Investment fund controversy roils Marcos Jr regime

Barely six months into office, Philippine President Ferdinand Marcos Jr has faced widespread backlash over a major economic proposal.

Earlier this month, presidential son Ferdinand “Sandro” Marcos III and Speaker of the House Martin Romualdez, a close cousin of the president, co-sponsored a bill to create a multibillion-dollar sovereign wealth fund (SWF) for the Philippines. 

With inflation running at a 14-year high and the economy facing a slowdown next year, the president’s allies likely thought that the new initiative would buttress the government’s technocratic credentials. Instead, the SWF proposal was met with public outcry and harsh criticism, including from the president’s sister, Senator Maria Imelda “Imee” Marcos. 

To begin with, the choice to name the new fund “Maharlika,” harking back to the quasi-monarchic pretensions of the Marcos dynasty at the height of the dictatorship years in the 1970s, immediately raised red flags. And it didn’t help that the main sponsors behind the new proposal were the president’s son and relatives. 

To make matters worse, the proposed SWF sought to reallocate resources from besieged government-run banks and pension funds, which have been grappling with bankruptcy prospects in recent years. Top business groups and economists also questioned the timing of the proposal, given the extreme volatilities in equity markets and the broader global economy, which has raised investment risks around the world. 

Some critics, however, have gone so far as warning of the possibility of a Malaysian-style corruption scandal, especially given the Marcos dynasty’s checkered record on good governance. One prominent Filipino journalist suggested that the new proposed fund could serve as a money-laundering vehicle, since it “could provide cover for the coming home of funds squirreled away by public servants.” 

Facing massive backlash, the new Philippine president is coming under growing pressure to reconsider the proposal. But this could mean loss of face for his family, tarnishing the image of son Sandro, a graduate of the London School of Economics, who has been the poster boy for the new initiative. 

Since coming to power, Marcos Jr has grappled with a once-in-a-generation macroeconomic challenge. Despite posting robust growth this year, the Philippines is dealing with a 16-year-high debt level and a 14 year-high inflation, which reached 8% in November. Despite making economic prosperity and food security centerpieces of his policy agenda, Marcos is confronting public dismay over his handling of the economy.

Notwithstanding his generally high trust ratings in his “honeymoon” phase in power, an authoritative survey in October showed that 42% of Filipinos disapprove of Marcos Jr’s handling of inflation. In fact, inflation was the only “most urgent national concern” that was shared by majority of the respondents in the Pulse Asia survey. 

With the cost of basic goods steadily rising, despite repeated interest-rate increases by the Philippine Central Bank, the president has warned that inflation is now “rampant and out of control.” 

With the prospect of a global recession looming, the Philippine economy chief has made downward revisions to the GDP growth forecast for 2023 aftr similar moves by the World Bank and the International Monetary Fund. 

In a likely bid to distract the public from the festering economic conditions, Marcos’ kin in the Congress pushed for a new initiative, which they hoped would enhance the government’s prestige and project a hands-on approach to the national economy.

Accordingly, Speaker Romualdez as well as his wife, also a legislator, along with senior deputy majority leader Sandro Marcos, enthusiastically pressed for a sovereign wealth fund initiative to purportedly enhance the country’s national earnings.

The decision to name the new investment vehicle as “Maharlika,” which also happened to be the name of Marcos Sr’s World War II guerrilla group, belied the true intentions behind the initiative. 

But more than the name, which was clearly designed to invoke nostalgia for the dictatorship years, the new SWF proved also highly problematic, since it entailed repurposing of scarce resources from the Government Service Insurance System (GSIS), Social Security System (SSS), Landbank of the Philippines, and Philippine Development Bank, which have already been struggling with limited resources in recent years.

Meanwhile, critics also raised concerns over good governance and corruption under the Marcos Jr administration, which has sought to defang anti-corruption agencies targeting his own family’s ill-gotten wealth.

The Marcos family matriarch and former first lady Imelda Marcos was found guilty of graft and corruption by the Supreme Court of the Philippines. The notorious dynasty is also facing multiple criminal cases in various US courts.

Cognizant of the Marcos family’s checkered record, Philippine Central Bank governor Felipe Medalla warned of a potential corruption scandal in the future. “To me the experience of 1MDB Malaysia is the biggest risk, right?” the Bangko Sentral chief told Bloomberg this week. 

“Even if the current guys are OK, will the guys five years from now will still be OK? To me, it’s a governance issue,” Medalla added. 

Corruption-related concerns were echoed by Senator Imee Marcos, who questioned the rationale behind such an investment initiative in a capital-poor and import-dependent country such as the Philippines. 

“We saw our neighbor, Malaysia, it was really a disaster that happened to their 1MDB, which had its funds siphoned away. It even brought the whole government down, along with the party that started the republic of Malaysia,” the presidential sister warned. 

“I haven’t read the [Maharlika Fund] bill, but I worry because the economy is in bad shape right now,” she added, arguing that sovereign wealth funds are mainly sensible in export-oriented and capital-rich countries such as Norway, Singapore and Qatar. 

Soon, the Philippine business community also chimed in, publicly criticizing the initiative as too risky and potentially disastrous amid a highly uncertain global economic landscape. 

“If it’s not going to give us that much advantage, might as well invest in our country. There are resources to be invested, and there are other sectors that can be looked into,” George Barcelon, the spokesman of the influential Philippine Chamber of Commerce and Industry (PCCI), told the media, urging the government to reconsider overseas investment initiatives in favor of domestic projects.

On the defensive

Facing a barrage of criticisms, Sandro Marcos tried to defend his proposal by arguing that even reformist legislators such as former senator Benigno “Bam” Aquino IV had proposed a similar fund. 

But Aquino had proposed a similar investment fund back in 2016, when economic conditions were far better, and proposed the creation of an SWF based on the national budget rather than repurposed resources from pension funds and other vital government investment arms. 

Unable to tame the tide of public criticism, including from several pro-administration senators, the proponents of the bill have been forced to modify their initial proposal. 

“After much deliberation between the authors/stakeholders and listening to our Kababayans [countrymen], the Maharlika Investment Fund will no longer draw from GSIS and SSS for funding,” Marcos III said over a social-media post this week.

“We will instead be utilizing profits from the Bangko Sentral ng Pilipinas,” the presidential son added, now shifting the burden to the Philippine Central Bank, whose chief had earlier questioned the rationale of the proposal itself. 

Given their supermajority in the Congress, pro-Marcos forces may eventually prevail in railroading the controversial proposal, but this would come at the expense of public trust and business confidence in the new administration. Down the road, it may sow the seeds of a Malaysia-style corruption scandal if sufficient safeguards are not instituted.