Dominguez disputes ‘tied’ loans from China

The Department of Finance (DOF) last Sunday refuted claims that loans obtained from China are a trap, requiring, for instance, a collateral in the form of natural resources.

Finance Secretary Carlos G. Dominguez III told financial reporters China has not asked for collateral from the Philippines for the loans and assistance it has extended to the country.

“There’s no collateral here. It’s a sovereign debt,” Dominguez said.

Earlier reports claimed the Philippines may be heading into a debt trap as it seeks for more Chinese loans to boost President Duterte’s infrastructure buildup program under its “Build, Build, Build” (BBB) initiative, with territories of the Philippines in the South China Sea ostensibly as collateral.

“We are upholding Philippine rights. We have a very good credit standing. We don’t owe anybody any collateral and we are borrowing very prudently,” he said.

It was also pointed out that interest rates for the loans provided for projects in the country were at higher rates compared to loans from such countries as Japan.

Dominguez explained the Philippines borrows funds for projects sorely needed by its people, pointing out the funds are not wasted as the loans underwrite projects that are necessary for continued economic expansion.

In March the DOF said a total $7.34 billion in loans and grants had already been committed by China to fund the country’s ambitious BBB program and for the rehabilitation of war-torn Marawi City.

In April Dominguez and Chinese officials signed in China a $62-million loan agreement to help fund the construction of the Chico River Pump Irrigation project and a separate accord on economic and technical cooperation providing for a $79 million grant for at least four other projects undertaken by the Philippine government in cooperation with China.

On behalf of the government, Dominguez signed a Preferential Buyer’s Credit Loan Agreement for the Chico River Pump Irrigation project with the Chinese Ambassador to the Philippines, Zhao Jinhua, representing the Export-Import Bank of China, and an Agreement on Economic and Technical Cooperation with China Commerce, Minister Zhong Shan, at the sidelines of the four-day Boao Forum for Asia held in Hainan.

The DOF said the $62.09-million or P3.135-billion loan agreement for the Chico River Irrigation project, which will be implemented by the National Irrigation Administration (NIA), covers 85 percent of the total contract amount of $73.04 million or approximately P3.689 billion. The total project cost is $86.57 million or P4.372 billion.

The interest rate on the United States-dollar denominated loan is 2 percent per annum with a maturity period of 20 years, inclusive of a seven-year grace period.

The agreement on economic and technical cooperation involves a 500 million renminbi (RMB) grant or approximately $79 million to finance the following projects and activities: partial funding for the Binondo-Intramuros and Estrella Pantaleon bridges in Metro Manila of the Department of Public Works and Highways (DPWH) at RMB 264.8 million; the feasibility study for the Davao City Expressway Project of the DPWH at RMB 25.83 million; the provision of radio and broadcasting equipment to the Presidential Communications Operations Office at RMB 17.82 million; and the Philippine-Sino Center for Agricultural Technology-Technical Cooperation Program Phase III of the Department of Agriculture at RMB 27.52 million.

The total grant for the four projects amounts to RMB 335.97 million, with the remaining amount of RMB 164.03 million under the RMB 500 million grant will be used to finance other projects, according to the DOF.

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