June 19, 2018, 4:30 pm
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Loans for development

IT is common practice for governments to borrow if they lack revenues to fund development projects with long gestation period. The Philippine government, most especially under President Duterte who has embarked on an ambitious “build, build, build” program, is no exception, for whatever additional revenues derived from the TRAIN and other tax reforms have been prepositioned for specific public services spending, such as free college education, income tax exemptions for those earning P250,000 a year and below, etc.

Since China, with its robust economy, burgeoning foreign reserves, and official policy of helping its neighbors and friends, is today’s active lender, it seems natural for Duterte to tap Chinese loans for the nation’s financing requirements.

Although loans and grants from Japan, the European Union, the United States, the Asian Development Bank and other sources are still utilized, Duterte’s avowed closeness with China has become an easy target for critics of Chinese loans. These perennial Duterte detractors have spread false information that the nation’s natural resources have been compromised as collateral for these loans, and that the loans are onerous and the country will have a hard time paying them, with huge chances of default.

Finance Secretary Carlos Dominguez said this week that loan agreements with China for infrastructure projects will not entail any collateral because these are “sovereign debts.” Dominguez said “we don’t owe anybody any collateral, and we are borrowing very prudently. We borrowed $200 million, there was no collateral.” He was referring to the P12-billion in three-year panda bonds which the government issued in China last March.

Meanwhile, ADB Vice President for Operations Stephen Groff said that the Philippines’ macroeconomic fundamentals can take on the debt load offered by aid providers like China.

Groff made the clarification at the recent ADB meeting in Manila, in reply to the International Monetary Fund (IMF) managing director Christine Lagarde’s criticism that China is funding unsustainable projects in developing countries.

“The Philippines has strong macroeconomic management for quite a number of years now and that has put the country in a position to increase its borrowing to finance infrastructure investment, to finance human capital development,” Groff said.

Meanwhile, Filipinos look forward with great expectations to big-ticket projects financed by China which are designed to give them better living conditions. Among these are the P3.135 billion Chico River Pump Irrigation Project which was signed last April and the P10.9-billion New Centennial Water Source-Kaliwa Dam project which will be signed in July. 

If prudently used, these Chinese loans with 2-percent interest annually can spell success for Duterte’s “build, build, build” initiative, with future gains for the Philippine economy.
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