Secret loan terms fan ‘debt trap’ fears

POSTSCRIPT - Federico D. Pascual Jr. - The Philippine Star

President Duterte should order full disclosure to allay fears that the huge Chinese loans he had contracted to finance his ambitious megaprojects mortgaged patrimonial assets and could lead to a “debt trap.”

There are just too many countries that had secured soft loans from China falling into a “debt trap” – a situation marked usually with the lender taking over valuable assets or strategic sites, or grabbing vital products like oil, used as collateral by the defaulting borrower.

Presidential spokesman Salvador Panelo says that Filipinos need not worry about the Philippines defaulting since “we will pay” anyway. It has not been shown, however, that Panelo’s word is warranty enough for international lenders.

Panelo as presidential legal adviser says it is all right to use natural resources as loan collateral. Former solicitor general Florin Hilbay, a senatorial candidate in the Otso Diretso ticket, disagrees. This gives us an idea of the kind of legal advice the President gets.

If the President stonewalls and invokes the non-disclosure clause in the loan contracts, would not he be violating the letter and the spirit of Article II, Section 28, and Article III, Section 7, of the Constitution guaranteeing access to information imbued with public interest?

Another possible information source is the Monetary Board whose prior concurrence and quarterly reporting to the Congress are required by the Constitution for foreign loans (Article VII, Section 20). Assuming the board has been reporting periodically, will the Congress publish its reports?

The President can make it easier for everybody by disclosing on his own the terms and conditions of the China loans. Such openness in good faith will dramatize the point that he has nothing to hide.

During President Duterte’s first visit to Beijing in 2016, he was assured by President Xi Jinping soft loans amounting to some $9 billion, part of a promised $24-billion package of loans, investments and aid.

One such Chinese loan was for P3.7 billion to help finance the P4.37-billion Chico River irrigation project in the Cagayan Valley. Early this week, Supreme Court senior associate justice Antonio Carpio called attention to what he said were the loan’s onerous terms.

Carpio raised the possibility of its becoming a debt trap. He deplored President Duterte’s waiver of sovereign immunity in case of a default, a likely hometown decision in a compulsory arbitration in Beijing, and the use of some patrimonial assets as collateral.

• Easy loans can lead into debt trap

EARLY this month, visiting Malaysian Prime Minister Mahathir Mohamad advised his host, an unusual thing to do, to be “very careful” with borrowing from China. He warned that Beijing could gain undue control over a borrower that fails to make prompt payments.

The Malaysian leader himself has scrapped China-funded projects worth $22 billion approved during the time of his predecessor Najib Razak. He reportedly fears his government may not be able to pay the loan because of its deficit problem.

Philippine finance managers point out, however, that the country’s projected debt to China would be only about 4.5 percent of the total national debt by 2022, when most of the financing for infrastructure projects would have been accessed.

Of the 27 deals signed during Duterte’s visit to Beijing in October 2016, China agreed to provide $9 billion in soft loans, including a $3-billion credit line with the Bank of China, and $15 billion worth of direct investments from Chinese firms in railway, port, energy and mining projects.

With no timeline specified, Manila has been mostly waiting. Aside from the Chico River deal, officials looking for projects to show for the supposed partnership are rushing two spans across the Pasig River in Manila, demolishing a still-sturdy but not fully paid Austrian-built bridge in the process.

To help show the reality of a “debt trap” arising from easy loans that China dangles before countries impatient for development, we borrowed notes of @SyLicoNgaAko posted on Twitter.

SyLicoNgaAko recalled that the Philippines and China signed 29 agreements on the first day of President Xi Jinping’s visit to Manila Nov. 20-21, 2018.

He noted: “China uses opaque contracts, predatory loan practices, and corrupt deals. Other small countries in debt and in danger of the Belt and Road Initiative or China’s debt trap -- Djibouti, Kyrgyzstan, Laos, Mongolia, Montenegro, Tajikistan.”

He described what some borrowers of China are going through:

• Pakistan will pay China $40 billion for the $26.5-billion China-Pakistan Economic Corridor investments in 20 years, excluding the $8.2-billion Mainline-I project of Pakistan Railways, the only project that can materialize in the next few years.

• Maldives was saddled by China with huge debts through inflated investment contracts that involved personal gain for corrupt Maldivian officials. An exposure of $3 billion for a country with 400,000 people and a Gross Domestic Product of $4.9 billion in 2017.

• Sri Lanka reeling from a massive pile of debt had to hand over to China in perpetuity (99 years) its strategic Hambantota port with access to the Indian Ocean. The situation has raised international tension as Chinese submarines have been spotted at the port.

• Ecuador had to yield to China 80 percent of its most valuable export, oil, after its major hydropower dam/plant financed with a big Chinese loan broke down and plunged much of the country into darkness. Ecuador had committed 96,000 barrels of oil/per day to Chinese firms as repayment for its debts.

• Venezuela, from 2007 to 2014, had borrowed billions from China. To guarantee repayment, China insisted on being repaid in oil, which it got at a discounted rate and resold at market price. Double whammy!

In summary, SyLicoNgaAko concluded that China had used onerous loans to bury client-states in debt so it can seize control of their unexplored rich mineral territories.

*     *     *

Secret loan terms fan ‘debt trap’ fears

Postscripts are archived at manilamail.com. Author is on Twitter as @FDPascual. Email feedback to [email protected]

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