January 29, 2023 | 5:41 pm
Introspective By Romeo L. Bernardo
Following concerns expressed by
business organizations, academicians, civil society, and a sagacious member of
his own official family, the President wisely called for our Senators to
exercise utmost care in their deliberations on the proposed Maharlika
Investment Fund. (“Ang message ko sa Senado, suriin ninyo
nang mabuti para magandang maganda ang batas natin [My message to the
Senate is to study it very well so that our law will be very, very good],”
Marcos told television journalists at Malacañang on Monday, Jan. 23.)
These concerns centered around both
sources and uses of funds, and possible unintended effects. On the sourcing
side, there is absence of any additionality since the funding will be coming
from the Bangko Sentral ng Pilipinas (BSP), Development Bank of the Philippines
(DBP), and Land Bank. On the utilizations side, there are the risks of
improper/poor utilization, not just by this administration but beyond, in light
of the Malaysia 1MDB mis-governance. It may also detract from the BSP’s focus
on inflation, debt, and exchange rate management responsibilities over the
medium term, and more immediately, raise perceived Philippine sovereign fiscal
and financial risks among credit watchers (See https://bit.ly/Maharlika20221205).
Consulting highly respected veteran
economic policy makers and financial experts, this column addresses some
of those concerns by re-imagining the program to one which can attract generous
grant and soft loans from donor countries, multilaterals and private sector
investors, under an umbrella we can call the Maharlika Green (or Climate)
Investment Fund.
What are the differences?
1.) Certain “Additionality”: Funding will primarily come from donor countries,
multilaterals, and private institutions that have already pledged or set aside
“COP” funding and would like to support the climate adaptation components of
the Philippine economic program. (One comment on the Maharlika fund as
originally conceived since there is no assured external resources inflow: “a
dog eating its tail and calling it nutrition.”)
2.) Builds on experience: This is akin to what we had been doing during
President Ferdinand Marcos, Sr.’s administration under the umbrella of a
“Consultative Group” (CG) chaired by the World Bank. A feature of these CGs is
a “pledging session” where Philippine authorities invite commitments from both
bilateral and multilateral partners to support Philippine projects and programs
built around a theme. Examples of past themes were on infrastructure,
agriculture, structural adjustment, and social development.
3.) Flexibility in operationalizing: There is much flexibility in translating these
pledges into actual programs and projects, soft loans and grants, utilizing the
various agencies of government as implementors but with the Department of
Finance (DoF), the National Economic and Development Authority (NEDA),
Department of Budget and Management (DBM), and BSP providing the governance
framework under the Medium-Term Public Investment Program/ICC/etc. This will
also address the concerns about provisions in the bill that exempt a
centralized fund from usual fiduciary safeguards.
4.) Leveraging on a global concern: The unifying theme we can present this time
around that can potentially attract generous support could be “Climate Change
Adaption and Mitigation” since the Philippines will be greatly affected by
strong typhoons or droughts. This is a matter of climate justice since we only
contribute 0.3% of carbon emissions even as we bear a disproportionately heavy
burden from historic and continuing environmental damage wrought by the bigger,
richer, more industrialized countries.
The recent COP 27 (UN Climate Change
Conference) meetings provides a model for this. Indonesia’s Just Energy
Transition Partnership (JETP) will mobilize $20 billion over the next three
to five years, as announced by world leaders last November in Bali. Similar
programs are being developed for Vietnam and South Africa ( https://bit.ly/ISSD_EnergyTransition).
Much of the funding will go towards the early retirement of coal plants.
According to Energy Secretary Raphael
Lotilla who I consulted on this, these countries have state-owned and
vertically integrated power sectors, not private and market driven like in the
Philippines. Thus, a JETP for the Philippines has to make business sense to the
private sector. This makes it a little more difficult to coordinate but may
also yield a richer menu of projects that can be supported depending on the
interests of the development partner, and utilizing financial vehicles and
institutions they are most comfortable with.
Examples of projects that can be
supported by a combination of grant/lending facilities are listed below.
a.) Transmission projects to enable
full and efficient dispatch of renewable energy (RE) projects (e.g., in Negros
island, Visayas-Mindanao interconnection). Connectivity is key. The country
does not have a fully connected grid given its archipelagic nature.
b.) A soft loan/grant facility to
support/jump-start promising RE technology and RE projects in small and remote
islands.
c.) Support programs/projects like
industrial forest plantations. There are at least 5 million hectares of denuded
forest lands ripe for tree plantation that will help produce forest products,
conserve water, generate energy, and mitigate climate change. This is also a
viable employment program for the bottom of the pyramid and acts as a 4Ps
supplement.
d.) Financial support for retiring
old inefficient fossil fuel plants but transition to LNG for a definite period.
e.) Electric vehicle
infrastructure financing.
f.) Fresh water dams and storage;
flood control.
g.) Commercial tree plantations for
coconut, cacao, fruit trees.
This is one approach.
However, if there is a preference for
a single fund centrally managed and more commercially driven, the white paper
authored by Congressman Joey Salceda, et al. has some merit: a Securities and
Exchange Commission-registered corporation that can be publicly listed to
attract private investors and multilateral institutions down the road. This was
something I also had in mind when I wrote in this column space on Dec. 18, “A
closer look at the Maharlika Fund” ( https://bit.ly/Maharlika20221218).
“… A straightforward way to address
the governance concerns of critics is for government to own under 50% of the
shareholdings, with the balance to be subscribed by multilateral organizations
(the Asian Development Bank or ADB, the International Finance Corp. or IFC,
Asian Infrastructure Investment Bank or AIIB) and private investors. For
example: 40% Republic of the Philippines, 20% ADB, 20% IFC, 20% private sector.
By attracting other investors, they can multiply the size of what is now just a
P100-billion fund.”
Where Congressman Joey and I would
differ perhaps is timing: at what point to invite these parties. I would much
rather that they are asked to participate from ground zero so that the
Philippines can benefit from their rich intellectual and governance inputs
early, before the fund falls into witting or unwitting bad form and habits.
An easy way to do this is to request
either the World Bank’s private sector window, the IFC, or the ADB’s Private
Sector Operations Department (PSOD), to provide a small technical assistance
grant (no more than $100,000), for a feasibility study. The starting point of
that study needs to be a crystal-clear articulation of the objectives of the
proposed fund and why these cannot be met using existing institutions and
instruments, something that seems to be amazingly missing.
Romeo L. Bernardo started his
professional life as staff to then Finance Secretary Cesar Virata in 1976,
rising to become finance undersecretary, 1990-1996. He is a co-founder and
trustee/director of the Foundation for Economic Freedom. He also serves as a
board director in leading publicly listed companies in banking and financial
services, telecommunication, energy, food and beverage, education, real estate,
etc.
