Transcript of Senator Risa Hontiveros' questions during the Senate hearing on the Maharlika Investment Fund
February 01, 2023

Senator Risa Hontiveros (SRH) : Magandang umaga Mr. Chair, at magandang umaga sa ating lahat. Mr. Chair, for my first question, I would like to share what a former president of a bank shared this with me recently: Sabi niya, "The Philippines has a high level of debt to finance government programs and no new sources of funds have come into consideration since the MIF discussions started. And because instead of paying debt, we are putting up an SWF, in effect, PH is borrowing the money for the SWF. We should perhaps call it the 'Sovereign Liability Fund' as it is effectively funded by liabilities. There is also no assurance that the cost of borrowing will be lower than the yield to be generated by the SWF."

Mali po ba itong two-part statement Mr. Chair na there are no new sources of funds that have come into consideration at that we will therefore be funding the Maharlika Investment Fund with even more debt and thus deviating from the administration's plan of bringing down the debt to GDP ratio from 63% to just a little over 50% by 2028.

National Treasurer Rosario de Leon: Kanina po binanggit ni Sen. Mark Villar about the difference between debt and equity. So isapo nga, we are looking into this fund to be able to attract more equity because then investors will have long term placements doon sa fund, and at the same time, share in the risk of the fund.

So yun po nakikita natin and again I would cite the example na nangyari po sa other sovereign wealth funds na they were able to generate po investments into the undertakings of the particular infrastructure projects nung pong kanilang mga sovereign wealth funds na ito. So given that there would now be more funding in the form of equity na papasok, then it can be able to complement some of our infrastructure investments, and ultimately mababawasan na po yung fiscal pressure in the part of the budget because of some of these activities can later be taken up by the fund itself together with the investments from off-shore and even the domestic investors like our mga infrastructure funds locally as well.

SRH: Pero at this point in time, wala pa yung mga new sources na iyon. Iaattract pa lang po natin through co-investment.

Treasurer de Leon: Wala pa po tayong legislation so I think when we were discussing this they were also very eager but they want to see the concept, how to be able to invest in the fund because they scheme the structure is not yet there. But of course they are aware about the draft legislation, but this enthusiasm on their part na to be able to see how this would evolve and how later on the opening where they can also participate.

SRH: Yung pag tinayo yung Maharlika Fund under the current terms as reflected in the bill ano po yung magiging epekto noon ng ambisyon ng gobyerno na ibaba yung debt to GDP ratio natin? Ano po yung projection niyo doon?

Treasurer de Leon: I think right now wala po yung confirmed projection but we see na mas mapapababa po natin yung ating mga debt metrics if we have already the fund because yun nga po mababawasan po yung need for us to be able to borrow because some of these can already in the infrastructure projects, mga development projects that we have can already be funded by these co-investments by the Fund and other global investors who would be participating in the MIF.

SRH: Sabi niyo nga po mababawasan yung need natin to take out more debts and take on more loans, pero sa ngayon, yun yung sitwasyon natin sa bisperas nung pagpapanganak ng Maharlika Fund we are in a situation where we will need to take out more debts. Tama po ba yun?

Treasurer de Leon: Yes because we are, alam niyo po yung medium, but we have the medium term fiscal framework na we saw na we will see the trajectory of our debt will be coming down. Had it not been for the pandemic naka 39.6 % na po tayo ng debt to GDP nung 2019 and at the same time kasi what's a more viable measure ngayon is the general government debt to GDP hindi lang po national government because other parts of the government are also operating on a surplus. So yung mga korporasyon, mga local governments, when you look at that mas mababa po yung pong general government debt to GDP than the NG debt to GDP.

SRH: Speaking of the MTFF, nung kahit nung tinalakay namin yung medium term fiscal framework dito, wala pa doon yung Maharlika Fund di po ba? Hindi naman siya nabanggit doon, hindi po nabanggit sa inaugural address kahit sa unang SONA, wala pa po siya sa ambisyon 2040 tama po ba?

ASec. Bernabe: Hindi pa po siya kasama sa MTFF program, pero ang contemplation namin just to add sa sinabi ni treasurer on potentially lowering the debt metrics. We contemplate po on the crafting of the bill as this one as non-tax revenues. Meaning if ever it becomes successful it would provide additional coffers, additional funds to the national government.

For example po in one of the TWGs in Congress and I'd like to address the additional concerns or question po ni Sen. Gatchalian, in case this is all counter-factual MIF has the capability to invest in all roads, for example NLEX when they built on all roads in 2005 it was about 54 billion, of course inflation going back assuming po the MIF with 75 billion invested part of its money to be the one commercially involved in the toll road and management and collection of fees, by 2021 that NLEX revenues is around 5.9 billion, in assuming we are only the owner, and NLEX paid taxes of around 900 million plus, it assumes for example 1 billion na lang po rounded off.

So together in the current structure of the bill since exempted siya, the government loses 1 billion pesos of taxes but participates in the upside of 5.9 billion. We assume na we participate in the co-ownership or joint venture of that establishment that would translate to around 16 million pesos a day, that's just dividing the 5.9 billion annual revenues 2021 divided by 365, that's around 16 million income of the MIF which the MIF can translate to dividends to the national government and yun po ang intention was to at least participate commercially to the potential upside of any commercial business but at least developmental po. I mean, all roads, railway systems and roads highways and the like.

SRH: Backtrack lang ako ng konti, before we get to that point, at mukhang top of mind sa inyo yung INA bilang isa sa mga best practices model sa ating neighborhood, siyempre bago sila nakarating din sa ganyang klaseng situation let's just go back to the beginning. Meron nga po gaya po ng nabanggit kanina, meron po silang handang portfolio ng mga already earning na mga proyekto particularly sa petroleum, sa minerals, pang attract talaga sa mga co-investors.

Actually, Mr. Chair, itatanong ko sana ito sa huling tanong ko pero dahil napaguusapan na rin, meron ba tayong ganyang portfolio of investment ready already earning projects, at kung wala pa paano igegenerate ito, paano madedevelop ng Maharlika Fund?

Asec. Bernabe: In the contemplation po in crafting the bill, in the discussion we recognized that the national government is in deficit, but some of the GOCCs have so called surplus. Meaning investable funds like the Landbank and DBP po. You are correct that do not have natural resources in surplus but in the plan of the secretary of Finance we plan to at least fully develop ating mining industries, extractive industries which right now at least contribute less than 1% of GDP. If it at least robustly develop in such a way that it contributes to the coffers of the national government that would be a source of potential upside na windfall that could contribute potentially to the fund.

SRH: Pero at this point in time nga po wala pa po tayong ganyang portfolio tulad ng Indonesia noong simula ng kanilang pag-attract ng co-investments? So ang pangattract pa lang natin sa ngayon sa Maharlika ay yung comparatively mas maliit na initial funds.

Bernabe: Opo.

SRH: Since napagusapan na rin ang NLEX kanina, bakit kailangan pang dumaan sa isang Maharlika Fund? Ang DBP ba, ang Landbank ba, ang mga bangko ba hindi pwedeng diretsong maginvest sa isang NLEX? Is that in the realm of the possible?

DBP VP Ogy Mantaring: Your Honor, DBP is constrained in terms of the investments that it can make because of certain regulation. But with the existence of the fund, there is an opportunity for the DBP to be involved in the investment of some instruments or some equities of projects that it might not be able to because of its mandate or its limitations.

SRH: Mr. Chair, our awaited Secretary has arrived.. Magandang umaga po Sec. Diokno. Ang Land Bank ba posible na makapaginvest directly sa isang proyekto tulad ng NLEX na hindi na kailangan dumaan sa Maharlika Fund?

Land Bank Pres. Cecilia Borromeo: Short answer your Honor is yes, we can but of course subject to regulatory provisions, review of our regulator, basically the BSP.

SRH: Salamat po Ma'am, and in the case of DBP, posible din na through proper means, tanggalin ung legal constraint. Ano ano po ba exactly yung legal constraint na iyon?

DBP VP Ogy Mantaring: Our mandate kasi po is with respect to the particular sectors that we should be focused on, but yes your honor, we can also invest also in those things.

SRH: Salamat po. Without necessarily going through such a creature such as the Maharlika Fund. That was my first question, moving on to my next:

After his meeting in Davos sinabi ni Presidente na the Investment Fund will not be like a bank that will accumulate fund, and after which the board of directors will decide on how the fund will be used. Instead, sabi ni Presidente, capital will be mobilized by the fund every time there is a viable investment that will require its support. Nasurpresa talaga akong marinig yung ganito ideya, Mr. President. Kasi sa akin, simpleng ibig sabihi, we could altogether avoid creating a new entity na nagaauthorize ng financial support sa mga strategic projects. Instead the entity that will decide to provide the financial support for a project being considered, DBP man yan, Land Bank man yan, ibang entity pa ng government natin, pwedeng simpleng gamitin yung existing rules niya to authorize investments and expenditures.

Kung yung entity naman ay sabihin nating NEDA Board, pwede naman siyang magauthorize ng funding support halimbawa para sa cold storage facilities halimbawa para sa sibuyas, para yung private sector din maenganyo to part with its own capital at maginvest sa cold storage facilities halimbawa sa Nueva Ecija at Mindoro. Kami naman sa Kongreso pwede naman magproceed sa karaniwang proseso namin ng pagrelease ng funds, kahit na sa mga project na may multi-year cash release yung commitment.

So pwede po ba, Mr. Chair, na malaman yung pagiisip ni Finance Secretary dito? DBM Sec. Diokno. Yes Your Honor. The purpose of the fund is to widen the options available to the government. You're right, we can borrow money from the World Bank, borrow money from the ADB, that will be appropriated in the General Appropriations Act, (unclear) the banks can also invest, subject to some restrictions, say single borrowers limit, allowable investments per particular sector, say housing, etc. etc. So GSIS can do the same thing, SSS can do the same thing.

But when you look at a fund like this, we are thinking of funding huge or large infrastructure projects, for example, you want to build a subway, instead of borrowing money for example, from Japan, which we will pay money for, we can use this fund to invest in this particular undertaking. So you just widen the whole options available to government, your Honor.

SRH: But again, pwede naman natin i-wide na lang yung options nung existing financial institutions natin...

Sec. Diokno: Ang problem your Honor for example yung international airport ng Bicol, inabot po ng 10 years yun kasi chipi-chipi lang yung allocation. When you allocate money, say, 200 million this year, 200 million that year, masyadong pong matagal bago matapos yung project. So nawawalan po yung value ng project na dapat naderive niyo na agad, if you can construct that within 3 years versus 10 years, malaki po ang difference ng benefit po noon.

SRH: Kapag po ba Maharlika Fund, mas mabilis pong mapapatupad yung mga big ticket projects. Eh nabanggit po yung subway kanina doon sa pagtatanong ni Sen. Gatchalian sinabi nga na maliit yung Maharlika Fund amount kumpara sa ongoing big ticket projects natin tulad nga po ng subway ngayon. Mas mabilis po ba talaga kung Maharlika Fund ang gagawa nito?

Sec. Diokno: Sa tingin ko po kung dedicated ang Maharlika Fund for huge projects na ganoon, mas madali pong magagawa kasi for example nagaallocate ng halimbawa 1 billion for this project, pag dating sa Congress, kinucut ng Congress, nadidisrupt ang mga right of way na dapat nabili na ng ano, kinu-cut ng Congress eh hindi na magagawa agad. So mga big ticket project nagtatagal there's a subject, hindi nagkoconcentrate sa objective to have it constructed as soon as possible so that you can derive the benefit as soon as possible.

SRH: Kami na nagtatrabaho sa Kongreso, lalo na kaming hindi kumbinsido sa Maharlika Fund, we can hear this as a challenge, yung mas timely action sa pamamagitan ng GAA at iba pang legislative support sa parte po namin na mas gusto tignan ang alternative means of funding important government projects bukod dito sa Maharlika Fund.

Yung isang argumento na ginagamit ng mga proponents ng measure na ito na magiinduce ito ng co-financing ng infrastructure projects. With a view to clarifying further the role that MIF financing is intended to play sa pag-induce pareho ng foreign at domestic funding para mag co-finance nitong infrastructure projects, may I ask a a resource person from NEDA PPP Center or from the DoE or the other infrastructure agencies? For the record, i-describe sana yung present modes by which ideas, halimbawa para sa renewable energy na binanggit ni National Treasurer kanina, paano itong mga ideya sa RE ay brought through the project identification at approval pipeline at kung papaano ginagawang less risky via government promises to bear project risks or via government co-finance.

And lastly, kung paano napapackage itong mga proyekto halimbawa nga mga RE projects sa mga special purpose vehicles o SPVs para magattract ng parehong foreign at domestic equity at bank financing.

And lastly, para sa PPP center, kahit submit na lang na lang in writing through the Chair, idescribe nila yung institutional innovations if any halimbawa via describing the limitation of those modes yung unang binanggit ko, citing specific projects na presently nasa pipeline pero dumadanas ng delays atska paano itong pinpresent yung project identification, co-financing atska leading packaging modes paano ito maalter sa pagintroduce ng Maharlika funding modality.

So anong present constraints ang maaaddress ng Maharlika investment support na hindi kayang iaddress ng present mechanisms? Lastly, kung DBP ang pagpprovide ng cash flow support sa irrigation or potable water concession projects iniisip ko po kasi as it already does now, simply, pwedeng gamitin ng DBP yung GAA fund releases atska future cash flow mula sa operation ng water facilities bilang collateral. VP Mantaring, any thoughts about that? DBP atska yung in relation sa irrigation at potable water projects.

DBP VP Ogy Mantaring: We do have programs po on water.

SRH: Mayroon bang value added sa isang Maharlika Fund? Sa kasalukuyang nagagawa niyo na providing support for irrigation and water projects.

VPM: The demand I believe is still a lot and there is still a lot of development that can happen as far as that's concerned. And can that development take place insistutionally within DBP or essential ba ang isang Maharlika Fund para maexpand niyo yung capacity niyo? VPM: It can go both ways po but with the Maharlika Fund there will be more that can go around. Because we are also constrained by our lending capacity because of our capitalization. SRH: Salamat po, VP and USec. de Leon. Let me now go straight to Article 11, kasi ito yung isang article natin that really jumps out to me the most. Yung penal provision, ridiculously napakababa considering na yung Maharlika Investment Fund magha-handle ng billions of pesos. Ni walang forfeiture of ill-gotten wealth in favor of government, walang perpetual disqualification from public office for offenses committed by government officials na bahagi ng MIC board. Likewise, walang provision sa event na yung funds invested ay gamitin sa money laundeing.

Halimbawa po, sa graft and corrupt practices - ang isang korporasyon na magaappoint ng intermediary na mag-eengage pala sa graft and corrupt practices maffine lang siya sa P100,000 to P1,000,000\. Isang director or officer na magto-tolerate ng ganyang graft and corrupt practices mapepenalize ng P500,000 hanggang P1,000,000.

Kabaliktad niyan, sa Plunder Act enacted in 1991 amended in 1993, ito po tungkol sa pag-amass ng ill-gotten wealth sa aggregate amount ng P50 million pesos, punishable ng reclusion perpetua (20 to 40 years), forfeiture of ill-gotten wealth in favor of government, and perpetual disqualification from public office.

Bakit po napakababa ng proposed penalties dito sa napakalaking ipinapangarap ng Maharlika Fund?

Sec. Diokno: That's why we have to go through this process. If you want to propose amendments to the House version, it's going to be up to you and legislators to impose a higher penalty if you feel a higher penalty is called for. SRH: Salamat, Sec. Of course we are looking at that considering the Senate bill. 2:35:24 To pursue some of the points raised earlier by Sen. Escudero, Section 19 provides for the composition of the 15-member board. Tapos independent directors shall be chosen by the advisory body. Siyempre the board should always ensure na meron siyang appropriate mix of competences and expertise siya so who could please clarify kung sino itong 6 regular members representing contributors to the fund kasi per Section 11, the fund's initial capitlization shall be sourced from Landbank and DBP with subsequent annual contributions from BSP, Pagcor, and other gaming corporations.

SRH: So given this, sino pa yung magbubuo ng 6 Regular members ng board ng MIC? The independent directors will be chosen by the board of Advisers. I think eventually they should be appointed by the President.Yes pero iba pa po yung 5 independent directors. Yung po muna 6 regular members kasi sa ngayon nakapangalan, DBP Landbank, sino pa po yung 4?

SD: Depende po yun sa contribution ng financial institution doon sa capital ng fund.

Comm. Atty Mortel: Along that question your Honor, Sec. 30 of the proposed bill provided that the regular directors will not be exempted from the coverage of the GCG and therefore by virtue of that they will be subjected by the fit and proper rule under Sec. 15 of RA 10149 and therefore it addresses the question that they will pass the scrutiny of GCG as far as their integrity, incompetence and other requisites for the GCG for them to qualify to become a regular director.

SRH: Of course standing pa rin ang concerns na initially ni-raise ni Sen. Escudero, sinu-sino ba ang mga ito, at talagang magiging proportional ba ang representation nila sa board sa magnitude ng contribution nila doon sa Maharlika Fund. And further, ano yung significance ng pagkakaroon ng 15 member board. Kailangan ba talaga ng board ng 15 members para sapat at efficiently magawa ang functions niya? Again, turning to the INA na isang best practices model apparently sa ating region, sila nga 5 individuals lang ang board nila as of 2021 at notably, walang miyembro ng board ng INA ay galing sa public sector. Ni concurrently nagsserve sa executive position sa isang GFI nila or isang GOCC. Samantala, ang 5 member advisory board nila ng INA, may dalawang government reps, at 3 independent members from the private sector. So kailangan talaga triple ang bilang ng board natin?

The original executive departments was 7\. So yung House po ang nagdagdag to 15\. So again, that is subject to your discussion. Kaya po ang magdedesisyon kung 7 15 13, kayo po ang magdedesisyon niyan. Well noted. Importante din sa amin malaman ang history ng evolution ng bill concept nung fund na ito. Doon po sa, it was a very helpful material provided to us that night of the briefing ng executive, yung isang material, yung 2023 study ng Milken Institute, "Best Practices of Sovereign Wealth Funds: The Case for the Philippines", doon po hinighlit na "research shows that political influence in board activities and management can worsen financial performance".

Considering this, paano yung independence ng board masisiguro para maiwasan ang korupsyon, maiwasan ang politically driven investments kung yung Chair, nothing personal, this is institutional, ay yung ating Secretary of Finance, isang cabinet secretary na kumikilos bilang alter ego ng Presidente, at kung ang BSP ay regular member din, notable kasi at least dito sa Pilipinas ang BSP governor ay chair ng anti-money laundering council, at yung AMLA secretariat ay composed ng full time permanent employees ng Bangko Sentral. So paano nococontemplate ngayon pa lang yung pagsiguro ng indepence ng board given these circumstances. I think ang independence po ng board ay they will serve fixed tenure, hindi pwedeng tanggalin basta basta. They will not be subject to confirmation by the commission on appointments. No. 3, yung budget po nila ay di po dadaan sa Kongreso.

Considering na intensyon natin sa Pilipinas ay makuha yung best practices ng sovereign wealth fund sa ibang mga jurisdictions, lalo na sa unang una sa loob ng ating ASEAN region, pwede po bang magrequest ng kopya nung charters ng Indonesia - Indonesia Investment Authority, Temasek Holdings Limited at GIC Private Limited ng Singapore, at pati yung Khazanah Nasional Berhad Board ng Malaysia. Baka pwede makahinigi rin sana ng kopya nung charter nung insolvent na ngayong ng Malaysia na 1MDB para lang maiwasan if ever yung Maharlika ay gamitin bilang vehikulo para gawin ang plunder at money laundering.

Sec. Diokno: We will provide this documents your Honor.

SRH: Maikling motion. Mr. Chair, I think this hearing benefits from hearing all voices around the table. Respectfully, nagmmotion ako sa komite sa pamamagitin ng Chair na magimbita ng mga representante sa Foundation for Economic Freedom, the Management Association of the Philippines atska UP Alumni Association na maging resource persons sa ating komite.

In a joint private letter sa opisina ko pinirmahan ni Mr. Calixto Chikiamko, Atty Benedicta Di-Baladad, at Ms. Mia Angela Alentajan, sinuma nila ang kanilang posisyon at nag-express sila ng kanilang interes na ipaliwanag ito dito sa ating mga Senate hearings. And lastly to summarize their position, sabi po nila sa sulat:

"The MIF is highly questionable as a strategy to achieve the government's stated objectives. This is due to the fundamental flaw that funding of the MIF will not come from significant surpluses from commodity earnings or government operating results. Instead, the funding will be extracted from - and weaken - the BSP, GFIs, and other GOCCs. Weakening the BSP will reduce its ability to fulfill its primary purposes, and relying on the BSP's dividends will engender systemic risks. Giving the GFIs a statutory guarantee for its lendings to the MIF will open the sizeable liquidity of the LBP and the DBP. However, it creates no incentive for diligence, since the risk is passed as a contingent liability entirely to the NG."

At sa ganitong dahilang Mr. Chair, I respectfully move that the committee invite those three additional resource persons. I so move, Mr. Chair.