Marcos urged to review Duterte loan deals with China
The cancellation of Chinese loan requests for three rail projects has allowed the Philippines to avoid a “debt trap”, a political analyst said on Saturday, while urging the Marcos administration to also review other agreements reached by the Philippines. former President Duterte with Beijing.
But former finance secretary Carlos Dominguez III also said on Saturday that the Duterte administration had ensured that Chinese funding for a handful of its expensive infrastructure projects was “country-friendly” and comparable to loans to low interest rates granted by Japan and others. sources of development loans.
“The Philippines avoided the Chinese debt trap with the halting of loans for the three railway projects, given the onerous nature of [China’s] loan agreements compared to those in Japan,” said Stratbase ADR Institute President Dindo Manhit. Before the Duterte administration ended its term last month, Dominguez withdrew loan applications for contracts already awarded covering the first batch of the Philippine National Railways (PNR) South Long-Haul railroad project Subic-Clark and the first phase of Mindanao. Railway project.
In particular, talks with state-owned China Eximbank broke down.
Citing a report by Undersecretary of Finance Mark Dennis Joven, who was also the head of foreign loan negotiations at the Department of Finance (DOF) during the Duterte administration, Dominguez said that “CEXIM [China Eximbank] has not yet specified the cost of financing it intends to offer. However, CEXIM said it intended to expand lending while recovering at least the marginal cost of funding.
“Right now, as benchmark US dollar interest rates have risen to around 3%, CEXIM will strive to recover at least that funding rate,” Dominguez said.
As Russia’s invasion of Ukraine spread globally due to rising commodity prices, central banks around the world moved to raise interest rates in an effort to to contain galloping inflation. In the Philippines, the Bangko Sentral ng Pilipinas (BSP) raised its benchmark rate at an off-cycle monetary policy stance meeting last week to rein in high consumer prices and arrest the peso’s slide.
Asked if now is a good time to borrow from lenders like CEXIM who are looking for higher yields, Dominguez replied: “The prudent path would be to ensure that the cost of debt will be lower than the yields economic aspects of the financed project”.
While the closer ties between Manila and Beijing under Duterte’s watch were to yield economic benefits, particularly in terms of concessional infrastructure funding from China, these had in fact just sunk and paled in comparison to those of the Japan.
The latest official development assistance (ODA) report by the National Economic and Development Planning Agency (Neda) released last year showed that by the end of 2020, China had granted Philippines a total of three ODA loans and two grants totaling $620.7 million or just 2.02% of the total ODA portfolio. As a reminder, China had committed $9 billion in ODA grants and loans for flagship infrastructure projects in the Philippines.
By comparison, Japan’s outstanding ODA loans and grants to the Philippines during the period amounted to $11.2 billion, or 36.4% of the total 45 funding commitments the country has made. obtained. Even South Korea had more ODA to the Philippines than China, with 21 low-interest loans and grants worth $809.9 million.
In 2020, former Neda secretary Ernesto Pernia said China was slow to provide financial assistance for the Duterte administration’s ambitious “Build, Build, Build” infrastructure program.
Asked if he also finds Chinese ODA slow, Dominguez replied, “The partnership between nations is multifaceted and cannot be judged by a single dimension.”
Dominguez nevertheless assured that the Chinese loans obtained by the Duterte administration were all above reproach. “Every effort on the part of the Philippines has been made to finance these projects on the basis of favorable terms and conditions broadly comparable to loans from other sources,” he said.
The previous administration had signed loan agreements with China to fund the National Irrigation Administration’s (NIA) Chico River pump irrigation; Metropolitan Water and Sewerage System (MWSS) Centenary New Water Source – Kaliwa Dam; as the Department of Transportation’s (DOTr) South Long-Haul PNR; as well as the Department of Public Works and Highways (DPWH) Samal Island-Davao City Bridge Projects. Only the loan for the bridge connecting Duterte’s hometown to the neighboring island was denominated in Chinese renminbi; the first three loans were in US dollars, as Philippine officials wanted parity and interest rates comparable to other ODA loans from other bilateral development partners as well as multilateral lenders.
“One way to avoid the ‘debt trap’ is to ensure that the financed project has an economic return greater than the cost of the loan. Another is to align loan terms with those governing loans from respected international sources,” Dominguez said.
As President Marcos directed the DOTr on Saturday to review potential Chinese loans for the railroads, Manhit said “there is no problem reviewing and reviewing talks with China as long as they are comparable to Japanese loans”, which came with an interest rate of almost zero.
For past Chinese loans, Manhit called for “a review of Chinese contracts as a step towards establishing principles of good governance through greater transparency and accountability on ODA loans.”
Manhit said Duterte’s loans in China could still be canceled or canceled due to “non-compliance with our public procurement law, as indicated by a report by the Commission on Audit (COA) and even the process of certification of environmental compliance”.
In 2016, Neda’s Investment Coordinating Committee (ICC) issued guidelines detailing the process for selecting Chinese contractors for China-backed projects after President Duterte sought closer political and economic ties between Manila and Beijing.
The ICC rules were put in place to avoid a repeat of the Northrail and ZTE debacles – flaw-laden projects struck with Chinese companies by former chairwoman Gloria Arroyo.
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