Metro Manila (CNN Philippines, June 22) — Financial returns from the planned Maharlika Investment Fund (MIF) must reap at least 10% to compensate for the foregone opportunities that resulted from diverting public funds for social welfare spending, University of the Philippines’ economists said on Wednesday.
In a forum, UP School of Economics professors reiterated their arguments against the MIF first raised in a discussion paper they released two weeks back.
But this time round, they put front and center what they described as \”vague\” computations by Congress about the expected financial and economic returns from the sovereign wealth fund that the Marcos administration is creating via a new bill recently passed by Congress.
Assistant Professor JC Punongbayan pointed out that returns from financial investments are \”different\” from economic investments.
\”Economic returns won’t be reaped anytime soon and are much more difficult to measure. But proponents keep saying that the expected returns will be 8.6% – where will this come from?\” Punongbayan said.
Reiterating the argument of retired central banker Diwa Guinigundo, Professor Emeritus Emmanuel de Dios said that dividend earnings from state-run institutions such as the Land Bank of the Philippines, the Development Bank of the Philippines, and the Philippine Amusement and Gaming Corporation form part of current government revenues that finance the national budget.
But rather than spending those revenues on social welfare like nutrition programs and building public schools, the creation of the MIF diverts these revenues into a corporation that invests it elsewhere, de Dios pointed out.
Such diversion of public funds to the Maharlika Investment Corp., and with financial yields generated only at a later time, translates to opportunity costs or the potential benefits that the Filipino people would miss out on.
\”Any diversion of earnings from the present to the future that does not yield a real rate of return of around 7% cannot be justified,\” De Dios pointed out, adding that that 7% is in real terms and yet to factor in inflation.
\”Bottomline, if funding the Maharlika fund is to be justified as coming from current revenues, the alternative use should yield a rate of return of at least 10% to 11%,\” he added.
READ: The proposed Maharlika Investment Fund: What you need to know
De Dios used richer countries as a yardstick in proffering the formula for financial returns that the MIF must yield. The argument is that the graver the foregone opportunity from the alternative use of public funds, the bigger the financial returns should be.
De Dios cited the examples of richer countries whose sovereign wealth funds are built on surpluses, noting that if a wealth fund is built on surplus, \”then it won’t have to compete with current needs\” of the public.
With public funds to be invested on infrastructure development projects but managed by a corporation run by presidential appointees, the UP economists flagged that the \”integrity of the budget process is undermined.\”
