Those Chinese Loans

Do we Filipinos are now swimming in Chinese loans? 

Metro Manila’s water crisis has again raised issues about the Kaliwa Dam as well as of Chinese loans. In 2014, then Pres. Aquino announced that this dam would be implemented by public private partnership, a decision changed by Pres. Duterte in 2016 when the project was included in the US$9 billion loan package funded by China.

Quickly, anti-China advocates complained that the country is now “swimming in Chinese loans,” that the debt load is unsustainable, and that we may end up like Sri Lanka and Pakistan, countries unable to pay their Chinese loans with exorbitant rates.

The evidence shows that Chinese loans account for only 1 percent of total Philippine loans, puny compared to the 10 percent of loans that we owe Japan. Moreover, the debt/GDP ratio of the country has declined from 27.3 percent in 2014 to 23.3 percent in 2017. Contrary to the perception that Chinese loans are onerous, the first loan agreement with China, the P3.14-billion Chico River Pump Irrigation Project, has interest rate of only 2 percent per year with a maturity period of 20 years, inclusive of a 7-year grace period, terms that aren’t onerous at all.

Critics also argued that Japanese loans have lower interest rates, but as one netizen has noted, “it is inappropriate to compare interest rates of loans denominated in different currencies. Chinese official development assistance (ODA) is in US dollars while Japan ODA is in Japanese yen. Just because the Chinese US$ loans charge 2-3 percent and the Japanese JPY loan is around 0.10-0.25 percent doesn’t mean that the former is more expensive than the latter.” One must also account for the respective volatilities and policy regimes of these two currencies.

Then-DBM Sec. Diokno debunked fears of our inability to pay back. The NEDA Board carefully reviews each project proposal, and those falling below 10 percent internal rate of return are abandoned. Government also looks for the best terms available. Policies exist on the optimal level of debt that the country should incur. In conclusion, there are enough safeguards and due diligence being done, on Chinese or other loans.

About the Author
Mr. Oscar F. Picazo is a retired specialist in health systems, health economics, and social policy. He has worked in 24 countries for the World Bank, the United States Agency for International Development (USAID), and as an independent consultant. He returned to the Philippines in 2009 and became a senior research consultant for the Philippine Institute of Development Studies.
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