Unpacking the Philippines’ New Sovereign Wealth Fund

The Maharlika Investment Fund (MIF) is set to become the Philippines’ first-ever sovereign wealth fund and one of the key domestic projects of President Ferdinand “Bongbong” Marcos Jr. Riding on the coattails of his predecessor, Rodrigo Duterte, and invoking the spirit of his father’s vaunted infrastructure projects, his key priorities include alleviating poverty, revitalizing national infrastructure, and raising the Philippines to the status of an upper-middle-income economy.

The MIF was initially proposed in November 2022 by seven members of the Philippine House of Representatives, including Marcos Jr.’s son, Sandro Marcos, and cousin, Speaker Martin Romualdez. Politicians across the political spectrum—from opposition senators to the president’s sister, Senator Imee Marcos—were skeptical of the MIF, citing concerns ranging from graft risks to the Philippines’ significant fiscal deficit. After a series of amendments, the bill advancing the MIF was passed in December 2022, in no small part due to President Marcos designating it as a priority. It was approved by the Senate and House on May 31, 2023. After a few last-minute edits made through Viber, a popular chat service in the Philippines, the bill was sent to President Marcos for signature. On July 18, Marcos signed the bill into law.

Q1: What does the MIF aim to accomplish?

A1: The MIF intends to create a long-term source of investment capital for the Philippines to stimulate economic growth and create jobs. Revenue generated from the MIF aims to develop Philippine agriculture, climate resilience, digitalization, and energy. Moreover, the investment capital will be used for the Marcos Jr. administration’s flagship infrastructure development programs to attract foreign investment. The fund is intended to supplement the government’s income while simultaneously shouldering the budget burden by funding priority government projects. The income raised through the MIF aims to support the Marcos administration’s Medium-Term Fiscal Framework, 8-Point Socioeconomic Agenda, and the 2023–2028 Philippine Development Plan. Senator Mark Villar, one of the key proponents of the new law, cites that the Philippine National Economic and Development Authority (NEDA) projects the MIF to generate up to 350,000 jobs from project investments.

Q2: How will the MIF work?

A2: Sovereign wealth funds are state-owned investments that are made up of capital generated by the government. These funds typically originate from commodity exports owned by governments, or through asset transfers from foreign exchange reserves. Most wealth funds are set up to stabilize commodity sale revenues, for example from oil and natural gas. The revenue generated is meant to provide stable financing for the country’s future.

Norway’s Government Pension Fund Global (GPFG) is an often-used example of a successful sovereign wealth fund. After the country discovered one of the world’s largest offshore oilfields in 1969, the Norwegian government decided to manage oil and gas revenues carefully to avoid economic imbalances. As such, the Norwegian parliament passed legislation to establish a sovereign wealth fund in 1990. The first funds were deposited into the wealth fund in 1996 for foreign investments only. Norway’s sovereign wealth fund is one of the world’s largest, with a 1.5 percent stake in shares of the world’s listed companies. The Norwegian model depends on significant, reliable capital generation from commodities that the Philippine model lacks.

Within Southeast Asia, numerous sovereign wealth funds have emerged, ranging from the well-established the Government of Singapore Investment Corporation (GIC) and the recently inaugurated Indonesia Investment Authority (INA). The GIC, established in 1981, has more in common with the GPFG as it is sourced from Singapore’s growing foreign reserves. The INA, established in 2021, has far more parallels with the MIF—especially with the sourcing of its seed fund. Indonesia, like the Philippines, holds significant debt and typically runs on budget deficits.

Indonesia tapped into national banks for the seed fund. Similarly, the Philippine government sourced its 500 billion peso ($9 billion) seed fund from declared dividends of the Philippine national government, the Land Bank of the Philippines and the Development Bank of the Philippines, and the central bank. The central bank will contribute 100 percent of its total dividends for the first two years. Initially, the Philippine Government Service Insurance System and the Social Security System were included as funding sources for the MIF; however, senators drafted amendments to the bill to explicitly prohibit those systems, the Philippine Health Insurance Corporation, and the Philippine Veterans Affairs Office from investing in the fund. As revealed to Senator Ronald “Bato” de la Rosa, however, these agencies could still invest by routing investments through a third party, which will then invest in the MIF on their behalf.

Should everything function as intended, the Philippine government will use the fund to invest in assets, including foreign currencies, domestic and foreign corporate bonds, real estate, and infrastructure projects, among other sources.

Q3: What are the risks of the fund?

A3: Management is a critical issue in the sovereign wealth fund. With such large pools of capital to account for, mismanagement may be devastating to accumulated funds. Senator Imee Marcos raised concerns about corruption and graft, citing Malaysia’s 1Malaysia Development Berhad scandal. To prevent such corruption, a presidentially appointed board of directors will govern the MIF. These nine directors will include the finance secretary and will collectively make up the Maharlika Investment Corporation. Lawmakers wrote into the statute two pages of penalties should funds be misused. But difficulties in enforcing the rule of law in the Philippines present challenges to the successful management of the MIF. These safeguards would work in theory, but the Philippine legal environment skews in favor of those in power. Numerous public officials have been found guilty of graft, corruption, and embezzlement in recent years, yet few faced repercussions and many quickly reentered public service. Most such cases have simply been dismissed by the courts. Even grievous human rights violations, such as President Duterte’s brutal war on drugs, continue nearly unimpeded. 

The Marcos Jr. administration insists that the fund will be depoliticized; however, the emphasis placed on the project by the president and his family will test this boundary. With the Philippine legislature firmly under his control through 2025, the president and directors are unlikely to face substantial objections no matter which direction they take the MIF.

Management aside, the fund’s crucial shortcoming is the major way in which it differs from successful sovereign wealth funds: the Philippines is in a severe deficit and, on paper, is not suited for a surplus-based sovereign wealth fund. Both Imee Marcos and opposition senator Risa Hontiveros questioned the efficacy of such a fund amid ballooning national debt; Hontiveros went so far as to call it a “liability fund” that will doom Filipinos to more foreign debt. Using the Land Bank and Development Bank assets to seed the fund may also put the Philippine banking system at risk. With limited means to ensure accountability from government malfeasance, irresponsible use of the fund could threaten the Philippines’ economic stability.

Q4: Will the MIF be effective?

A4: Senator Mark Villar has said the bill, given its overwhelming approval in the House and Senate, should be given a fair chance. The MIF operates in uncharted territory—sovereign wealth funds are not typically put into place in countries operating with extensive national debt. For the proposed outcomes to come to pass, the management of the fund must be impeccable. That means the MIF will have to buck the trend of chronic mismanagement that has afflicted infrastructure-focused programs across administration after administration in the Philippines.

Corrupt and inefficient contractors regularly impair the feasibility of the kinds of infrastructure projects the MIF is meant to fund. This was the case for many of the projects under the former Duterte administration’s signature “Build, Build, Build” program. And decades after his ousting, the Philippine public continues to pay off the debt incurred by Marcos Sr.’s grandiose infrastructure projects.

Even the administration of President Benigno “Noynoy” Aquino, who ran on the daang matuwid (straight path) platform of anticorruption, was marred by scandal due to graft and corruption allegations surrounding the House of Representatives Priority Development Assistance Fund. In that 2013 “pork barrel” scandal, 28 members of Congress, many of whom remain in office, purportedly doled out money to shell companies to fund ghost projects. Very little has been done to combat endemic corruption and financial mismanagement in the Philippines.

Q5: What are the long-term implications of the MIF?

A5: The Marcos Jr. administration is extremely ambitious. The president, campaigning on a platform of continuity, unity, progress, and prosperity, appointed some of the Philippines’ most talented technocrats to help him govern. But just a year into office, many of his initiatives have yet to take off. Of the 22 measures announced the 2022 State of the Nation Address, President Marcos Jr. has so far signed just one into law. Ahead of 2023’s address, the Marcos administration unveiled a significant number of initiatives, such as the Bagong Pilipinas (New Philippines) governance initiative. Critics worry that the administration focuses too little on the implementation of policy. As such, the MIF must deliver results, not just rhetoric.

Should the fund live up to its promise, Filipinos can expect increased job opportunities, improved infrastructure, and funding for socioeconomic issues. But flaws in the fund’s management and structure, paired with endemic corruption and mismanagement in the Philippines, raise questions. Many Filipinos voted for Marcos Jr., and Duterte before him, due to perceived inaction by prior governments in addressing socioeconomic issues. If Marcos Jr. fails to deliver on these promises, Filipinos’ faith in institutions and the government will continue to worsen. This has ripple effects on the strength of Philippine democracy and civil society—disillusioned voters, skeptical of the effectiveness of democratic institutions, increasingly favor authoritarianism. As such, Marcos Jr. and his advisers must navigate the MIF carefully.

Japhet Quitzon is a research associate with the Southeast Asia Program at the Center for Strategic and International Studies (CSIS) in International Business in Washington, D.C.