Sovereign wealth fund under consideration

That was the banner story of today’s BusinessWorld online.

Here is a direct quote from the article:

Economic managers are studying the possibility of setting up a Philippine sovereign wealth fund to maximize returns from the country’s foreign exchange holdings.
“As I understand, the national government is conducting a study on the possible operations of a sovereign wealth fund,” central bank Governor Amando M. Tetangco, Jr. said at the sidelines of yesterday’s Philippine Investment Forum.

Finance Secretary Cesar V. Purisima confirmed that the plan was being considered, although he said the review remained in the preliminary stages.

“We haven’t brought up the matter with [President Benigno S. C. Aquino III] yet. So far, it’s just look, see, study and evaluate,” Mr. Purisima said.

As readers of this space will be aware, I have been harping on this issue for over two years now. Before anyone in the upper echelons of policy making, whether fiscal or monetary, or within academia were even contemplating it, I had flagged the possibility here. The following is a compilation of the previous articles I have posted on the issue
Early this year, I developed a policy paper on this topic, which I enclose below

Fruits of Our Labour by Doy Santos

It’s good to see that after more than two years of writing and engaging with the issue, the idea is finally being seriously considered by both the Department of Finance and the Bangko Sentral as confirmed by today’s news item . Even more surprising is how prominent economists are now supporting the principle of establishing a sovereign wealth fund for the Philippines. If this should be included among the administration’s priority bills for the 16th Congress, it would be timely as the country is expected to receive investment grade status by the end of the year.

Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.

  • UPnnGrd

    SIDE-STORY: The cream of Pilipinas educational faculty — Jocelyn del Mundo and other per-fessers of Univ-Philippines Diliman — want their bosses to resign. Reason : first-year students committed suicide because the University did not grant an additional tuition/enrollment extension.

    “We strongly appeal to the conscience of Chancellor Manuel Agulto and Vice Chancellor Josephine de Luna to show their solidarity and humility to the aggrieved family of Kristel Tejada and other victims of their repressive policy by rendering their irrevocable resignation,” said the statement read by sociology professor Jocelyn del Mundo.

    The statement was read at the Philippine General Hospital chapel after a mass on Monday sponsored by the student council for Tejada.

    “We hold (Agulto and De Luna) accountable for the deprivation of Kristel’s right to education that cost her life,” it said.

    ———————
    The per-fessers should have been more up-to-date with the wealth of Pilipinas.

    • The call for resignation is ridiculous. It is incredibly cruel for the professors to take such a complex, tragic issue, a lifetime worth of influences on the young woman since infancy, and lay it on two people who had no idea about the girl’s problems. The university is not in the business of making loans or providing psychological counseling for thousands of students. I can’t believe these are teachers of college level people. This reads like socialist bullroar from the 1950’s. Simplistic ideology. Cruel ideology.

  • GabbyBD

    well, my real problem is i’m not sure what investing domestically means. how will it do it? in what form? devils in the details.

    • How will it invest? By providing equity to PPPs as co-investor to get the ball rolling. Another option is to co-invest in mining projects to help get over constitutional limits to foreign ownership in the sector.

      Another option: it could use the returns from investing the fund to invest in social programs. If the fund were $20bn and earned an annual return of say 10 per cent or $2bn. Half the earnings could be re-invested in education and health infrastructure. These are models that existing SWFs around the world have already adopted.

      The devil will be in the details, but what I have provided here are the principles that would guide the set-up, structure, priorities, policies and practices of the SWF.

      • GabbyD

        your other option is familiar to me, but to get the return, an SWF would invest in stock markets, other financial instruments. local financial assets?
        if it invests in BOT projects, would the fund manage the project? how would it determine which projects? all will be funded? what extent will the funding be coming from the swf?

        • That’s a matter for the board. The fund would exercise rights as part owner of projects but wouldn’t run them. That would be left to the private partner. So the SWF would act like an equity fund/investor.

  • manuelbuencamino

    The feature that attracted me to your SWF proposal is the condition that investment be limited to the domestic market. If the government takes up SWF, I hope it retains that feature.

    • Most SWF’s are re-orienting their investments domestically due to the weakening demand they are experiencing back home. Given the slow take-up of PPP’s the flagship, centre-piece, however you want to call it, program of PNoy, then it ought to be the first priority for the fund to invest in, at least for starters.

  • Ahahaha, maybe they were just waiting for JoeAm’s endorsement and a real strategic need. http://thesocietyofhonor.blogspot.com/2013/02/the-philippines-should-turn-predator.html

    • From today’s paper, HSBC’s caveat to the Philippine ‘comeback’ story is:

      “The public-private partnership program has also underperformed, meaning the burden would fall on the government, which has limited revenues. As a result, FDI will continue to be modest until then.”

      This is the main source of worry for our Finance officials. As I noted in my paper, everyone is bullish about the Philippines except foreign investors who are waiting for infrastructure to be laid. The government on the other hand is waiting for them to invest in PPPs. It becomes a chicken and egg thing. Only government through a SWF can kick-start development.