Low esteem for China
The $62-million loan agreement between the Philippines and China for the construction of the Chico River Irrigation project is having a rough sailing.
The provision allowing the use of our country’s patrimonial assets and assets dedicated for commercial purposes as collateral for the loan has come under fire from Senior Associate Justice Antonio Carpio.
He expressed fear this provision would allow China to seize the oil-rich Recto (Reed) Bank in the West Philippine Sea if the country defaults on the loan.
According to Presidential spokesperson Salvador Panelo, collaterals are standard in loan agreements and the Philippines had no choice but to agree to that arrangement because that was what China wanted.
His statements muddled, rather than clarified, the issue. He probably hasn’t heard of “clean” loans where banks lend money to borrowers on the strength of their proven paying capacity without demanding a mortgage or collateral to secure the loan.
When Panelo’s “beggars are not choosers” statement drew adverse public reaction, he backtracked and said the terms and conditions of the loan were mutually discussed and agreed by the parties.
As the administration found itself on the defensive, Finance Secretary Carlos Dominguez III stepped into the picture and issued a statement castigating the critics of the loan for their lack of faith in the country’s ability to pay its foreign loans. He said the Philippines has never defaulted on its loans.
Not so, said Carpio, who pointed out the Philippines declared a moratorium on its foreign debt repayments in 1983 when the then Central Bank did not have sufficient foreign reserves to service the country’s debt obligations.
No word has been heard from Dominguez or any Department of Finance official after Carpio questioned the country’s alleged clean record on foreign loan repayments.
From the looks of it, the controversy over the Chico loan agreement is not going away anytime soon. A petition has been filed in the Supreme Court questioning its constitutionality and the manner it was entered into by the government.
The heat generated by the Chico loan raises an interesting question: If the loan was sourced from the United States, Japan, South Korea or any country other than China, would it have drawn the same degree of intense questioning or scrutiny?
According to the DOF, the interest rates on the China loan are on a par with the rates offered by Japan and South Korea. If this is true (and we have no reason to think otherwise), then the financial terms of that loan should not be a cause for alarm.
Assuming a US, Japanese or South Korean development loan carried the same collateral provision as the China loan (which is not standard in those two financing schemes), it is doubtful if that provision would create a big fuss in the public sector.
The collateral would probably be looked at as a cosmetic feature of the loan, or a subtle pressure mechanism on the Philippines to see to it the amortization payments are made on time.
In other words, those countries would be given the benefit of the doubt that they were motivated by benevolent intentions in lending the money, and that in the unlikely event the Philippines defaults in its loan payments, the collateral provision would most likely not be invoked and the loan would be restructured with more liberal terms.
What may account for the difference in reactions? Simple, trust. In the September 2018 survey of Social Weather Stations, China was the least trusted country by Filipinos.
The low esteem for China may be traced to, among others, its territorial incursions in the West Philippine Sea, the influx of Chinese workers in construction projects and the involvement of Chinese nationals in the local drug trade.
The uproar over China’s loan for the Chico project is an expression of the suspicion that the loan is being extended for reasons other than benevolent, and is part of China’s grandiose plan to expand its political hegemony in this region.
If past experiences with China are used as standard, this concern is not unfounded.
