- Published on Monday, 29 October 2012 21:37
- Written by Lito U. Gagni / Special to the BusinessMirror
(Conclusion)
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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