Invest in the Philippines

SEN. Ralph Recto the other day raised a question I have been harping on for quite some time: Isn’t it better for the Government Service Insurance System (GSIS) to commit more investment funds here at home, primarily in highly profitable and badly needed infrastructure projects, instead of stashing more money overseas? Could the GSIS not use the funds in productive and gainful projects meant to build up the local economy and create badly needed new jobs for Filipinos?

I raised this question a few times before in this column. I even said it would be totally unpatriotic for the GSIS, and for that matter even the SSS, to take more capital out of the country when the country is badly in need of investment capital.

The other day, Senator Recto was saying the same thing, as reported in this paper. The GSIS should not invest an additional $400 million overseas after its initial investment of $600 million yielded a “mediocre” return on investment (ROI) of only 7 percent pegged in pesos and not in dollars, he said.

Recto said the GSIS funds could be invested instead to bankroll the government’s slew of big-ticket projects under its Public-Private partnerships (PPPs) program. “The first offshore placement is forgivable but a second overseas foray would be high treason amid the difficulty in looking for funds to bankroll new highways, toll roads, airports, irrigation facilities and more MRT/LRT [Metro Rail Transit/Light Raul Transit] lines.”

I completely agree.

New infrastructures such as road tollways and mass rail transit systems are not only desperately needed here to spur more investments by the private sector, but can also be extremely lucrative, especially if the GSIS and even the SSS can get the government to guarantee the projects a minimum rate of return.

Other countries such as Malaysia have successfully mobilized their pension or provident funds to gainfully develop modern and efficient infrastructures.

Because of the huge budget deficit, government would find it increasingly difficult to fund new infrastructure projects on its own in the months ahead. The SSS and the GSIS could step in and help fund such projects, provided they are assured a fixed return by the government.

Recto said he could not understand why the GSIS was raring to invest more pension funds abroad while the government was trying to identify sources of funding for its PPP projects. He also said the pension funds that would be invested locally should have a government guarantee to protect its members, and should have no adverse impact on the agency’s actuarial life.

Surely if the government was able to guarantee certain infrastructure ventures by the private sector in the past, such as the EDSA Metro Rail Transit-3 project, then the government can also guarantee any projects by the SSS and the GSIS.

The private consortium that constructed the 17-kilometer EDSA MRT-3 via a build-lease-transfer contract enjoys a government-guaranteed rate of return. This basically means the government extends a fare subsidy in the event the project fails to generate the fixed return. The fare subsidy is on top of a government guarantee of the project’s debt obligations.

President Noynoy was critical of the subsidy granted to MRT 3 but perhaps it wouldn’t have hurt so much if the government was paying the GSIS and the SSS instead of private investors.

Also, while on the matter of in vesting in your own country, what about the GSIS having equity stakes in at least three Indonesian banks? If the GSIS is investing in the banks of our next-door neighbor, should it not have just invested here at home, in our own tested lenders such as Metropolitan Bank and Trust Co. and Bank of the Philippine Islands? This way, the GSIS could have helped further build up our own banks and the local stock market.

GSIS’s investment in Indonesian banks could be because of the bias of its foreign fund manager, ING Investment Management, a unit of the Dutch global financial services giant ING Groep NV. A group of Dutch corporations once ruled Indonesia, which was part of the Dutch Empire for almost 350 years.

Recto said the local earnings may not match or surpass the 7 percent per annum ROI derived by GSIS from its overseas investments but these could be money worth invested for a national cause.

Actually, Winston Garcia, erstwhile president and general manager of GSIS, claimed early on that the GIP had a guaranteed 8-percent annual return on investment. Later, he said the GIP was expected to generate a 5-percent yearly return.

However, a 5-percent return or even a 7-percent return might be barely enough to pay for the investment management fees due Credit Agricole and ING plus the custodian fees due Citibank, N.A.

All of these foreign fund managers are presumably getting paid, whether the GIP is making or losing money. –ERNESTO F. HERRERA, Manila Times

ernestboyherrera@yahoo.com