NEDA says China loans essential for infra push

MANILA, Philippines — Loans from China will greatly support the country’s ambitious infrastructure program and help in the strengthening of political and economic ties, Socioeconomic Planning Secretary Ernesto Pernia said.

China loans are significantly more expensive at two to three percent per annum compared to the 0.25 to 0.75 percent interest rates for Japanese official development assistance (ODA) loans.

Among the apprehensions raised on the availment of Chinese loans is the requirement to offer up as collateral major state assets and the need to actively prevent unscrupulous contractors from getting access to projects in the Philippines.

“There is a disadvantage, but there is only so much that Japan can absorb in terms of ODA,” said Pernia during the joint membership meeting of the Makati Business Club (MBC) and Philippine Chamber of Commerce and Industry (PCCI) in Makati City Wednesday, where he gave a presentation on economic benefits from stronger ties with China.

The Philippines has proposed several hard infrastructure projects for funding by the Chinese government but has not signed any agreements yet.

The government is attracted to financing from China due to the speed at which projects can be approved as opposed to those funded by Japan.

“The thing about Japanese loans is that the partnership with Japan is a long standing partnership, and we have had good relations with Japan. The only problem we had with Japan is the slowness in the processing of their projects, but because of the aggressiveness of China, Japan has also come forward and said that we will be faster this time, we don’t want to be left behind,” said Pernia.

“There can be gains also from these loan agreements with China, even compared with the other countries,” he added.

The availability of funding from China is also expected to give the country some elbow room because of the lower proceeds from the first package of the tax reform program. The government intends to fund 78 percent of the P9.04 trillion budget for infrastructure in six years through annual appropriations

“The lower revenue will require some shift in financing (for infrastructure),” said Pernia.

He reiterated that safeguards are in place for screening Chinese contractors that will undertake projects in the Philippines.

“We have that screening system on the Chinese side and on our side to make sure that we do not get involved in a company that is questionable or has a bad record,” he said.

He was referring to the mechanism set in 2016 in which the Investment Coordination Committee (ICC) of the National Economic Development Authority (NEDA) would become the designated clearing house for proposed investments from China.

China will have a counterpart agency that would accredit companies to have partnerships with the Philippines. The Philippine government, on the other hand, would screen the firms through the small NEDA-ICC composed of only the main economic managers.

Such companies should not be in the blacklist of multilateral development banks like World Bank, Asian Development Bank (ADB) and Asian Infrastructure Investment Bank (AIIB).

World Bank and Beijing-led AIIB approved last year the counterpart funding for the $500 million Metro Manila Flood Management Project but the project has not yet reached financial close.