The Philippine Maharlika Investment Fund

This document is downloaded from DR‑NTU (https://dr.ntu.edu.
sg)
Nanyang Technological University, Singapore.
The Philippine Maharlika investment fund
Montesclaros, Jose Ma. Luis P.
2023
Montesclaros, J. M. L. P. (2023). The Philippine Maharlika investment fund. RSIS

Commentaries, 051‑23.
https://hdl.handle.net/10356/168728
Nanyang Technological University
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www.rsis.edu.sg No. 051 – 10 April 2023
RSIS Commentary is a platform to provide timely and, where appropriate, policy-relevant commentary
and analysis of topical and contemporary issues. The authors’ views are their own and do not represent
the official position of the S. Rajaratnam School of International Studies (RSIS), NTU. These
commentaries may be reproduced with prior permission from RSIS and due credit to the author(s) and
RSIS. Please email to Editor RSIS Commentary at [email protected].
The Philippine Maharlika Investment Fund

By Jose M. L. Montesclaros
SYNOPSIS
The Philippines is establishing a sovereign wealth fund to spur public infrastructure

investments in preparation for 2025 when it no longer qualifies for aid as an upper
middle-income country. This move has several policy implications and practical impact
on state management of financial resources and the capital market for a nation
accustomed to another way of government provision for economic and infrastructural
goals.
COMMENTARY
While the Philippines is currently a lower middle-income country (LMIC) with a gross
national income (GNI) per capita of US$3,622, it is only US$400 shy of meeting the
US$4,046 threshold to be classified as an upper-middle income country (UMIC). In
2022, its GDP grew by 7.6 per cent, the fastest in 40 years, putting it on track to
become an UMIC by 2025.
Achieving UMIC status is an honour for the country, but it also comes with the
disadvantage of being deprioritised for official development assistance (ODA) loans
and grants, which are primarily for LMICs and low-income countries.
To prepare for the next stage of economic development, President Ferdinand

“Bongbong” Marcos, Jr., has pushed for the development of the Maharlika Investment
Fund (MIF) as the Philippines’ first sovereign wealth fund (SWF), to be run by the
Maharlika Investment Corporation (MIC).
A Form of State Capitalism?
The MIF’s raison d’etre is to serve as an investment vehicle for drawing both domestic
and foreign investments into infrastructure development initiatives in the Philippines,
and to replace ODA when the Philippines no longer qualifies for it, which is likely to be
in 2025.
The establishment of the Philippines’ SWF can be seen as a form of state capitalism,
or a market intervention by the state. Essentially, the government is taking control of
infrastructure development ahead of the anticipated termination of ODA. This
intervention is needed since ODA has historically contributed significantly to
infrastructure development initiatives in the country. In fact, ODA provided 49 per cent
of total financing for the preceding Duterte administration’s flagship infrastructure
development programme, “Build, Build, Build”.
Through the proposed SWF, long-term economic development plans will be

securitised, and infrastructure development projects accorded the highest national
priority. Accordingly, President Marcos has highlighted big-ticket infrastructure among
the key areas for investment by the MIF. Infrastructure such as roads, railways and
airports contribute to greater economic inclusion of remote regions, hitherto
inaccessible.
These expand the country’s geographic base for economic activity and job creation,
while also fixing congestion problems in Metro Manila. They contribute to the economic
security of individuals, with multiplier effects that are reflected in improved health,
sanitation and education outcomes. Moreover, MIF profits can further expand the
country’s fiscal space for redistribution programmes that support the country’s poor,
including income-support programmes.
Catching Up with Neighbours
The Philippines is not unique in establishing an SWF to prepare for UMIC status.
Indonesia established the Indonesia Investment Authority under President Joko
Widodo’s leadership in 2021. This was also one year before Indonesia regained its
UMIC status in 2022, after losing it briefly amid the COVID-19 pandemic. In fact, the
MIF is being patterned after the Indonesian model, which had pushed infrastructure
projects amid the pandemic.
Earlier, under then Prime Minister Mahathir Mohamad, Malaysia established

Khazanah Nasional as a SWF in 1993, a year after reaching UMIC status. Brunei
likewise established an SWF in the form of the Brunei Investment Agency in 1983,
whose mission is to “safeguard Brunei Darussalam's Sovereign Nationhood (through)
Dynamic Reserve Management.”
Malaysia and Indonesia had been peers of the Philippines in economic development
during the 1960s to 1980s. During those years, they trailed the “Asian Tigers” – South
Korea, Singapore, Taiwan, and Hong Kong – all of which have reached high-income
country (HIC) status, and which have their own respective SWFs.
State Capitalism vs. Laissez-Faire Approaches
The involvement of SWFs in infrastructure development can be seen in a 2018

PricewaterhouseCoopers (PwC) Singapore report, where the Abu Dhabi Investment
Authority, the United Arab Emirates’ SWF, was cited as the largest direct investor in
unlisted infrastructure globally, and Malaysia’s Khazanah Nasional as the second
largest in Asia. It described infrastructure as an “asset class” which has received
growing investment, reflecting internal rates of return (IRR) of 10-20 per cent, in a
spectrum of low-to-high risk.
In the case of the Philippines, however, the MIF’s interests may conflict with private
sector interests in big-ticket infrastructure projects. For example, in 2022, an US$11
billion contract to build an international airport south of Manila was awarded to a
consortium of businesses affiliated with the founder of the flagship carrier Philippine
Airlines, South Korea’s Samsung and Germany’s Munich Airport. Likewise, San
Miguel corporation, one of the largest conglomerates in the Philippines, succeeded in
its PhP736 billion (approximately US$14 billion) bid to build and to operate a four-lane
international airport north of Manila for 50 years.
An immediate implication of these conflicts of interests lies in the distribution of gains

from such infrastructure investments. If the MIF should engage directly in big-ticket
infrastructure projects, it could potentially crowd out the private sector. But at the same
time, it could allow the state to reap some of the larger profits from these projects, in
turn expanding the state’s financial base for its redistributive food-and-income-support
programmes.
Transparency as the Best “Defence”
The Marcos administration’s proposal of a SWF has drawn flak because of reports
about the misdeeds of the late President Ferdinand Marcos. Given that Bongbong
Marcos envisions the MIF to engage in big-ticket infrastructure, a potential risk is that
of rent-seeking as the government could potentially influence the bidding outcomes
for such projects in favour of the MIF or the companies the MIF supports.
Transparency will be the current administration and the MIF’s best defence against
criticisms of corruption and misuse of public funds should losses occur. This is critically
important since there is no guarantee that losses are completely avoidable in high-
return infrastructure projects which come at higher risks. Transparency in the
procurement process will also be needed to avoid criticisms of bias in the award of
tenders for projects.
Jose M. L. Montesclaros is a Research Fellow with the Centre for Non-Traditional

Security Studies (NTS Centre), S. Rajaratnam School of International Studies (RSIS),
Nanyang Technological University (NTU), Singapore.
S. Rajaratnam School of International Studies, NTU Singapore
Block S4, Level B3, 50 Nanyang Avenue, Singapore 639798
T: +65 6790 6982 | E: [email protected] | W: www.rsis.edu.sg

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This document is downloaded from DR‑NTU (https://dr.ntu.edu.

The Philippine Maharlika investment fund

Montesclaros, Jose Ma. Luis P.

Montesclaros, J. M. L. P. (2023). The Philippine Maharlika investment fund. RSIS

Nanyang Technological University

Downloaded on 08 Jul 2024 16:09:24 SGT

The Philippine Maharlika Investment Fund

The Philippines is establishing a sovereign wealth fund to spur public infrastructure

To prepare for the next stage of economic development, President Ferdinand

A Form of State Capitalism?

Through the proposed SWF, long-term economic development plans will be

Catching Up with Neighbours

Earlier, under then Prime Minister Mahathir Mohamad, Malaysia established

State Capitalism vs. Laissez-Faire Approaches

The involvement of SWFs in infrastructure development can be seen in a 2018

An immediate implication of these conflicts of interests lies in the distribution of gains

Transparency as the Best “Defence”

Jose M. L. Montesclaros is a Research Fellow with the Centre for Non-Traditional

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