President Rodrigo Duterte presides over the 36th Cabinet Meeting at the Malacañan Palace on April 1, 2019.
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Business watches as Duterte orders review of gov’t contracts
Ian Nicolas Cigaral (Philstar.com) - April 3, 2019 - 4:51pm

MANILA, Philippines — President Rodrigo Duterte on Monday night ordered a review of all government contracts with companies and other countries — a development that business leaders said they would closely watch amid uncertainty over the directive’s effect on investor confidence.

According to Malacañang, Duterte put the Office of the Solicitor General and the Department of Justice in charge of the review that would “determine whether there are onerous provisions in the contract that would put the Filipino people in disadvantage or in violation of the Constitution.”

While it was unclear how many contracts would be up for review, Justice Secretary Menardo Guevarra said contracts including “concession agreements on public utilities and foreign loan contracts” are to be prioritized in the review.

“Even if it is executed, if it’s in violation of the Constitution, you can rescind and strike it down. We’ll ask the court to rescind it,” presidential spokesman Salvador Panelo told a press conference.

Sanctity of contracts

Honoring contracts has been one of the top concerns among investors.

Nabil Francis, president of the European Chamber of Commerce of the Philippines, said that while his group understands the intention behind the presidential directive, they hope the Philippine government “can continue to uphold the sanctity of contracts.”

“It may be too early to tell how such a directive will affect investor sentiment but we will continue to monitor the situation as we will need to observe how it will be implemented,” Francis said in an interview.

According to the 2019 edition of the World Bank’s report on economies’ competitiveness in ease of doing business, the Philippines ranked 124th out of 190 economies tracked, down 11 places from 113th in the previous year.

Under the “enforcing contracts” indicator — which gauges time and cost to resolve a commercial dispute and the quality of judicial processes — the Philippines slipped to 151st from 149th in the World Bank’s “Doing Business” report.

READ: Philippines ranking falls in Ease of Doing Business

“Any party to a contract can review its terms and settle disagreements according to provisions agreed to in the contract. But how is ‘onerous’ determined?” John Forbes, senior adviser at the American Chamber of Commerce of the Philippines, said in a separate interview.

“We hope international best practice will be observed and the Philippine low ranking of 151st of 190 countries for contracts in Ease of Doing Business will improve,” Forbes added.

“We will be very interested in the conclusions of this review and hope they will not discourage private sector partnership with government,” he continued.

‘Business as usual’

The Palace said Duterte issued the order after the president himself discovered “an onerous provision” contracted by the Ramos administration when the government entered a deal with water service provider Maynilad.

“[I]n that contract the Republic of the Philippines was prohibited from interfering into the terms of contract,” Panelo said.

“And that’s why we lost in the arbitration tribunal, and I think we were made to pay 3.5 billion pesos because according to the ruling, the government intervened and by reason of intervention Maynilad suffered damages,” he added.

In a statement on Wednesday, Senate Minority Leader Franklin Drilon said “extreme caution must be exercised” in implementing the Duterte’s directive to review all government contracts and loan agreements.

“I must caution that existing and binding contracts cannot simply be classified as onerous and cancelled,” Drilon said. “The government must avail of the procedure outlined in the contract.”

“The government must respect the sanctity of the contracts. Otherwise, no country or entity would enter into contracts with us because we cannot be trusted to honor our obligations,” the senator added.

Sought for comment, Union Bank chief economist Ruben Carlo Asuncion said “it will be business as usual” despite the review.

“Well, I am assuming that all these contracts have been entered in good faith and are actually fair to both our government and whoever the other party is. Therefore, there are, I believe, no significant unfavorable impact particularly on the private sector’s perception and general investing sentiments,” Asuncion said.

“Unless, of course, if there would be flagged and probably suspicious findings and/or results from the pending contracts reviews,” he added.

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