Metro Manila (CNN Philippines, February 15) — An economic analyst on Wednesday warned the controversial Maharlika Investment Fund (MIF) may burden future generations with debt due to its “problematic” funding source.
The MIF will likely produce intergenerational debt, rather than intergenerational wealth,” Foundation for Economic Freedom president Calixto Chikiamco told a Senate hearing.Chikiamco said the seed funding should not come from government financial institutions (GIFs) as this could put the banking system “at risk.Under the bill, the Maharlika Investment Corp., which will manage the MIF, will get its initial capital from Landbank (₱50 billion) and the Development Bank of the Philippines (₱25 billion).He pointed out that it was “unclear” whether the investments of Landbank and DBP are guaranteed by the government.Assuming that the investments are guaranteed, Chikiamco claimed “a giant moral hazard” could be created when parties are protected from potential consequences.This would “incentivize parties to be reckless,” he warned.The move, in turn, would make the Philippines vulnerable to financial crises, Chikiamco added – citing the Asian financial crisis in 1997, when firms went heavy with foreign borrowing thinking that central banks would protect the exchange rate.It also poses “enormous fiscal and other risks,” including increased borrowing costs.Instead of increasing the funds available to the government, ang mangyari ay kabaligtaran (the opposite might happen), it may lead to increased borrowing costs for the government,” he said.However, if they are not guaranteed, tapping the Landbank and DBP could increase “systemic risk” to the sector.The reduction in the MIF’s value would translate to losses to the two banks, the expert said.It will become wobbly, the market will perceive that and create contagion and financial panic,” he said.Chikiamco also raised concern about a “huge” opportunity cost as the money that could have gone to farmers’ loans would be diverted to the investment fund.He said they do not oppose a sovereign wealth fund, but GFIs should be removed as funding sources.
