PH not falling into ‘Chinese debt trap,’ say key Neda officials

The Philippines is extra “careful” in borrowing from China to finance big-ticket projects even as three upcoming infrastructure ventures will be pitched for loans from the Chinese-led Asian Infrastructure Investment Bank, government economic managers said yesterday.

This was to address fears that the country might be falling into a Chinese debt trap as the government seems inclined to borrow heavily from China to fund projects.

Asked about this, Socioeconomic Planning Secretary Ernesto M. Pernia told a press conference that “given the various experiences of other countries that dealt with China, we are now even more cautious, extra careful in having projects funded by China.”

Pernia was referring to cases such as that of Sri Lanka’s Hambantota port which was reportedly acquired by China. He said it was coowned by China “because the loan was converted to equity.”

“We don’t want that to happen to us, that we convert loan to equity. We are trying to diversify as much as possible our funding sources to the extent that if we can handle that with local funds, we will do it (without borrowings). [South] Korea is also getting more interested now in funding our projects, so that is an additional source of funding,” he said.

He said there was only one project so far that had been signed for Chinese funding. He is referring to the P3.135-billion loan agreement for the Chico River Pump Irrigation Project, which is one of the flagship projects under the Duterte administration’s ambitious “Build, Build, Build” program.

The $62.09-million US-dollar denominated loan will cover 85 percent of the project’s total contract amount of P3.689 billion.

To be implemented by the National Irrigation Administration, the project will cost a total of P4.372 billion.

The Chinese loan was slapped an interest of 2 percent a year, maturing in 20 years inclusive of a seven-year grace period.

“If you notice in our China loans, they’re basically lending financing. When there’s a failure of the project, they’re not in a way tied to the ownership of the land. The contractors are simply contractors, so if you have a port or a bridge that is financed by China, and if there’s a failure, the government simply takes on the property. It’s not going to the Chinese financiers,” Neda Undersecretary Rolando G. Tungpalan said.

“In terms of appraisal, these projects are treated as government projects whether funded by China, Japan or [South] Korea. At the end of the day, there is no sovereign equity or ownership being offered on the block with regard to ODA [official development assistance] financing. In fact, we take the position that if they cannot accelerate their support, they cannot support us in preparing these projects and if there are conditionalities, we will have to review again these projects. So far there is no such risk with regard to these projects,” Neda Assistant Secretary Jonathan L. Uy said.

“These are not in the same framework that Sri Lanka and Pakistan and other Central Asian projects had. That is not the framework we follow,” Uy added.
Separately, the Department of Finance said in a statement that Finance Secretary Carlos G. Dominguez III was pitching to the China-based AIIB the following projects for possible financing support: Metro Manila Bus Rapid Transit System (Phase 3 from Bonifacio Global City to Ninoy Aquino International Airport); Pasacao-Balatan Tourism Coastal Highway in Camarines Sur; and Camarines Sur Expressway Project (San Fernando-Pili Section).

“We are hopeful that with the approval of the funding for [the Metro Manila Flood Management] project, the AIIB would find it feasible to invest in other big-ticket infrastructure projects under the Duterte administration’s “Build, Build, Build” program,” Dominguez said during the Asian Infrastructure Forum seminar on the sidelines of the multilateral lender’s third annual meeting in Mumbai, India.

In September last year, the AIIB approved its cofinancing of the $500-million Metro Manila Flood Management Project, the first loan that the lender extended to the Philippines.