(Eagle News) — The Department of Finance on Wednesday, April 17, defended the loan deals entered into by the Philippines with China, including the Chico irrigation loan deal.
In a statement, Finance Undersecretary Bayani Agabin said for one that the waiver-of-sovereign immunity clause in the Chico irrigation loan deal, which some have said would lead to a Chinese takeover of the Philippines’ patrimonial properties, was present in other loan accords entered into by the Philippines under previous administrations with other countries.
Finance Undersecretary Mark Dennis Joven, who heads the DOF International Finance Group, said for instance that the “waiver-of-immunity” clause in the loan deal is “almost the same as the one provided in the credit facility agreement entered into by the previous administration with France for the Cebu Bus Rapid Transit project.”
“Comparing the China provision with the French provision, which was signed during the Aquino administration, the wording is identical. So in that Cebu BRT Project, there was also a waiver of saovereign immunity provision as far as arbitration is concerned” Joven said.
Agabin said although the same clause was not explicitly stated in some agreements, “all of them have arbitration clauses, which is effectively an implied waiver of immunity.”
For this he cited a Supreme Court ruling which he said affirmed that “an agreement to submit any dispute to arbitration may be considered as an implicit waiver to immunity from suit.”
Governed by laws of other country
According to Joven, all other loan agreements entered into by the Philippines with other countries were governed by the laws of that other country, as is the case with the Chico irrigation loan agreement and the New Centennial Water Source-Kaliwa Dam, which is governed by China’s laws.
The Cebu BRT loan accord, which was signed with France during the administration of then-President Benigno Aquino III, was governed by French laws for instance; the Angat aqueduct improvement project loan deal, which was signed during the administration of then-President Gloria Arroyo, was also governed by the laws of China.
According to Joven, the North-South Commuter Rail Project, which has funding support from Japan, is also governed by the laws and regulations of the Japanese government while the New Centennial International Container Port, which has funding assistance from Korea, by the laws of that Asian country.
Similar interest rates
Joven said the interest rates of the loans with China are also very similar or can be even lower than those in loan agreements with other countries.
The DOF official said an “apples-to-apples comparison” in US dollar terms shows that the Chinese loans for the Kaliwa dam and the Chico River irrigation projects have a nominal interest rate of 2 percent with a 20-year maturity period and a 7-year grace period.
The Angat aqueduct project of the Arroyo administration , he said, has a higher interest rate of 3 percent with a 20-year maturity period and 5-year grace period.
Default on loan?
Agabin also addressed the concerns of some who fear the government would default on its loans, noting the Philippines’ strong fiscal position and low debt-to-Gross Domestic Product ratio under the current administration.
The debt-to-GDP ratio compares what a country owes to what it produces; a high debt-to-GDP ratio means there is a higher probability of a country defaulting on its loan.
Joven said it was not correct to compare the Philippines with Sri Lanka, which has failed to pay its loans to China.
In terms of the debt-to-GDP ratio, Sri Lanka’s is almost 80 percent, while the Philippines’ ratio is roughly half, around 40 percent.
Agabin said Presidential Decree No. 1177 also mandates the automatic appropriation for debt servicing under the national budget.
Assuming for the sake of argument that the highly improbable scenario of the Philippines defaulting on its loan occurs, any ruling by the arbitral court that would compel the government to pay its debt would have to conform with the provisions of the Philippine Constitution and can only be enforced if our courts rule that such an arbitral decision is binding on our part, Agabin said.
