• Reading time:10 mins read

PH sovereign fund: Marcos’ first laudable initiative

First of 3 parts

SHRUGGING off the shrill opposition to the setting up of the Maharlika Investment Fund (MIF), which would be the country’s first sovereign wealth fund (SWF), President Ferdinand Marcos Jr. said that it was his idea. No wonder his cousin Speaker Martin Romualdez is the principal author of House Bill 6389 which will mandate the setting up of the fund.

Of course Marcos didn’t pluck the idea out of thin air.

Singapore set up its first SWF, Temasek, in 1974 and another one, the Government of Singapore Investment Corp. in 1981, with assets of both estimated at $1 trillion today. Koreans set up theirs, the Korean Investment Corp. in 2005. Malaysians organized its Khazanah Nasional (in Malay, “National Treasure”) in 1993. The Socialist State of Vietnam set up its State Capital Investment Corp. In 2005, inspired by the tremendous success of its sister socialist country’s SWF, the China Investment Corp., whose assets now total $1.3 trillion — the biggest such entity in the world.

The Indonesians organized theirs, the Indonesia Investment Authority, in the midst of the global Covid-19 crisis last year. Set up initially with $5 billion assets from the Indonesian government, other funds such as those from the United Arab Emirates, Japan Bank for International Cooperation and the US International Development Finance Corp have committed to beef up its assets to $10 billion.

There are 98 SWFs from 70 countries operating in the world now, about a third from developing countries, many with no “surpluses” such as Azerbaijan, Colombia, Panama, Timor-Leste, Chile, Mongolia and even the Islamic Republic of Iran. In the midst of the Covid-19 pandemic last year, these still expanded their investments by 171 percent.* Name any continent, there are countries there with SWFs. Even in the midst of the pandemic.


Yet vociferous critics of the proposal to set up our own SWF are shrieking: We can’t, since we Filipinos are too corrupt, too incompetent, its managers will just run away with its funds, that the country is too poor to afford that, or that the spirit of Martial Law Marcos’ corruption is still in our midst.

‘Sovereign Development Funds: Key financial actors of the shifting wealth of nations,’ OECD Emerging Markets Network Working Paper. October 2008.

For chrissakes, the benefits of an SWF have long been settled, and there is a library of analysis and case studies praising it. It is astonishing that with information available through a few clicks of the keyboard, even our so-called commentators and even economists are terribly misinformed about it.

An SWF is a long accepted, now orthodox financial institution for both building up a nation’s assets for future generations and for helping develop an economy.

As an OECD paper as early as 2008 ** put it: “SWFs are, for the most part, emerging market institutions. Only 15 percent of them are from OECD and developed countries. The majority (75 percent ) are from the Middle East and Asia. They are key engines of development finance within their homelands, some very explicitly involved in national strategies of industrial diversification. This is the case of Malaysia’s Khazanah, which is actively involved in financing long-term projects and infrastructures throughout the country. The same applies for Kazyna, one of Kazakhstan’s SWFs, mandated to promote innovative industrial projects and contribute to diversification toward more value-added and employment-intensive industries.”


Only in the Philippines are there commentators who are too lazy to do some research and instead criticize an idea solely from what they had read in newspapers’ headlines. So they try to scare us by pointing to cases such as the Malaysian1MDB corruption or a few SWFs’ disastrous investments in US investment banks that went under in the financial crisis of 2008-2009. But these are exceptional cases, as there always are in any phenomenon, which do not at all prove SWFs aren’t good for us.

There has been for nearly a decade now financial and management technology for running SWFs (embodied in the Sovereign Wealth Fund Institute) and there is the so-called set of guidelines that assign best practices for the operations of SWFs, called the Santiago Principles agreed upon after several meetings by 24 IMF members in a meeting in Santiago, Chile.

The first SWF vehicles were set by oil-rich countries (such as Norway and several Mideast countries) or tiny nations that got developed quickly (like Singapore) to invest their huge government revenues in developed countries’ more profitable stock and real estate markets, and even in big corporations. These were more profitable than keeping their funds in their own small economies.

However, starting in the 1990s, governments of several developing countries set up institutions, classified as SWFs, but a bit different from the typical funds that invested their “surpluses” abroad. The International Monetary Fund and the OECD termed these as sovereign development funds.

Own countries

For whatever source of funds, such SWFs were set up to invest in their own countries, in order to take advantage of the profitability in certain natural monopolies (such as telecoms and power) or in extractive industries requiring government permission and authorization. Such SWFs also invest in industries deemed crucial to the country’s development, such as telecoms and roads. The proposed MIF can only be this kind of SWF, a sovereign development fund, although the bill as of now gives it flexibility to invest abroad as the earlier SWFs have done.

A common, but foolish argument to reject the proposal to set up the SWF for our country is that such an investment vehicle must be funded from “surpluses,” from oil, mineral and other commodity-based incomes. While many SWFs were indeed funded that way, there are a number which were funded from whatever finances a government can raise.

Indeed, even a joint statement of several business associations and the supposedly well-informed big-business ideologue, the Foundation for Economic Freedom, are fixated in the very wrong view that only countries with “surpluses” from trade or profits of state corporations have the right to set up SWFs.

While many SWFs were financed by such surpluses, it is not a necessary requirement for an SWF, as the World Bank definition of it makes clear: “A sovereign wealth fund is defined as a long-term investment fund owned by a sovereign nation, distinct from investments by national pension funds, state-owned enterprises and development banks, and distinct from central bank management of liquid official foreign exchange reserves.” ***


The Russia Direct Investment Fund was set up in 2011 through its government’s investment of $3 billion, and had attracted $30 billion in funds from both private and foreign government entities. The newest SWF, the Indonesian Investment Authority’s assets were funded through $2 billion in cash from the central government’s budget and $3 billion in the value of shares of two state-owned enterprises.

The rationale for sovereign development funds is that because of its tax and other revenues, a sovereign government can raise capital easier and bigger than any private corporation can, and can direct it to help that country’s economic development. It can also invest in profitable industries to generate funds that could be used for programs to directly help the poor or in industries (for instance in high-tech ones) that would help the economy develop as a whole.

It attracts foreign investors, especially SWFs from rich countries, because a sovereign being its investor and in charge of it (and more knowledgeable of local conditions) means less risk and higher profitability.

Reading House Bill 6389 closely (and skipping its introductory note that misleads one that all SWFs use only “surplus funds”) — the MIF is such a development fund. The newly created Indonesian Investment Authority, the Malaysians’ Khazanah Nasional and Vietnam’s State Capital Fund are such sovereign development funds.

Why are we so afraid to try out doing what a hundred nations, including developing nations poorer than us, have done, and very successfully?

On Monday: Who’s afraid of state capitalism?

*Sovereign Wealth Funds triple their investments to 450 in 2021,” Sept. 3, 2022, IE University Report

** “Sovereign Development Funds: Key financial actors of the shifting wealth of nations,” OECD Emerging Markets Network Working Paper. October 2008.

***Sovereign Wealth Funds in East Asia,” June 30, 2008, Poverty Reduction and Economic Management Sector Unit 1 East Asia and Pacific Region, World Bank.

Facebook: Rigoberto Tiglao

Twitter: @bobitiglao

Archives: www.rigobertotiglao.com

Book orders: www.rigobertotiglao.com/shop

This Post Has One Comment

  1. Dorina Rojas

    The people who criticize the proposed MIF are the same people who strongly assert that we should move forward and lift the state of national health emergency in the country, yet they oppose the economic measures that will propel the economy. Yet they are very much in favor of the ayuda system. Hypocritical idiots.

Comments are closed.