MANILA, Philippines — The Department of Finance (DOF) has reiterated that the government is upholding strict standards in signing loan agreements with other countries to ensure that these deals are not disadvantageous for the country.
Finance Undersecretary Mark Dennis Joven made the statement in response to Deputy Minority Leader and Bayan Muna Rep. Carlos Isagani Zarate, who claimed that the government’s loan agreements with China for the Kaliwa Dam and Chico River Pump Irrigation projects – amounting to P4.37 billion and P12.2 billion, respectively – contain onerous provisions.
Zarate further urged Malacañang to review the deals, much like what it is doing right now with the water concession agreements.
Debunking Zarate, Joven noted that the basic structure of water concession agreements, which are public-private partnership (PPP) contracts, is different from the financing agreements entered into by the government with other countries and multilateral institutions, which are covered by international law.
Furthermore, the DOF official said there are six main factors considered by the Philippines before signing loan agreements for its flagship infrastructure projects.
“First, these projects are Filipino projects. Before they were approved for implementation, these projects went through a rigorous vetting process and were found to have high economic rates of return. This means that the project’s benefits far outweigh the costs,” Joven said.
“Second, the country borrows from other countries to take advantage of concessional, or cheaper, financing,” he said. “The interest rates offered by foreign countries are way lower than anything the private sector can offer,” he said.
Thirdly, Joven said that while there are confidentiality clauses in the loan agreements for the Kaliwa Dam and Chico River Pump Irrigation projects, they are accompanied by specific provisions stating that the contracts may be released “in accordance with any Philippine law.”
“The Philippine Constitution mandates disclosure of information relating to foreign loans,” Joven said. “That is why the DOF unilaterally released copies of the loan agreements online.”
Fourth, the DOF undersecretary emphasized that provisions under the loan agreements with China are standard across all financing deals with other lenders.
“For example, the choice of governing law in the interpretation of the loan agreement is often the law of the lender, as seen in our loan agreements with China, Japan, Korea and France, even during past administrations.”
“To further explain, these choice of law provisions are essential to international agreements with a commercial nature because of the presence of a foreign element,” he said.
Fifth, Joven said the choice of arbitration venue are negotiated on a per-loan agreement basis.
“Sometimes, the arbitration venue is in the country of the lender, which was the case in some loan agreements signed in the past. Sometimes, the arbitration venue is in a third country,” he said.
However, regardless of the venue, Joven said the usual arbitration rules apply, such as the nomination of three impartial arbitrators.
“In the worst case, for any arbitral award to be enforced, it needs to be brought before a Philippine court, which would measure the validity of the award against our own internal laws and Philippine public policy,” he said.
Finally, Joven said the Philippines is managing its debt “responsibly,” noting that the share of the country’s debt compared to its gross domestic product (GDP), has declined over the past years.
He said the country’s debt-to-GDP ratio stood at 37.6 percent as of the second quarter of 2019, coming from as high as 74.4 percent in the early 2000s.
“Moreover, our country’s credit rating was upgraded to BBB+ last year by Standard & Poor’s. This rating is the highest in our history and signals international confidence in our economy and the country’s ability to pay its debts,” he added.