Pernia: Nothing Definite Yet on ODA funds from China

Jul 22, 2017

by

 

(Cagayan de Oro City, 19 July 2017 ) The country’s socio-economic planning secretary has downplayed reports that the Philippines is at risk from loans and official development assistance from China arising from President Rodrigo Duterte’s recent state visit to Asia’s largest country.

 

Presscon with RD Leon Dacanay Jr., NEDA Sec & Dir Gen Ernesto Pernia and Usec Jose Miguel dela Rosa

Presscon with RD Leon Dacanay Jr., NEDA Sec & Dir Gen Ernesto Pernia and Usec Jose Miguel dela Rosa

“We don’t know yet what the Chinese will be charging because nothing has been signed yet in terms of financing,” said Socioeconomic Planning Secretary and National Economic and Development Authority Director General Ernesto M. Pernia during a press conference held here following the unveiling of the Philippine Development Plan and the Northern Mindanao Regional Development Plan for 2017-2022.

 

In November last year, the National Economic and Development Authority (Neda) Board approved the guidelines to ensure the transparent availment of Chinese loans being extended to the Philippines.

 

The board, chaired by the President, approved the “Guidelines for the Availment of Chinese Support for the Conduct of Pre-investments and Investment Activities.”

 

Guidelines for Transparency

To avail of the Chinese support or preferential or concessional financing under the guidelines, the Department of Finance (DoF) requires proponent agencies to: adhere to the implementation procedures of both the Chinese and Philippine governments; employ qualified, legitimate, and good standing Chinese consultants/contractors; engage different entities in the development and implementation of projects for Chinese support; and, undertake competitive selection in the procurement of Chinese contractors.

To allay fears about other countries’ allegedly adverse experience with Chinese ODA, the government recently sent a mission to Pakistan to investigate.

“We sent a delegation from the DOF and the NEDA to Pakistan recently to try to sound them out, on their experience with ODA from China, and they haven’t made a report yet,” Pernia said.

 

Socioeconomic Planning Sec & NEDA Dir. Gen. Ernesto M. Pernia unveils the Philippine Development Plan and Regional Development Plan for Northern Mindanao 2017-2022 with the assistance of RD Leon Dacanay Jr., NEDA Usec.Jose Miguel dela Rosa & NEDA-X ARD Mae Ester T. Guiamadel (CIO Photo)

Socioeconomic Planning Sec & NEDA Dir. Gen. Ernesto M. Pernia unveils the Philippine Development Plan and Regional Development Plan for Northern Mindanao 2017-2022 with the assistance of RD Leon Dacanay Jr., NEDA Usec.Jose Miguel dela Rosa & NEDA-X ARD Mae Ester T. Guiamadel (CIO Photo)

“So nothing has been set in stone as far as Chinese commitments are concerned. There are so far no signings of loan or ODA agreements with China,” he added.

 

Budget Secretary Benjamin E. Diokno belied claims that Chinese ODA would adversely affect the Philippine economy, in a report filed by BusinessWorld last May.

 

Diokno said the country’s debt to GDP ratio would decline from 40% in 2015 to 35% in 2022. He said the Philippine’s borrowing costs would be around 4%, with nominal GDP likely to increase by nine to 10% annually. Further, he said the administration is aiming for an 80:20 mix in favor of local borrowing to minimize foreign exchange risk of foreign financing of the deficit.

ODA Experience with Japan

 

Comparatively speaking, Pernia said the Philippines have had a much longer experience with Japanese ODA.

 

“We’ve had a much longer experience with Japan and we know that the interest on Japanese ODA rangers from .25 to .75 percent, below one percent,” Pernia noted.

 

The latest state visit to the Philippines last January of Japanese Prime Minister Shinzo Abe resulted in ¥1 trillion in aid over the next five years.

 

According to the Bangko Sentral ng Pilipinas, Japan is the largest foreign direct investor in the country, with net investments more than doubling to $394.91 billion in 2015 from $117.50 billion in 2014.

 

Build,  Build, Build

The administration’s economic “Build, Build, Build” infrastructure program is estimated to require external borrowings of US$ 157-billion, mainly coming from China and Japan.

Public and private economic planners have expressed alarm over the administration’s abrupt shift from the Public-Private Partnership (PPP) of the former administration to ODA citing the minimal ODA extended by China to the Philippines ($123M out of total $30.08 billion) and the relatively slow downloading of ODA, particularly from China  (27 months from project development to groundbreaking for PPP, vs. 37 months for Korean ODA, 38 months for Japanese ODA and 40 months for Chinese ODA), according to NEDA records.

Thus, the $24-billion ODA investment and loan package proffered by China to the Duterte administration (mostly in infrastructure projects like railroads and ports) was recently the hot topic at the Bangko Sentral ng Pilipinas (BSP) forum in Cebu City, according to a Sun Star Cebu Business story filed by Jeandie O. Galolo.

In her report, Galolo cited how Fernando Fajardo, economist and professor at the University of San Carlos, detailed the unfortunate experience of infrastructure projects in Africa which resulted in the fourfold rise of Chinese financing to Africa from US$7-billion in 2008 to US$26-B in 2013, according to the Wharton School of Economics. In December 2015, Chinese President Xi Jinping pledged $60 billion to support Africa’s infrastructure wish list.

 

Presentation of the Aksyon Para Ambisyon PDP RDP Northern Mindanao 2017-2022

Presentation of the Aksyon Para Ambisyon PDP RDP Northern Mindanao 2017-2022

Fajardo cited the sad experience of the Chinese-financed Mattala International Airport in Sri Lanka which has been unable to generate passenger traffic.

In another report filed with the Philippine Daily Inquirer, Hardeep Puri, chair of India’s Research and Information System for Developing (RIS) Countries, also warned the Philippines to be wary of China-funded projects to avoid falling into the same debt trap as other countries that have received massive Chinese loans and investments such as Laos and Sri Lanka.

China has also poured massive amounts in loans and investments into Asean countries such as Thailand, Myanmar, Laos and Cambodia.

Puri cited the cases of Sri Lanka, which was forced to convert its debts to China into equity to avoid defaulting on payments, and Laos, where China is building a $6-billion high-speed railway the economic viability of which is under question.

China funded an international airport and deep-sea port in Hambantota, Sri Lanka, which have become white elephants and left the country heavily indebted to China.

Costing almost $2 billion, the airport and seaport are losing heavily. The airport receives just one flight a day and the seaport only six ships week. To avoid defaulting, Sri Lanka agreed to a debt-to-equity swap with China which gave China Merchants Port Holdings an 80-percent stake in the Hambantota port for 99 years, including 6,000 hectares of land around the port.

In exchange, China wrote off most of Sri Lanka’s debts. But the deal enabled China to gain access to a strategically located outpost in the Indian Ocean region, a deal slammed by locals as China’s “colonization” of Sri Lanka.

In Laos, China began construction of the $6 billion high-speed railway from Kunming in China’s Yunnan province to Vientiane, the Laotian capital, in December last year. Puri said it would take 11 more years for the railroad to  become economically viable.

In nearby Myanmar, China built a 770-kilometer oil and gas pipeline from the Kyaukpyu port to Yunnan for $1.5 billion. Now, China is demanding 85-percent ownership of the port.

To avoid the pitfalls that have left some countries mired in debt to China, Puri said China’s One Belt, One Road initiative, under which the projects come, should be overhauled to consider sovereignty and economic viability.

However, fellow economist and former socioeconomic planning secretary Cielito Habito asserted ODA from China to the Philippines would not end up similarly, if properly used.

 

Habito cited how the Philippines recorded in 2016 its lowest debt-to-GDP ratio level in the last 20 years, at 42.1 percent from 44.7 in 2015, indicating the PH economy has the resources to pay back its debts. Habito added that provided the country’s GDP grows faster than public debt, it won’t be a problem. As of end-2016, the national government’s outstanding debt stood at P6.09 trillion.

 

-30-

Share this Post: