Modify or cancel China loan accords–IBON

THE Duterte administration should modify or terminate the loan agreements it signed with China to avoid falling into the Chinese debt trap, an independent think tank said.

According to Jose Enrique A. Africa, executive director of research group IBON Foundation Inc., the loan agreements signed between the Philippines and China as released publicly by the Department of Finance (DOF) were “disadvantageous” and pose a risk to the country’s economic growth.

“We remain concerned that the administration’s intent to borrow as much as $14.4 billion from China, disadvantageous loan agreements, and established over-aggressiveness by China to assert its self-interest combine to create a Chinese debt trap for us. The risk also becomes greater as the country’s hyped economic growth starts to falter,” Africa said in a message to the BusinessMirror.

He also expressed concern that the Kaliwa Dam loan agreement has also “similarly objectionable” provisions as the Chico River Pump Irrigation Project deal although these were stated differently. 

These provisions include those which are governed by Chinese law, provisions on the dispute settlement in a Hong Kong/China-based tribunal, the possibility of paying for the loan with government property and the confidentiality clause.

Despite the repeated assurances from the DOF that there is nothing to worry about these loan agreements, Africa said they are still worried that loan agreements do not do enough to prevent the creditor from demanding to be repaid with public property.

“The Kaliwa Dam loan does have such a provision in Section 8.1 where the Philippine government explicitly ‘waives any immunity on the grounds of sovereignty or otherwise for itself or its property in connection with any arbitration proceeding,’ albeit except when prohibited by Philippine law. This is a different formulation from the Chico River agreement,” he said.

He also argued China’s track record when it comes to loan agreements with other countries also proves otherwise.

“We are also not assured when the DOF argues that such are anyway standard in loan agreements because China is unfortunately not just any lender. It has already been implicated in a few controversial debts gone bad where governments gave up control over strategic assets like ports,” he said.

Moreover, the Kaliwa Dam loan agreement also confirms their suspicions that it was done in “undue haste.” “Is the loan agreement already effective? And are management and commitment fees already starting to be paid? The management fee alone is already some P33.4 million [$633,645]. But the Kaliwa project does not yet have a feasibility study nor obtained the free, prior and informed consent [FPIC] of the affected community,” he said.

Nonetheless, Africa also said the government may just be so accustomed to privileging foreigners that it forgets that it has infinitely greater responsibility toward its citizens.

“Mere loan agreements do not and cannot alter the intrinsic sovereignty of the Philippine state to act in the interests of the nation. The Duterte administration made a big show of supposedly independent foreign policy at the start of its term—it can start by taking measures to modify or terminate these disadvantageous agreements,” he said.

Option to annul

Lawyer Michael Henry Ll. Yusingco, nonresident research fellow at the Ateneo School of Government, said the administration may still opt to have the signed loan agreements annulled or nullified if it proves that the terms were onerous.

However, Yusingco said the government can be the subject of a suit for breach of contract.

“Nonetheless, under general contract law, one party, i.e., the Philippines, can have the contract annulled or nullified if it can satisfactorily prove the terms are onerous,” he said.

Image credits: Grafikwebvideo |


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