MANILA, Philippines—An American think tank has urged Washington to treat with “serious concern” the corruption scandal over the aborted National Broadband Network (NBN) deal with China’s ZTE Corp. as well as suspicions linking the flow of Chinese loans to Manila to a 2004 accord that allows Beijing to scan the disputed Spratlys island chain for fuel deposits.

The Heritage Foundation, however, said that from a US standpoint it would be “far more preferable” for President Gloria Macapagal-Arroyo to finish her term rather than be ousted through extra-constitutional means, “even if under a cloud of suspicion” over the NBN-ZTE and Spratlys issues.

It observed that the NBN-ZTE scandal had aroused “still-meager protests” and that “public outrage has not reached a level that rules out amicable settlement.”

But the group also echoed warnings from critics of the Spratlys agreement, saying a “study today” of the area’s resource potential may eventually threaten Philippine sovereignty and ultimately reinforce Chinese claims on the territory.

“As Washington calculates its diplomacy and geopolitical interests, politics in Manila going completely off the rails should be a serious concern,” said Walter Lohman, director of the foundation’s Asian Studies Center.

For sale

“Even more disturbing is the thought that a pillar of the United States’ historic presence in the Pacific may be for sale,” Lohman said in an article titled “Off the Rails in the Philippines” and released on Friday.

The 35-year-old Heritage Foundation is a research and educational center based in Washington DC. It describes itself as an institute that promotes conservative public policies based on principles of free enterprise, limited government, individual freedom, traditional American values and a strong national defense.

Its recommendations are generally addressed to the White House and US Congress, as well as the US academe, media, and public policy communities.

Lohman said “the most spectacular charge to emerge from the (NBN) controversy is that the contract flows from a 2004 China-Philippines deal to put aside sovereignty claims in the South China Sea in order to conduct a joint seismic study.”

Threat to sovereignty

The Heritage official was referring to the three-year Joint Marine Seismic Undertaking (JMSU), an agreement first inked between China and the Philippines. Vietnam was later included in the agreement after the country, being another Spratlys claimant, registered its protest.

Lohman spoke of the “obvious danger” that the tripartite cooperation contemplated under the JMSU “will eventually threaten Filipino sovereignty.” He noted that the area covered by the study was “far from the China mainland, but close to the Philippines.”

He further warned: “A study today will lead to a joint tapping of resources tomorrow and ultimately reinforce Chinese claims in the territory.”

Such a “concession” was difficult to understand strictly from an assessment of the Philippine national interest, Lohman said.

Just data gathering

The Arroyo administration has defended the JMSU, which expires this June, saying it is just a “data-gathering effort among oil companies” from the three countries.

Malacañang, mainly through former Energy Secretary Vince Perez and former Philippine National Oil Co. president Eduardo Mañalac, maintained that the JMSU was “scientific in nature” and not a treaty that would affect any territorial claims of the Philippines.

Lohman noted that the NBN-ZTE deal was “only one element to emerge from the $2 billion per year Chinese project loans offered soon after the deal on the seismic study.”

Dozens of deals

The Chinese loan program extends until 2010, Ms Arroyo’s last year in office and “has already facilitated dozens of deals beyond the ZTE broadband project,” he said.

“Another massive deal that has aroused suspicion is the 25-year concession to the Philippines power grid,” Lohman said.

He was apparently referring to the awarding to Monte Oro Grid Resources the right to operate the assets of National Transmission Corp. (Transco). Monte Oro counts among its partners Enrique “Ricky” Razon, port operations magnate and a treasurer of the administration ticket Team Unity in last year’s senatorial elections. [Razon, who has invested in a port in Shandong province, denied that he was the treasurer of Team Unity.]

“The biggest privatization in Philippine history, the $4-billion deal has a similar confluence of factors: Chinese involvement, high-value assets, and charges of connections to the First Family,” Lohman said.

He said what was alarming about these cases was the possibility that corruption in the Philippines may have reached the point of trumping national interest.

Lohman noted that one commentary on the JMSU, for instance, had called the deal an act of “treason” on the part of Ms Arroyo.

“While to date the evidence of a connection between the seismic deal and official corruption appears circumstantial, the new depths being plumbed by this ‘debate’ are reason enough to be concerned,” he said.

Fix the system

But Lohman said Ms Arroyo deserved a fair hearing “if for no other reason than that she is the duly elected President. If not guilty of treason, (her) government may yet garner enough trust among the Filipino elite to put the controversy behind it.”

If the President’s critics have sensed that the impeachment process has itself become “too corrupt to render an accurate judgment, the answer does not lie in appeal to extra-constitutional means, but in a concerted effort to fix the system, however difficult and lengthy it may be,” Lohman said.

Calling the Philippines a “natural American ally,” Lohman said that “from the perspective of a concerned friend, it would be far more preferable for the President to finish her term in office—even under a cloud of suspicion—than for the Constitution to be breached.”

He said that the United States “should help (the Philippines) avert what has the potential to become a major constitutional crisis.”

The United States should hold up a mirror to the Philippines, Lohman said.

“The US does its Filipino friends no good by pretending corruption is any less than a cancer eating away at its body politic … Above all, the US must be crystal clear that it supports the constitutional order in the Philippines,” he said.

Malacañang Monday said it agreed with the US government that the NBN-ZTE controversy had not affected Philippine-US ties, as observed by the Heritage Foundation.

“As far as we know, this alleged effect on the US government has been denied by the US ambassador herself and I guess that’s reasonable stand to make,” Press Secretary Ignacio Bunye told reporters.

“We agree with the stand of the US ambassador that this has not affected our relations,” Bunye said. With a report from Christine O. Avendaño