Opinion by Ferdin Sanchez
In a desperate move to save face, Presidential Spokesperson Salvador Panelo flip-flopped last week regarding his view on loan agreements for infrastructure projects with the Chinese government. He claimed that the deals were agreed upon on “equal footing”, after initially implying before that the Philippines has “no say” in the negotiations.
This claim comes at a time when government critics pointed out that the Chinese contracts are “onerous” and “one-sided”. Supreme Court Senior Associate Justice Antonio Carpio and senatorial candidate Neri Colmenares warned against the provisions included in the agreements that would allow China to seize patrimonial assets if unable to pay the debt.
The subject of controversy is the construction of the Chico River Pump Irrigation Project and Kaliwa Dam under Duterte’s “Build, Build, Build” program. Both projects will be undertaken by a billion-peso loan to the Export-Import Bank of China (Eximbank) on a 2% interest rate.
The nature by which the negotiations are going puts China at a strategic position to employ its notorious debt trap diplomacy and expand its sphere of influence in Asia as the Duterte government turns a blind eye in pursuit of establishing an illusory image of economic prosperity.
Recent trends show that China has used high-interest loans as leverage against third-world countries to acquire strategic economic assets. When Sri Lanka was unable to pay the loans, they were forced to lease the Hambantota port to China for a hundred years as borrowers of Chinese deals are required to waive claims on sovereignty.
Moreover, despite cheaper alternative loan deals, the administration maintained its position to borrow from Chinese subsidiaries.
Japanese firm Global Utility Development Corporation’s (GUDC) proposal would cost P21 billion and paid over 25 years with an interest rate of 0.25% to 0.75%. The government-approved Chinese Electric project would cost around P12.2 billion with an interest rate of 2%; but GUDC warned that the project would also require construction of two water treatment plants worth P28 billion, to be paid by Maynilad and Manila Water.
Department of Finance (DOF) Secretary Carlos Dominguez III downplayed concerns of compounding debt as the Philippines has no history of defaulting on loans. While it is true that the country’s debt remains to be manageable, it is important for the Philippines to remain cautious due to its political uncertainties such as the current budget impasse and a possible shift to federalism, which may put the country’s economy at a precarious situation.
Carpio also warned that any arbitration to set up loans with China would be held in Beijing under Chinese jurisprudence, putting the Philippines at a disadvantage. Such a set-up would be comprised of two arbiters chosen by each state. Both countries would choose a final arbiter, but the chairman of the China International Economic and Trade Arbitration Commission (CIETAC) can appoint one if no compromise is formed.
All indications point to an unfair treatment of the Philippines in the agreements. This begs the question: Why is the Duterte government fond of China?
The motivation is political: Duterte, straight from the Marcos playbook, will rely on risky and unsustainable loan deals to fund his infrastructure projects. This move will enable him to establish his legitimacy by using robust economic activity in the short-term to justify his authoritarian tendencies, amid growing opposition to his leadership.
China presents a strategic option for Duterte’s political interests of maintaining power and authority. It is his administration that directly benefits from the immediate financial capital that the deals present, but it puts the future at the whim of Chinese debt.
Indeed, the Philippines is playing into the hands of China’s debt ploy and it does so willingly.
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