MANILA, Philippines — Interest rates carried by the Philippines’ loan agreements with China are at par with the terms offered by other development partners, such as Japan and South Korea, the Department of Finance (DOF) said on Monday night.
In an interview with “The Chiefs” on Cignal TV’s One News, Finance Assistant Secretary and spokesman Antonio Lambino denied claims that the interest rates imposed by China on its loans to the Philippines are higher than those asked by Japan and South Korea.
Lambino said critics who claim this fail to consider that the loan amounts are in different currencies, with Chinese loans denominated in US dollars, and Japanese and Korean loans in Japanese yen and Korean won, respectively.
“They’re comparing apples to oranges. The US dollar-denominated loans from China are at two percent with a 20-year repayment period, seven-year grace period. The Japanese loans are in Japanese yen. If we convert them, they are actually comparable,” he said.
Aside from this, Lambino said critics must also take into account the projections of the foreign exchange market on currency exchange rates over the repayment period of these loans.
Lambino added that should Japanese loans with a nominal interest rate of 0.08 percent be converted to US dollars, the resulting interest rate would be 2.7 percent, as is the case for the Y167.2-billion loan for the North South Commuter Railway Extension Project from Japan International Cooperation Agency.
As for the Philippines’ 184.84-billion-won loan from South Korea for the New Cebu International Container Port, Lambino said the interest rate would be at 1.36 percent if converted from Korean won to US dollars.
“So, they are all sort of in the 1.3- to 2.7-percent range. Nothing is 30 times the other, which is what some people claim,” he said.
The DOF official also pointed out that these rates provide the cheapest option for the Philippines, as it would be more costly to borrow from multilateral agencies and the private sector.
“In terms of the options available, this is the lowest in terms of the cost of financing,” he said.
Meanwhile, Lambino also clarified that the confidentiality clause in the government’s loan contracts with China is now rendered ineffective through negotiations.
“That’s moot because we negotiated that away when we said it’s confidential, subject to the laws of the Philippines. So, that means we have to disclose when a citizen requests,” he said.
About two weeks ago, the DOF posted on its website a copy of its loan agreements not only with China, but also with Japan and South Korea.
‘Unfounded’
Meanwhile, Finance Secretary Carlos Dominguez III said fears of the Philippines defaulting on any of its loans are “unfounded” as the government has never failed to pay its debts even during crisis.
“The Philippines has never, never defaulted on its loans. The Philippines has not done it even in the worst time and the worst time was right after Marcos,” Dominguez said in a recent interview with reporters.
“So, why are people saying now that we will default? They have no faith in the Philippines? I don’t know why people are saying ‘There might be a default.’ That means to say those people have no faith in their own country,” he added.
Earlier, the finance chief expressed confidence that the government would not fall into a debt trap with any country, as it manages its liabilities with prudence.
For one, he said infrastructure projects undergo a rigorous vetting system, as only projects that are economically viable are approved.
The government’s borrowing program, according to Dominguez, is “conservative” as it ensures that official development assistance (ODA) loans are allocated only for projects that have economic gains greater than the borrowing cost.
Moreover, the finance chief said bulk of the country’s debt is sourced from domestic lenders to minimize risks from external developments.
Dominguez also reiterated that the share of Chinese financing to the government’s total debt stock is projected to reach 4.5 percent by 2022, once most of the financing for infrastructure projects have been accessed.
For Lambino, only about 15 percent of the funding requirements for the Build, Build, Build program would be financed by ODAs.
He said a majority or 66 percent still would be funded through the Philippines’ own budget, while another 18 percent would be bankrolled through public-private partnerships.
Review of China contracts welcomed
In a related development, Sen. Grace Poe welcomed the initiative of the President to review contracts entered into by the government with China.
Poe, who chairs the Senate public services committee, said for the results to be impartial, those who negotiated the contracts should have no role in reviewing them.
“Made-in-China contracts should be vetted for onerous and one-sided provisions,” Poe said in a statement.
“But more important than discovering what lurks in the fine print of these contracts is the more important question: is the project to be funded really needed by our people? Or is it a donor-driven commercial enterprise pushed by influential brokers that is however not a priority need by the very people who will end up paying for them?” she said.
The country needs official development assistance as its infrastructure backlog requires foreign participation, according to Poe.
“But we can’t sweep due diligence and the laws of the land under the red carpet that government has rolled out for them,” the senator said.
She added that loans must be legally compliant and meet the good governance test, and most of all must have reasonable repayment terms.
Debt committee proposed
Meanwhile, Magdalo party-list Rep. Gary Alejano yesterday proposed the creation of a congressional oversight committee on debt management amid calls for Congress to look into the “onerous” loans the Duterte administration has obtained from China.
“While we recognize the power given to the President when it comes to incurring loans meant to spur growth and promote equity in the provision of public services and benefits, we should ensure transparency and accountability on all government borrowings,” Alejano said.
His proposal is contained in Bill 8480.
Alejano said the proposed oversight committee would “endeavor and pursue a debt management system that shall be made available to public scrutiny and subject to strict adherence to existing pertinent laws and rules and regulations.”
It would be composed of the chairpersons of the committee on ways and means of the Senate and the House of Representatives and three additional members from each chamber to be designated by the Senate president and the Speaker, with one member coming from the minority in each house.
“In the face of issues involving Chinese loans, it is important that we should have a system of studying and analyzing the indebtedness the government is incurring to make sure that we are not at the losing end,” Alejano said.
“We also need to ensure that our government’s limited resources shall be used appropriately, and that priority should be given to education, health care, and other public services meant to promote the welfare of Filipinos,” he said.
Several sectors and personalities, including Supreme Court Justice Antonio Carpio, have expressed concerns over loans from Beijing.
In particular, Carpio has criticized provisions in the loan agreements vesting jurisdiction over disputes to Chinese courts and allowing Beijing to seize Philippine “patrimonial assets” in case of an award by a Chinese tribunal, including the gas and oil-rich Recto Bank off Palawan.
Party-list group Bayan Muna has written the DOF for documents on the loans from China.
The group, however, lamented that the DOF has refused to release documents and instead referred it to the agency’s website. – With Paolo Romero, Jess Diaz