough to risk some of it.
MWF critics argue otherwise. They claim that the foreign reserves we hold are probably just enough to meet any monetary turbulences arising from economic downturns now buffeting the world.
Added to this is the fact the country has no surplus revenues.
The subsequent point arising from such realities that the country really has no surplus funds is that the MWF is not a true sovereign fund. It is just masquerading as one.
Such a charge is reasonable.
By all accounts, only when a country oozes with surplus revenues can a true SWF exist.
Obviously, the country doesn't have such surplus revenues. If we did have such, then we shouldn't have a record-breaking P13.64 trillion debt.
So, harboring delusions this country is awash with investible funds is so telling of the nutty state of mind some of us have.
At any rate, there is also the point that if a government uses official currency reserves to create an SWF, then it has merely reorganized its balance sheet, experts on the creation of SWFs say.
The same applies to the monetization of non-financial assets like natural resources or government land and buildings used to create an SWF.
In short, currency reserves and the state's non-financial assets are all already part of public wealth, which in turn dispels the notion "fresh" public wealth is going to be made once an SWF is created.
So, when a government uses currency reserves to create an SWF, "all that has happened, in the first instance, is that the government has reorganized its public wealth by realizing the monetary value of those assets through their sale or exploitation."
Since such transfers are not wealth-creating, states do not automatically become richer just by creating and seeding a sovereign fund.
The MWF, therefore, is not some "get rich" scheme that can be had by a few congressional hearings, nor is it a true SWF.
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Email: nevqjr@yahoo.com.ph
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