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Sovereign-wealth fund to speed up government programs


The rationale for a Philippine wealth fund can be found in the host of Asian and other countries that have established their own sovereign-wealth funds (SWFs) just to induce economic growth. A rise in the level of economic activity, after all, induces a ripple of benefits that range from increased income to higher government revenues, exemplified by higher tax collections.

Vietnam conceptualized its own SWF on June 20, 2005, after its own reserve level rose. It started its own fund in August of the     following year and called it the Vietnam State Capital Investment Corp. (SCIC).

SCIC’s primary objectives are to facilitate reforms of state-owned enterprises and improve efficiency of the state capital utilization.  It was mandated to represent state capital interest in various types of business areas, including financial services, energy, manufacturing, telecoms, construction, transportation, consumer products, health care and information technology.

It has since contributed capital to various ventures and agreed in the equitization, or the reverse of privatization, of other enterprises.

This Vietnam model can serve as the Philippines’s own as the Aquino administration puts up a buffer fund that would contribute to the pursuit of public-private partnership projects.

There is, however, a legal hurdle that the Aquino administration would have to contend with as the present Bangko Sentral ng Pilipinas (BSP) charter frowns on constituting such a wealth fund as what other sovereign nations have done.

This, though, is easy to deal with, as Mr. Aquino appears to have a firm grip on both chambers of Congress, which can then allow the BSP, through legislation, to amend its charter. The members of Congress, we are sure, would not do anything to defer the advancement of the country’s economy and what better way to show this than by approving posthaste the first hint of the BSP that it wants to change its charter to enable it to put up a sovereign-wealth fund.

The putting up of such a fund as soon as possible would be very timely. The recent signing of a framework agreement for the cause of lasting peace in Mindanao would need economic activities that could only be realized with the government having its own sovereign-wealth fund. By way of explanation, if the government has its own SWF, it need no longer suffer the consequences of agreeing to a disastrously high investment return as in the case of the MRT 3 project. That private endeavor, not too many may know, resulted in the punching of a huge hole in the government’s deficit levels as the ridership was not enough to pay for the costs of maintaining the line and assuring the 15-percent return.

The SWF acts as a buffer fund of sorts to insulate Filipinos from the consequences of lower allocations for government services, as the money intended for such, like the construction of schoolbuildings and new roads, is diverted to the MRT proponents.

Outside of Vietnam, the other Asian countries that have their own SWFs are Malaysia with its Khazana Nasional, New Zealand with its Super Annuation Fund, Singapore (Temasek Holdings), Indonesia (Government Investment Unit), China with its three SWFs, namely, the China National Security Fund, China Investment Corp. and China’s Africa Development Fund; Brunei with its Investment Agency and Australia with its Future Fund.

According to the influential Sovereign Wealth Fund Institute,  which charts the course of SWFs all over the world, there has been a shift from the “traditional reserve management to sovereign-wealth management.”

The institute said, “Many central banks possess reserves massively in excess of needs for liquidity or foreign-exchange management.”

Studies done by the BusinessMirror show that the BSP can apportion $20 billion as a start-up fund and still leave more elbow room for the monetary authority to flex its muscles in making sure that inflation does not rear its ugly head, its very reason for being.

After all, the start-up fund amounts to just a little over a year of remittances from the army of talented Filipinos.

The BusinessMirror extrapolations show that the remittances had an average growth of 14.2 percent in the last six years owing to a diversity of skills and destinations. In 2010 the record high of $18.8 billion in remittances accounted for 10 percent of the country’s gross domestic product. 

With a Philippine wealth fund, the overseas Filipino workers would be indirect participants in a government push to achieve double-digit growth. That alone would give the OFWs the added pat on the shoulder that they richly deserve.

Indeed, many bankers I talked to agree that the anti-corruption agenda of Mr. Aquino and the growth that the country is experiencing relative to the downturn in other economies, as well as the push for infrastructure projects, would have an added dimension when the Philippine wealth fund is established.





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