Labor bucks offshore investments

With the Trade Union Congress of the Philippines (TUCP) voicing its opposition to the plan of the Government Service Insurance System (GSIS) and the Social Security System (SSS) to have offshore investments, expect a healthy debate on the plan of the two pension funds.

Already, Sen. Loren Legarda has sought for a deferral in the plan, citing projections that the peso-dollar rate could improve further. Indeed, if the peso-dollar rate—which has strengthened from the P56 to the dollar rate to P50 and then to P44.35—it would be prudent for the two pension funds to first survey the field.

The TUCP has a point in going against offshore investments since it deprives the country of the huge amount that could have meant economically benefiting the local economy.

“Both the GSIS and the SSS should be investing their funds here, where the money can directly and indirectly help create new jobs, and produce multiple economic benefits,” according to TUCP spokesman Alex Aguilar, who reminded the GSIS and the SSS that the funds that they plan to stash overseas represent the hard-earned contributions of workers.

In our take on the planned investments when it was announced last week, we took the position that the offshore investments smack of the lack of investment opportunities here. True, the plan could bring in the needed diversification for the pension funds, both of which have to earn enough to fund the future pensions of their members in their twilight years. But there are actually other modes of investment that could provide the needed income stream for both.

For us, the GSIS and the SSS can actually set up a “hedge fund” of sorts in funding the shortfall in the capital of local banks as a result of the Basle II capital adequacy-ratio requirements. This type of hedge fund can be put to good use in funding the capital-challenged commercial banks which now have to put in adequate reserves to address the risks associated with the banks’ lending business. The GSIS and the SSS can even be assured of better returns on their investments.

We are sure that both the SSS and the GSIS have come up with studies on the planned overseas investments to determine if the said plan could bring in the required rate of returns. As was pointed out before, the overseas foray of the two pension funds stems from the needed diversification in their investments, as well as the lack of liquidity in the local market. Diversification is a way for the two pension funds to be insulated from violent gyrations that usually happen to listed stocks.

There is no denying the fact, however, that Senator Legarda has a valid point in raising the deferral of the move based on the expectations that the peso-dollar rate could improve some more. Hence, the GSIS and the SSS could see their investments eroded immediately should the peso strengthen some more vis-à-vis the dollar. What good is it for the SSS and the GSIS to see their investments rising in value when, in peso terms, there is that sudden realization that the two pension funds would be giving back their earnings from their investments.

The TUCP also raised an equally valid concern. For the labor group, the two pension funds are “not only duty-bound to safeguard and grow the money, but also to invest the cash in such a way that it would redound to the best interest of our workers here.” The money to be invested, said to be in the neighborhood of P63 billion, is seen to create several economic opportunities when injected into the local economy.

Even if the planned offshore investments are invested passively in equities, bonds and fixed-income instruments, there are several economic benefits (already) associated with keeping the money here, instead of abroad.

“In the financial sector alone, P63 billion coursed through local stockbroker-dealers and banks already represent a lot of business. And the more business these local firms get, the more jobs they create and the more taxes they pay,” the TUCP stressed.

It is to be expected that the planned overseas foray could provide a healthy discussion of a number of issues related to the returns, risks, investment thrust, the need for diversification, as well as the limited liquidity and choices in the local market.

Even with the recent run-up in the local market to new highs, the SSS and the GSIS still have to contend with the problem of liquidity. The two cannot just dump their big shareholdings should they require pension-fund needs without influencing a downward spiral in the prices of the listed issues they own.

This is a problem associated with the Philippine market and this has to be properly addressed by authorities. More initial public offerings are needed to increase the choices and allow for a more vibrant local stock exchange.

Perhaps, it is time for the stakeholders to really take a hard look at the prevailing situation in the capital market. The Bangko Sentral is, at least, at the forefront of a financial literacy campaign, while the Securities and Exchange Commission has been busy with its warnings on investment scams.

All that is needed is for the Board of Investments to require companies that got tax and other incentives for them to list on the stock exchange. That alone takes care of expanding the number of blue chips such that the SSS and the GSIS need not think of investing overseas. 

E-mail: hugagni@yahoo.com

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