The Philippine government continues to uphold strict standards in its foreign loan deals for the government’s “Build, Build, Build” infrastructure program, according to the Department of Finance (DOF).
Mark Dennis Joven, DOF undersecretary, made this assurance yesterday in response to the statement of Deputy Minority Leader and Bayan Muna Rep. Carlos Isagani Zarate that the loan agreements for the Kaliwa Dam and Chico River Pump Irrigation Projects contain “onerous” provisions and thus, like the Metropolitan Waterworks and Sewerage System concession agreements, should be reviewed by Malacañang.
Joven said the basic structure of the water concession agreements, which are essentially public-private partnership contracts, is very different from the official development assistance (ODA) financing agreements entered into by the government with countries such as China, Japan, France and Korea which are covered by international law.
“There is also a difference when it comes to the parties to these agreements,” he said in a statement.
The water concession agreements refer to the Philippine government vis-à-vis Filipino corporations, while ODA financing agreements are between the Philippines and other sovereign entities such as countries and multilateral lenders like the World Bank and Asian Development Bank.
“We have had long public discussions on this matter already. We published all the loan agreements we have signed for the ‘Build, Build, Build’ flagship infrastructure projects on our website last year. We once again encourage the critics to closely scrutinize the documents for themselves in order for us to have an accurate conversation about the matter,” Joven said.
Joven noted six main considerations for loan agreements and financing flagship infrastructure projects.
“First, these projects are Filipino projects. The Philippine government chose these projects because they are crucial in achieving more comfortable lives for Filipinos,” Joven said.
Before getting approved for implementation, these projects went through a rigorous vetting process and were found to have high economic rates of return, he added.
“This means that the project’s benefits far outweigh the costs. They are worth pursuing, even if we have to borrow money now because the Filipino people will benefit greatly from them,” he said.
Second, Joven said the country borrows from other countries to take advantage of concessional, or cheaper, financing.
“The interest rates offered by foreign countries are way lower than anything the private sector can offer. Borrowing at lower interest rates means having to pay less for the loans and thereby freeing up more government resources for other productive investments,” Joven said.
“Third, although we will find that the loan agreements for the Kaliwa Dam and Chico River Pump Irrigation Projects do contain confidentiality clauses, they are accompanied by specific provisions stating that the agreements may be released ‘in accordance with any Philippine law.’ The Philippine Constitution mandates disclosure of information relating to foreign loans,” he also said.
This point is further supported by Executive Order No. 2, series of 2016, issued by President Duterte to operationalize full public disclosure and transparency enshrined in our Constitution, he added.
“That is why the DOF unilaterally released copies of the loan agreements online,” Joven said.
Fourth, Joven said anyone who closely reviews the loan agreements with China will find that the provisions are standard across loan agreements with other lenders.
“For example, the choice of governing law in the interpretation of the loan agreement is often the law of the lender, as seen in our loan agreements with China, Japan, Korea and France, even during past administrations. There is nothing unusual with this provision, as it is found in loan agreements with several countries,” Joven said.
“To further explain, these choice of law provisions are essential to international agreements with a commercial nature because of the presence of a foreign element. On the other hand, this is not necessary in the case of a water concession contract, which is governed by domestic law,” he added.
For his fifth point, Joven said the choice of arbitration venue and arbitration rules are negotiated on a per-loan agreement basis.
“Should a country default on its loan – which is near impossible for the Philippines, given its strong macroeconomic fundamentals – then the lender may choose to bring the borrower to arbitration,” he said.
“Sometimes, the arbitration venue is in the country of the lender, which was the case in some loan agreements signed in the past,” he added.
Examples, he said, would be the loan agreements signed by the Arroyo administration with China in 2010 for the Angat aqueduct, the Aquino administration with France in 2015 for the Cebu Bus Rapid Transit, and the Duterte administration with China in 2018 for the Chico River Pump Irrigation Project.
“Sometimes, the arbitration venue is in a third country, as in the case of the most recently signed loan agreement with China for the Project Management Consultancy for the PNR South Long Haul Project. The arbitration venue stated in that loan agreement is Singapore,” Joven said.
“However, regardless of the venue of arbitration, the usual international arbitration rules apply, such as the nomination of three impartial arbitrators from among hundreds of arbitrators from Europe, US, Latin America, and other countries like Singapore and the Philippines,” he added.
Joven said should the arbitration process commence, the Philippines will select one person from the list of arbitrators, the lending country will select another, and the third member of the tribunal will be jointly selected.
“In the worst case, for any arbitral award to be enforced, it needs to be brought before a Philippine court, which would measure the validity of the award against our own internal laws and Philippine public policy,” he said.
For his final point, Joven said the Philippines is managing its debt, both local and foreign, responsibly.
“The Philippine government negotiates very hard for favorable terms. The country’s debt-to-GDP (gross domestic product) ratio, which is a measure of how much debt we have against the size of our economy and our ability to pay, has declined on the back of a healthy growing economy,” he said.
Joven pointed out as of the second quarter of 2019, it stands at 37.6 percent, from as high as 74.4 percent in the early 2000s.
“Moreover, our country’s credit rating was upgraded to ‘BBB+’ last year by Standard & Poor’s. This rating is the highest in our history and signals international confidence in our economy and the country’s ability to pay its debts,” Joven said.