“The debt trap avoided”; Marcos urged to review Chinese loans

Former Finance Secretary Carlos Dominguez III (PHOTO MALACAÑANG)

MANILA, Philippines — The Philippines has avoided a “debt trap” after halting requests for loans from China to finance three major rail projects under the Duterte administration’s “Build, Build, Build” program, a said the head of a local think tank on Saturday. .

Also on Saturday, former Finance Secretary Carlos Dominguez III, who canceled the loans in May, assured Filipinos that Chinese financing of several costly infrastructure projects under the Duterte administration was “favorable” to the country and comparable to the low interest loans granted. by Japanese and other lenders.


“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 of Japan”, Stratbase ADR Institute President Dindo Manhit told the Inquirer.

Transportation Undersecretary for Railways Cesar Chavez announced the cancellation of the loans on Friday and told reporters that the Chinese lender, state-owned China Eximbank (Cexim), was asking for 3% interest on loans, well above the 0.01% rate applied by Japan.

The railway projects, which were supposed to be part of Duterte’s “legacy”, were the 380 kilometer Philippine National Railways (PNR) Bicol project, the 71.13 m Subic-Clark railway project and the first phase of the Mindanao Railway Project.

Can still be canceled

President Ferdinand Marcos Jr. had ordered the Department of Transportation (DOTr) to review possible Chinese loans for the railways. Finance Secretary Benjamin Diokno said the new administration would “revisit” the projects and if they still prove “helpful”, the government could reinstate loan applications.

Manhit said “there is no problem reviewing and reviewing the talks with China as long as they are comparable to Japanese loans”, which were granted at almost zero interest.

He also urged the Marcos administration to review the contracts of other loans from China “as a step towards establishing principles of good governance through greater transparency and accountability on ODA”. [overseas development assistance] loans. »

Manhit said Duterte’s other Chinese loans could still be canceled or canceled due to what the Audit Commission reported as their projects’ failure to comply with the country’s public procurement law and even the environmental compliance certification process.

Citing a report by Undersecretary of Finance Mark Dennis Joven, who led foreign loan negotiations during the Duterte administration, Dominguez said Cexim “has not yet specified the cost of funding it has l ‘intention to offer’.

“Cexim, however, said it intends to expand lending while recovering at least the marginal cost of funding.”

“Currently, as benchmark US dollar interest rates have risen to around 3%, Cexim will strive to recover at least that funding rate,” Dominguez said.

Other Duterte projects

The Duterte administration had signed loan agreements with China to fund the National Irrigation Administration’s Chico River Pump Irrigation Project, the Metropolitan Waterworks and Sewerage System’s New Centennial Water Source-Kaliwa Dam Project, the PNR South Long-Haul Rail Line and the proposed 3.9 km Samal Island-Davao City Bridge Project.

Only the loan for the bridge connecting Duterte’s hometown to the neighboring island was denominated in Chinese renminbi. The other 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 told the Inquirer.

The three railway projects have a combined cost of 275 billion pesos — 142 billion pesos for the PNR Bicol project; 83 billion pesos for the first phase of the Mindanao Rail; and 50 billion pesos for the Subic-Clark railway.

The Ministry of Finance did not disclose the exact amount of loans requested for each of the three railway projects.

2.02% of total ODA

In 2021, the state planning agency, National Economy and Development Authority (Neda), reported that by the end of 2020, China accounted for $620.7 million in loans and ODA grants, or 2.02% of the total ODA portfolio. This compares to China’s previous commitment of up to $9 billion in ODA grants and loans for flagship infrastructure projects in the Philippines.

By comparison, outstanding Japanese ODA loans and grants to the Philippines amounted to $11.2 billion, or 36.4% of the total over 45 financing commitments. South Korea also provided more ODA to the Philippines than China, with 21 low-interest loans and grants worth $809.9 million.

On top

Former Neda chief Ernesto Pernia does not believe the Philippines was in danger of being lured into a Chinese debt trap.

“China simply took too long – after the Philippines had already submitted the required project proposals – to submit three names of candidate contractors, from which the Philippine government chooses, and release the funds for the projects,” he said. Pernia to the Inquirer.

Asked if he also finds Chinese ODA slow, Dominguez replied, “The partnership between nations is multifaceted and cannot be judged by a single dimension.”

He said the Chinese loans obtained by the Duterte administration were all honest.

“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,” Dominguez said.

Duterte’s economic officials said they had been “very careful and strict in reviewing” financing agreements and implementation contracts for Chinese-funded projects.

In 2016, Neda’s Investment Coordinating Committee (ICC) issued guidelines detailing the process for selecting Chinese contractors for China-backed projects after Duterte sought closer political and economic ties between Manila and Beijing.

The ICC rules were intended to avoid a repeat of the Northrail and ZTE debacles – flaw-laden projects struck with Chinese companies by the Arroyo administration.

Beijing still committed

At a press conference in Beijing on Friday, Chinese Foreign Ministry spokesperson Wang Wenbin said China remains committed to providing assistance to the Philippines and will cooperate with Marcos in pursuing projects.” conventional and high-tech infrastructure”.

“The Philippines has always been a priority in Chinese neighborhood diplomacy,” Wang said.

He did not directly address the announced withdrawal of rail loan applications.

“The Chinese side will support the Philippines in its efforts to achieve food self-sufficiency and modernization of agriculture, strengthen conventional and high-tech infrastructure and improve its energy structure, so as to generate more tangible benefits for the Filipino people and also for Chinese people,” he said.

The Chinese official said the two countries would focus on four key areas – large-scale agriculture, infrastructure, energy, and cultural and people-to-people exchanges – “to strengthen friendship and cooperation”.



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