LEGAL RESEARCH AND WRITING

MAHARLIKA INVESTMENT FUND: A PATH TO

ECONOMIC GROWTH

OVERVIEW
The Legislative branch of the Philippines proposed for a government
program to invest in the economy of the Philippines which is House Bill No.
6608, otherwise known as the “Maharlika Investment Fund Act (MIF)”. This is a
government-owned company that will oversee and manage the fund's earnings.
The State's policy is to increase employment, promote trade and investment,
foster technological advancement, strengthen connectivity, build out
infrastructure, and achieve energy and food security. The State is aware of the
critical contribution that different financial asset investments can make to
fostering economic development, accelerating job creation, and enhancing
Filipinos' welfare. In order to maintain macroeconomic stability, the State
recognizes the importance of maintaining and maximizing the use of its
financial resources1. Critics pointed out the MIF's potential risks and
detrimental effects on our National Government Agencies, Government-Owned
and Controlled Corporations, and Government Financial Institutions, which
are the main sources of funds.

MAHARLIKA INVESTMENT FUND AND ITS SOURCES

The MIF is in charge of investing the nation's excess funds and reserves
in a range of financial assets, including foreign exchange, fixed-income
securities, domestic and international corporate bonds, commercial real estate,
and infrastructure initiatives. The MIF is also permitted to invest in research
and development initiatives and to lend money to other organizations and
private companies.
The Economic Team further assured the public that enough safeguards
will be put in place to ensure accountability and transparency in managing the
MIF. These include abiding by the Santiago Principles of the International
Working Group of Sovereign Wealth Funds and establishing a three-layer
mechanism for checks and balances which feature internal audit, external
audit, and finally, examination and audit by the Commission on Audit.
Additionally, there will be an executive department reportorial requirement
which will be implemented together with congressional oversight. 2 It is
anticipated to significantly contribute to the Philippines' economic development
and employment creation. The fund may bring in billions of pesos annually,
which will be utilized to fund government initiatives and projects as well as
offer financial support to both individuals and companies.

1
Romualdex (F.M.), et al. (2022, November 15). Maharlika Investment Fund Act. https://hrep-
website.s3.ap-southeast-1.amazonaws.com/legisdocs/third_19/HBT6608.pdf.
2
Department of Budget and Management. (n.d.). Maharlika Wealth Fund, an investment vehicle and
economic driver - economic team. Maharlika Wealth Fund, An Investment Vehicle and Economic Driver -
Economic Team. https://www.dbm.gov.ph/index.php/secretary-s-corner/press-releases/list-of-press-
releases/2511-maharlika-wealth-fund-an-investment-vehicle-and-economic-driver-economic-team.

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In addition, it is anticipated that the MIF will assist the Philippines in

achieving its long-term economic objectives, including those aimed at lowering
poverty, enhancing healthcare and education, and fostering environmental
sustainability. The MIF is funded by the nation's surplus funds and reserves.
These funds come from a number of sources, such as taxes, customs fees, and
international aid. The MIF is also permitted to take out loans from the
government or from other institutions.
The Department of Finance is in charge of monitoring the MIF. The MIF's
management must be sound and prudent, and it must adhere to all relevant
laws and regulations, according to the Department of Finance. A significant
new project with the potential to have a positive effect on the Philippine
economy is the Maharlika Investment Fund. Moreover, the MIF is anticipated
to aid the Philippines in achieving its long-term economic objectives. 3
The Maharlika Investment Corporation (MIC) shall act as a vehicle for the
purpose of mobilizing and utilizing the MIF for investments in transactions that
will enable the Fund to reap optimal returns on investments (ROIs) while
contributing to the overall goal of reinvigorating job creation and poverty
reduction by steering the economy back to its high-growth path. The functions
of the MIC are as follows:
1. Establish a diversified portfolio of investments in the national and
international financial markets as well as other assets that advance the
fund's goals.
2. Invest in industries that are essential to the Philippine economy, such as
manufacturing, agriculture, and infrastructure.
3. Supporting small and medium-sized businesses (SMEs) will help promote
economic growth and development.
4. Provide financial support to government initiatives that promote the
development and growth of the economy.
5. Adhere to the guidelines in the Maharlika Investment Fund Act when
managing the MIF.4
The President of the Philippines appoints the members of the MIC's board of
directors. The board of directors is in charge of MIC policy and strategy
development as well as MIC compliance with the Maharlika Investment Fund
Act's regulations. Being a new institution, it is unclear how the MIC will carry
out its duties. However, the MIC has the potential to significantly contribute to
the promotion of economic development and growth in the Philippines.

The initial capitalization of the Maharlika Investment Fund (MIF) shall be

sourced as follows:

1. Land Bank of the Philippines (LBP): Fifty billion pesos (P50

billion)
2. Development Bank of the Philippines (DBP): Twenty-five billion
pesos (P25 billion)
3. Bangko Sentral ng Pilipinas (BSP): One hundred percent (100%)
of dividends to be declared based on income from the preceding

3
Ibid.
4
House Bill No. 6608, Section 10.

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year of the effectivity of the Act, as computed under Republic Act

No. 11211.

Each founding GFI may increase its investment above the

required equity contribution.

The founding GFIs shall be entitled to prudential and other

regulatory reliefs, as may be determined by the BSP, to promote
the financial soundness of these financial institutions while
contributing to the overall objective of the MIF.

Investments of contributors may be in the form of marketable

or convertible securities, and other forms, as may be determined
by the Board of Directors: Provided, That security or debt
instruments issued by the MIC to GFIs shall be guaranteed by
the NG: Provided, further, That all other instruments of MIC shall
be subject to laws, rules, and regulations on the contracting of
debt and issuance of guarantees by GFIs. Other GFIs and
government-owned or -controlled corporations may be authorized
to contribute to the MIF, subject to their respective investment
and risk management strategies. additional funding may likewise
be sourced from investments of private financial institutions and
corporations, as may be determined by the Board of Directors.

The manner of attribution of equity, such as units of

participation, due to subsequent contributions to the fund shall
be determined in the IRR of this Act.

Subsequent annual contributions to the fund shall be

provided as follows:

i. For the first and second fiscal year upon effectivity of this Act, the
BSP shall remit one hundred percent (100%) of its declared
dividends, as computed under R.A. No. 7653, as amended by R.A.
No. 11211, to the Fund. In the succeeding fiscal years, the BSP
shall remit fifty percent (50%) of its declared dividends to the
Fund and the remaining fifty percent (50%) to the NG to fund the
increase in the capitalization of BSP in accordance with Section 2
of R.A. No. 7653, as amended by R.A. No. 11211, until the
increase in the capitalization of BSP has been fully paid.
thereafter, BSP shall remit one hundred percent (100%) of its
declared dividends to the Fund.
ii. PAGCOR and other government-owned gaming operators shall
contribute at least ten percent (10%) of gross gaming revenue
streams created after the effectivity of this Act;
iii. Other sources such as royalties and/or special assessments on
natural resources based on the fiscal regime to be implemented
by the national government, proceeds from privatization of
government assets, and borrowings by the MIF.5

PROS AND CONS

The Maharlika Investment Fund Bill, also known as House Bill No. 6608,
is a proposed law that would create a sovereign wealth fund in the Philippines.
The fund would be administered by an independent entity, the Maharlika

5
House Bill No. 6608, Section 11.

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Investment Corporation (MIC), and used to invest in long-term initiatives that

would support the nation's economic growth.
There have been conflicting responses to the bill; while some experts
have praised it as an essential step to support economic growth, others have
expressed concerns about its potential for corruption and poor management.
The incomplete staff work and the speedy passage of the measure by Congress
are two of the main issues brought up by critics. The aggressive marketing of
prospective high investment returns ignores the possibility of (at least equal)
large losses. The concern is that pursuing and insisting on the idea in its
current shape, which increases Philippine financial and fiscal risks, may
negatively affect investors' perceptions of the country's sovereign risk and
obstruct efforts to consolidate the government's finances. It at least diverts
economic managers from more urgent and crucial issues that have an impact
on short to medium-term economic growth. In other countries, the sovereign
fund is only established if they have extra or surplus funds. The government’s
problem is that it has a lot of loans and a deficit where the expenses are more
than the income.
The size of the contributions from the Bangko Sentral ng Pilipinas (BSP),
Development Bank of the Philippines (DBP), and Land Bank of the Philippines
(LBP) is another issue. The amount for LBP comes close to meeting the
prudential cap for bank investments in one business at close to 25% of its net
worth. For DBP, which is less than half as large as LBP in terms of assets, P50
billion represents around two-thirds of its net worth, which is a significant
amount of risk concentrated in a single investment. BSP is the central bank of
the Philippines. If other banks in the country have problems or if there is
inflation in the economy, they will seek assistance from the BSP because the
BSP is mandated to maintain the price and financial stability in the
Philippines. Additionally, the BSP should have funds but if the dividends of it
will be allocated to the Maharlika Investment, it cannot do its mandate. Instead
of recapitalizing itself, the BSP will give its fund to the Maharlika Investment
Fund. Therefore, not only does the requirement to capitalize the MIF expose
banks to a new risk that will be challenging to manage, hurting their financial
situation, but it also raises the likelihood that additional capital calls will be
made on the national.
Here are other possible potential cons to the bill:
1. Corruption: There is a chance that the money will be used for dishonest
activities, like lining the pockets of elected officials or their allies. Strong
anti-corruption safeguards like independent oversight and transparency
requirements could be put in place to stop this.

2. Mismanagement: There is a chance that the fund will be handled

improperly, which could result in losses of tax dollars. To avoid this, the
fund's management team should be made up of people with relevant
experience and qualifications, and the assets should be invested
according to established policies and guidelines.

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However, there are possible benefits to the Maharlika Investment Fund, to

wit:
1. Growth in the economy: The fund could be used to make long-term
investments in projects like infrastructure, education, and healthcare
that would support the nation's economic growth. This might result in
more Filipinos finding work, earning more money, and living in better
conditions.

2. The fund could also be used to aid in the Philippines' efforts to

combat poverty. For instance, it could be used to finance social
programs that give the poor access to food, shelter, and education or
to lend microloans to business owners.

CONCLUSION
A significant step has been taken in the government's initiatives to
encourage economic growth and combat poverty with the passage of House Bill
No. 6608. The MIF has the capacity to significantly boost economic growth and
increase employment. The distribution of subsistence and poverty aid to
families that are below the poverty line will also contribute to eradicating
poverty and enhancing the lives of the most vulnerable Filipinos.
The MIC's capacity to make wise investments and manage the fund
sensibly will determine the MIF's success. The MIC will also need to operate
with accountability and transparency. The MIF may play a significant role in
the Philippines' economic expansion and fight against poverty if the MIC is a
success.
All things considered, House Bill No. 6608 might be a good thing for the
Philippines. Before the bill is put into effect, it's crucial to carefully weigh the
risks and take action to reduce them.

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