Funding Maharlika ‘weakens’ BSP — economist
‘Funding the Maharlika Investment Fund should not come freely from GFIs or the Central Bank because it will put our banking system at risk, and we need a strong BSP in an era of economic and geopolitical uncertainty’
An economic expert said that the Maharlika Investment Fund would be acceptable if the seed money did not originate from the Bangko Sentral ng Pilipinas and government financial institutions.
During the Senate committee hearing on banks, financial institutions, and currencies deliberations., Foundation for Economic Freedom president Calixto Chikiamco underscored that supporting the sovereign fund weakens and undermines the BSP.
"First of all, the funding should not come freely from the GFIs or the Central Bank because it will put our banking system at risk," Chikiamco said.
Chikiamco added that the government might provide the MIF with its initial capital, "and then there will be co-investment" from multilateral and foreign investors.
BSP is 'deteriorating'
He also mentioned that the BSP is "deteriorating." and has a capitalization of P145 billion as of December 2019.
"We need a strong BSP in an era of economic and geopolitical uncertainty. Hindi po natin alam maaring magkaroon na naman ng giyera between NATO and Russia, magka-invasion of Taiwan (We do not know that there may be another war between NATO and Russia, an invasion of Taiwan)," Chikiamco said.
"A number of political uncertainty loom over the horizon at kailangan malakas ang ating Bangko Sentral at dapat makalas ang capital (and we need a strong Central Bank with a strong capital)," he added.
Although maintaining the peso's stability is part of the BSP's mandate, Chikiamco said supporting the MIF might "undermine" the institution because it would require it to concentrate on income production.
He added that occasionally the BSP loses money when conducting trades.
The seed capital will be provided in the amount of P50 billion by the Landbank and P25 billion by the DBP, according to the Senate version of the MIF bill.
The FEF, however, mentioned that the figures — 25 and 33 percent of the capital of the Landbank and the DBP, respectively — might violate the prudential standards concerning a single investment.
Unclear
Also needs to be clarified under the statute is whether the federal government guaranteed these monies. The group warned that if these monies were ever guaranteed, there might be hazards.
During the same Senate Hearing, BSP admitted that the implementation of a 2018 law increasing the capitalization of the central bank from P50 billion to P200 billion might be delayed if the current version of the laws establishing the Maharlika Investment Fund is passed.
"It will take longer for us to reach P200 billion," BSP Deputy Governor Francisco Dakila Jr. said.
If Congress does not approve the Maharlika fund, Dakila said BSP would take much time to attain P200 billion in capitalization.
Half the time
But he mentioned that it would "take half the time" if the Maharlika fund does not pass Congress because of the BSP's better balance sheet.
Sherwin Gatchalian highlighted that the BSP's capitalization has remained relatively high.
He also drew attention to the BSP's apparent change of heart over the necessity of raising its capitalization, which it had previously advocated for as early as 2016 to stay up with the economic growth rate.
"The capitalization [is] still P60 billion," Gatchalian said, noting Dakila's own admission earlier in the hearing about the BSP's current capitalization. "The target's still P200 billion. So where's the improvement there?"