Aborted China railway loans
Three railway projects that the Duterte administration had earlier asked China Eximbank (Cexim) to fund may take some time, if at all, to come to fruition.
According to Department of Transportation Undersecretary for Railways Cesar Chavez, then Finance Secretary Carlos Dominguez III canceled the loan applications for those projects, which had an estimated cost of P275 billion, instead of keeping them in suspended animation due to Cexim’s inaction.
The bone of contention in the loans was the 3-percent interest Cexim wanted to impose, which was way above the 0.01-percent rate that its counterpart in Japan charges for similar projects.
Dominquez has advised against renegotiating the loans under the same or higher rates because it will run counter to the government’s efforts to reduce the national debt.
Since Cexim is wholly owned by the Chinese government, it is reasonable to conclude that its interest rate demand and inaction on the request to reduce it to a competitive level had been precleared with China’s top leadership.
Recall that at the start of the Duterte administration in 2016, China’s supreme leader, Xi Jinping, promised to make available trillions of pesos in loans and grants to the Philippines to help develop its economy.
That public declaration made then President Rodrigo Duterte an abashed fan of Xi Jinping with the expectation that he would deliver on his promise.
Incidentally, to date, only P16.55 billion in loans and P6.9 billion in grants have been extended by China to the Philippines.
Cexim’s action in imposing an exorbitant interest rate on the loans for the three railway projects raises serious doubts about the sincerity of the Chinese government’s offer of economic assistance.
The 3-percent interest rate smacks of a subtle or disguised effort to make China look like a generous lender, but in truth is not really serious in extending those loans.
The offer of financial aid appears to be all for show and may be looked at as a sly move to soften the Philippines’ resolve to defend its interests in the West Philippine Sea amid China’s unlawful depredation there.
In a manner of speaking, Cexim’s interest rate demand may be described, to use a local dialect, as “presyong ayaw magbenta (the asking price of somebody who does not want to sell).”
China probably knew that given the Philippines’ debt problem, it would not agree to that interest rate and would therefore be compelled to withdraw the loan applications.
And if that happens, China can claim (and boast) it was the Philippines’ fault, not China’s, that its “generous” offer of financial assistance did not materialize.
President Marcos has given instructions to his economic officials to renegotiate those loans in light of the country’s poor financial condition and dim prospects of local companies taking on the railway projects under public-private partnership arrangements.
Is there a possibility that Cexim would agree to lower the interest rate?
Yes, but it is doubtful if it would agree to put it on the same level as Japan’s because that action could be seized upon by its other debtor-countries as justification to demand similar treatment for future loans or the renegotiation of the interest rates of existing loan agreements.
It’s a precedent that China can ill-afford considering its broad implications on its economy and its ambitious Silk Road project, which has incurred billions of dollars in additional costs.
In the unlikely event that China agrees to reduce its interest rate to competitive scales, expect it to demand onerous concessions in the loan agreements to make up for the financial concession.
There will be no free lunch for the Philippines in case China agrees to accommodate the request to slash the interest rate.
The trade-off for lower interest rate could be, for example, a 99-year lease of an island near Taiwan or allowing China’s fishing fleet to fish in the rich fishing grounds of Benham Rise.
Take note that China is where it is now because it is uncharacteristically shrewd and wily. INQ
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