• Tue. Oct 19th, 2021

Chinese debt trap fears rock the Philippines

ByDiane A. Gomez

May 7, 2021

Enter the Philippines on the growing global list of countries where Chinese loans and investments are castigated by critics as “debt traps” that could erode sovereignty.

In a widely publicized presentation this week, Senior Associate Supreme Court Judge Antonio Carpio cautioned against China’s potential confiscation of Philippine territory and resources as part of the country’s pump irrigation project. Chico river.

Court justice said the deal should serve as a “model” for China’s multibillion dollar investment plans in the Philippines, including major infrastructure projects under the Belt Initiative. and Road (BRI) of $ 1,000 billion from Beijing.

China has offered up to $ 26 billion in aid, loans and investments to fuel President Rodrigo Duterte’s “build, build, build” infrastructure building frenzy. These big promises were reiterated during Chinese President Xi Jinping’s visit to Manila last November.

Of the 10 high-cost Chinese infrastructure projects on offer, only one to date has passed the preliminary stages of implementation.

Chinese President Xi Jinping (left) gestures as Philippine President Rodrigo Duterte (right) attends a state banquet in Manila on November 20, 2018. Photo: AFP / Mark R. Cristino

Yet critics believe the investment windfall promised by China came in discreet exchange for Duterte’s strategic acquiescence in the South China Sea, where the two countries have competing claims and where China is militarizing its controlled characteristics. .

Carpio’s warnings were thus immediately echoed in the apoplectic headlines of the mainstream Filipino media, which adopted a largely critical view of Duterte’s relations widely perceived as too comfortable with Beijing.

The Philippine government has sought to downplay the concerns raised by the magistrate as “pure hypothetical” paranoia.

Government officials say the revealed contractual deal was “standard” practice and that the country is more than capable of servicing its debts to China and others.

China is expected to fund up to 85% of the $ 80 million (4.37 billion pesos) project, one of Beijing’s 10 major infrastructure projects.

The loan agreement comes with a relatively low interest rate of 2%, currently lower than commercial rates of between 3% and 5%, a “commitment fee” of 0.3% per year and a “management fee” of $ 186,260.

The Philippines has 20 years, including a seven-year grace period, to repay the loan. In the event of default, however, China could take back domestic assets as collateral, according to the loan agreement.

Philippine Supreme Court Judge Antonio Carpio in a file photo. Photo: Facebook

“In the event of the Philippines defaulting on the repayment of the loan, China may seize, to satisfy any arbitration award in favor of China, ‘the patrimonial assets and the assets dedicated to commercial use’ of the Philippine government,” said the Philippine magistrate, citing the language of the loan agreement.

The agreement also requires the Philippines to waive “any immunity” for sovereign or other reasons with respect to national property pledged in the event of a dispute over repayment of the irrigation project.

Carpio warned that any debt settlement dispute would automatically favor China, as the Beijing-based China International Economic and Trade Arbitration Commission will rule on such cases.

He also highlighted the controversial confidentiality clause of the loan agreement, which apparently violates the provisions of the Philippine Constitution of 1987 on the need to consult other branches of the state and key stakeholders in such matters.

The ultimate threat, Carpio said, was the possibility of China seeking control of the contested bank in Reed, an energy-rich area in the South China Sea, as part of any future debt settlement deal imposed by Beijing.

Last month, veteran lawmaker and senatorial candidate Neri Colmenares, a prominent public interest lawyer, also criticized the loan deal as unbalanced and “onerous”.

Philippine and Chinese currency banknotes. Photo: iStock / Getty Images

“The loan agreement for the Chico River pump irrigation project is onerous and greatly favors China. It is a disaster for the Philippines. Colmenares said, noting the possibility that other Chinese projects could have similar terms and conditions.

“This 3.6 billion peso loan is perhaps just one of many secret loan deals between China, the Philippines and China that could run into the billions,” he said.

Government officials quickly downplayed and dismissed concerns about the debt trap.

According to the Ministry of Finance (DOF), all agreements with China are subject to scrutiny to ensure compliance with national regulations and protocols on transparency and standards of good governance.

“They also underlined the attractiveness of Chinese loans. The rate of our loan is concessional. This means it is still lower than access to funds from the private market or from a multilateral development bank, ”DOF spokesman Antonio Lambino told media.

“I think we are really taking the plunge. [We are] too far ahead of what can happen. I think we really don’t have to worry, ”Justice Secretary Menardo Guevarra told reporters on March 26.

Filipino protesters hold placards with portraits of Chinese President Xi Jinping during an anti-China rally outside the Chinese consulate, Manila, November 21, 2018. Photo Ted Aljibe / AFP

“According to the DOF, [there is] nothing abnormal in this contract. It is something like a model that has been used in so many other loan agreements. So, I guess we really worry too much. “

Presidency spokesman Salvador Panelo went further in justifying the loan agreement, saying “It’s natural for them. [China] do such things so that they make sure they don’t lose what they loaned us.

He also assured the public that the Reed Bank will not be part of any debt settlement agreement, even though, as Carpio has shown, it is considered a national heritage asset.

But these official assurances have so far failed to allay growing public skepticism about the actual terms and conditions of Duterte’s rich relationship with China.

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