Finance chief hits critics of China loans

Philippine Daily Inquirer / 05:10 AM April 03, 2019

“You of no faith to your country.” This was the rebuke of the head of the Duterte administration’s economic team to critics spreading fear that the government would be unable to pay the money it borrowed from China for big-ticket infrastructure projects under its ambitious “Build, Build, Build” program.

“The Philippines has never, never defaulted on its loans. The Philippines has not done it even in the worst time, and the worst time was right after Marcos,” Finance Secretary Carlos G. Dominguez III said in a statement Tuesday, referring to the two-decade long rule of dictator Ferdinand Marcos.

Dominguez was agriculture and agrarian reform secretary during the time of former President Corazon Aquino, hence was in the know about the state of the country’s finances post-Marcos era.

According to Dominguez, “even when the Philippines was cash-strapped, it had never defaulted on any of its loans,” as the finance chief recalled that the country paid its dues for the mothballed $2.2-billion Bataan Nuclear Power Plant even if it became a “white elephant.”

“The Philippines has no history of defaulting on its loans. So why are people saying now that we will default? They have no faith in the Philippines? I don’t know why people are saying, ‘there might be a default.’ That means to say those people have no faith in their own country,” he said.

Dominguez also maintained that there was “no collateral involved in the loans that the government has entered into with any country,” urging the public to scrutinize all of the loan agreements entered with China, copies of which were posted on the Department of Finance (DOF) website.

Dominguez earlier said that “the Philippines will not fall into a ‘debt trap’,” citing that “in conformity with the Constitution and our laws, none of the pipeline projects funded with official development assistance (ODA) from countries like Japan and China allow for the appropriation or takeover of domestic assets in the event of failure to pay, which is unlikely.”

“The government’s borrowing program remains very conservative in the sense that we only borrow to invest in projects that will generate economic gains which are greater than the borrowing cost. No infrastructure project is funded through ODA without going through a rigorous system of reviews and approvals by the Cabinet and the President, and unless there is certainty that the project is economically viable and highly beneficial for the Filipino people,” Dominguez said.

“The government’s debt is carefully structured to ensure that it does not borrow without raising its own capital for infrastructure projects, while at the same time sourcing a significant portion of financing from the local debt market to minimize exposure to adverse external factors,” he added.

Based on the latest National Economic and Development Authority (Neda) documents, of the 37 “Build, Build, Build” projects already approved by the Neda Board chaired by President Duterte as of Jan. 31 this year, 12 big-ticket infrastructure will be rolled out through loans and grants from China.

According to the DOF, despite what seemed to be a big difference in rates at face value, recent loans from China, Japan and South Korea were slapped almost the same level of interest rates when converted to their US dollar value.

On its website, the DOF listed down the nine loan agreements entered into by the Duterte administration thus far, including $62.09 million for the P4.37-billion Chico River Pump Irrigation Project and $211.21 million for the P12.2-billion New Centennial Water Source-Kaliwa Dam borrowed from the Export-Import Bank of China. Both Chinese loans were US dollar-denominated.

The DOF noted that the Chinese funding for Kaliwa Dam was a sovereign-guaranteed loan borrowed by the state-run Metropolitan Waterworks and Sewerage System (MWSS).

From the Japan International Cooperation Agency (Jica), the Duterte administration borrowed 11.84 billion Japanese yen for the P1-billion improvement of remaining sections along Pasig River from Delpan Bridge to Napindan Channel 3, a component of the Pasig-Marikina River Channel Improvement Project-Phase 3; 15.93 billion yen for the P9.89-billion Cavite Industrial Area Flood Risk Management Project; 104.53 billion yen for the P356.95-billion Metro Manila Subway Project-Phase 1, and 167.19 billion yen for the P628.42-billion North-South Commuter Railway Extension Project.

Two loans were already secured from the Export-Import Bank of Korea (Kexim): 114.26 billion South Korean won for the P7.38-billion Panguil Bay Bridge Project and 184.84 billion won for the P9.19-billion New Cebu International Container Port.

The government also borrowed $40.7 million from the World Bank and $23.9 million from its Clean Technology Fund for the P5.46-billion Metro Manila Bus Rapid Transit (BRT)-Line 1.
The DOF said the equivalent US dollar interest rates for the Japanese and South Korean loans were “estimated by calculating the US dollar swap fixed rate on a notional currency swap using the approximate average loan maturity, and market information available at signing date.”

Based on the DOF’s calculations, all nine loans had equivalent fixed US dollar rates lower than the comparable interest rates had the government borrowed through the issuance of global bonds to finance the projects, thus these loan agreements were “considered favorable to contract.”

The DOF noted that loans from the Export-Import Bank of China carried a fixed interest rate, while those from Jica and Kexim “carry a fixed rate based on applicable rates for consulting and non-consulting components (interest rate is calculated as the average of the applicable rates weighted by the corresponding loan amount for each of the components).—BEN O. DE VERA