THE HEDGEHOG'S DILEMMA: WHAT YOU NEED TO KNOW ABOUT THE MIF AND ITS SUSPENSION

 

ME: Welcome everyone to Tech Talk! Today I’m glad to have with us our special guest Mr. AI, a sovereign wealth fund specialist, who will enlighten us on our country’s Maharlika Investment Fund (MIF) and its current situation. Welcome to the show, Sir.

MR. AI: Thank you for inviting me to your show. I’m happy to share with you and your viewers my insights and knowledge about the MIF.

ME: For the benefit of our viewers who may not be familiar with the MIF, could you explain what it is and what it aims to do?

MR AI: Sure. The MIF is a type of sovereign wealth fund which is a state-owned investment fund that manages public financial assets. It aims to optimize the use of these assets, promote sustainable economic development, and advance intergenerational management.

ME: Could you cite some sovereign wealth fund models today?

MR. AI: Certainly. The Norway Government Pension Fund Global is among the world's largest sovereign wealth funds. With over $1.4 trillion in assets, established in 1990, it manages Norway’s surplus revenues from oil and gas.

Singapore GIC Private Limited is one of the most respected and innovative sovereign wealth funds in the world. With over $770 billion in assets, established in 1981, it manages Singapore’s foreign reserves.

ME: That sounds reassuring. Could you give us some ideas of how the MIF plans to invest its assets and what kind of returns and impacts it expects to generate?

MR AI: Yes, of course. The MIF plans to invest in a wide range of assets, both domestically and internationally with a focus on high-impact infrastructure projects and sustainable development.

It may opt to invest in renewable energy, clean technology, green infrastructure, and carbon capture projects that can enhance environmental protection and climate action.

It expects to generate financial returns for the Philippines and the Filipino people, as well as social and environmental impacts that can improve the quality of life and well-being of the present and future generations.

ME: Impressive and ambitious. But I also read lately that the MIF’s launch has put up with a lot of challenges and issues. Its implementing rules and regulations (IRR), were suspended by no less than President Marcos Jr. pending further study and review. Could you tell us more about why this happened and what it means for the MIF?

MR AI: To answer your question, let me share with you first about the hedgehog’s dilemma. Hedgehogs are cute critters famous for their prickly spines for their defense. They seek to move close to one another to share body heat during cold weather. However, they must remain apart, as they cannot avoid hurting one another with their sharp spines. Such a dilemma is a metaphor for many situations where there is a trade-off between pursuing one’s goals and confronting potential risks.

The suspension of IRR of the MIF is a dilemma that reflects such a trade-off. On one hand, the suspension may be seen as an opportunity to address the challenges and issues to improve the design and implementation of the MIF. On the other hand, the suspension may be seen as a setback or a delay that may affect its credibility and performance.

ME: Could you elaborate on what are some of the challenges and issues that led to the IRR suspension?

MR AI: Sure. Some of these challenges and issues are:

THE LEGAL FRAMEWORK AND GOVERNANCE STRUCTURE

The IRR defines the MIF’s objectives, capital sources, investment guidelines, and oversight mechanisms.

However, some critics have raised concerns about the clarity, consistency, and independence of such provisions coupled with doubting the transparency and accountability of the MIF’s operations and decisions, especially about its investments in industries that are regulated or owned by the government

Some have questioned the role and authority of the Maharlika Investment Corporation, the state-owned corporation that will manage the MIF and its relationship with the government and other stakeholders.

THE INVESTMENT STRATEGY AND PORTFOLIO ALLOCATION

The IRR outlines how the MIF will invest in a wide range of assets, both domestically and internationally, with a focus on high-impact infrastructure projects and sustainable development.

However, some critics have raised concerns about the feasibility, profitability, and riskiness of these investments.

Some have doubted the ability and expertise of the MIF to invest in emerging or frontier markets, or in sectors or industries that are already crowded or subsidized by the government.

THE COORDINATION WITH MACROECONOMIC AND FISCAL POLICIES

The MIF is expected to support the country’s economic goals and development plan and to enhance its financial stability and fiscal balance.

However, some have warned that the MIF may create inflationary pressure, exchange rate fluctuations, or crowding out effects if it is not well-coordinated with the monetary and fiscal policies of the country.

Some have cautioned that the MIF may create fiscal risks if it suffers losses from its investments.

ME:  That’s a wall-to-wall elaboration of the MIF challenges and issues which I’m sure our viewers have found illuminating. Now, let’s turn to not-so-good news. Could you tell us what are some of the specific adverse consequences of suspending the IRR of the MIF?

MR. AI: Yes, of course. The IRR suspension may have some specific adverse consequences for the MIF itself, the government, and society. These consequences may affect the credibility and performance of the MIF and the government. Some of these consequences are:

LOSS OF TRUST AND CONFIDENCE

The IRR suspension may create doubts and uncertainties among the stakeholders and the public about the MIF’s objectives, governance, and operations.

It may damage the reputation and credibility of the MIF and the government, thus, reducing their support and cooperation.

It may affect the confidence of potential investors, partners, or beneficiaries, thus, making them reluctant or skeptical to engage with the MIF.

LOSS OF OPPORTUNITIES AND RETURNS

The IRR suspension may delay or prevent the MIF from starting its investment activities and generating returns for the country.

It may miss out on potential opportunities and deals in the domestic and international markets, thus, facing increased competition and risks.

It may affect the value of the MIF’s portfolio as it may lose out on favorable market conditions or trends.

LOSS OF MOMENTUM AND DIRECTION

The IRR suspension may disrupt or derail the MIF’s plans and strategies, thus, affecting its performance and impacts.

It may create confusion or conflict among the MIF’s management, staff, and partners, thus, affecting their morale and motivation.

It may affect the continuity and consistency of MIF’s operations and decisions as it may require revisions and adjustments to its objectives, guidelines, or processes.

ME: Ouch. These are serious consequences that could have significant implications for the MIF. Thank you, Mr. AI, for sharing your insights and knowledge about the MIF and its current situation. I’m sure our viewers have learned a lot from you today. Do you have any final words?

MR. AI: Thank you, too, for having me in your show. I hope I was able to enlighten you and your viewers about the MIF and its dilemma. Let me leave you off with two product launching stories.

Windows Vista was an operating system launched by Microsoft in 2007. However, it faced many problems, such as compatibility issues, bugs, slow speed, and high system requirements, and like the MIF, drew negative reviews. Microsoft had to delay the launch several times and fix many errors after such a launch. In the end, the product fell flat on its face -- a market failure.

Netflix was a streaming service launched in 2007. However, like the MIF, it grappled with bags of problems, such as licensing issues, content limitations, bandwidth costs, and competition. Today, Netflix is widely considered a success and has become one of the most dominant players in the streaming industry with over $32 billion in revenues and more than 247 million paid subscribers worldwide in 2023.

These two stories faced similar dilemmas as the MIF – one failed while the other succeeded. The difference depended on how well each addressed its challenges and issues.

The MIF is a bold and ambitious product that has the potential to create value for the Philippines and the Filipino people. However, it also faces a complex and uncertain environment that requires diligent risk management.

ME: Thank you, Mr. AI, for your time and expertise. And thank you, viewers, for watching Tech Talk. Stay tuned for more interesting and relevant topics in our next episodes. Have a great day!

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Head photo & video clips courtesy of YouTube