DOF denies China asking for Philippines natural resources as loan collateral

by Mary Grace Padin (The Philippine Star), May 14, 2018

MANILA, Philippines — Loans and other financing support granted by the Chinese government to the country do not involve any of the Philippines’ natural resources as collateral, the Department of Finance (DOF) said.

In an interview, Finance Secretary Carlos Dominguez denied claims that China may be asking the Philippines for its natural resources as collateral for its loans.

“There’s no collateral here, it’s a sovereign debt,” Dominguez told reporters.

The finance chief assured that the government is borrowing “prudently” and assuaged fears the country may be falling into a Chinese “debt trap.”

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

He said while Chinese loans carry higher rates than Japanese loans – with a two percent interest as compared to Japan’s 0.1 percent – it is necessary to borrow from other sources as it allows the government to diversify its loan portfolio, thereby reducing risks.

“Higher than Japan, yes. Of course it’s higher than Japan. Japan rates are negative, but you know there is an exchange risk borrowing from Japan and you know there is a risk in borrowing only from one source so you have to have a package,” he said.

Dominguez added the government has the capability to pay for the loans from China.

“We can pay it. We borrowed at three percent in the US, why can’t we borrow at two percent from China?” he said, referring to the $2 billion global bond sale early this year.

The finance secretary said the money borrowed from China and other countries are being used for projects that are needed by the Filipino people.

“If you borrow money for projects that don’t already have a demand, there’s a chance that your estimates are going to be wrong and your revenues are not going to be enough. However, we are borrowing for things we already have the demand,” he said.

“For instance, the Kaliwa Dam project. We are not guessing here. There is already a need, a demand there. We are already long overdue,” he added.

The P10.9 billion New Centennial Water Source- Kaliwa Dam Project is one of the big-ticket infrastructure projects proposed for Chinese financing assistance.

Finance Assistance Secretary Ma. Edita Tan said the signing of the loan agreement for the project is expected to happen in July this year.

She said the Philippine government is also set to discuss with the China-led Asian Infrastructure Investment Bank (AIIB) a long list of projects for possible funding assistance.

Last month, Manila and Beijing signed the $62 million Preferential Buyer’s Credit Loan Agreement for the Chico River Pump Irrigation Project, and the $79 million agreement on economic and technical cooperation for at least four other infrastructure projects.

The former covers 85 percent of the Chico River Pump Irrigation Project’s total contract cost amounting to $73.04 million, and carries an interest rate of two percent per annum with a maturity of 20 years, inclusive of a seven-year grace period.

Both governments also forged a 27.52 million renminbi grant agreement to upgrade the Philippine Sino Center for Agricultural Technology (PhilSCAT) facilities into a modern hybrid rice breeding station and technology demonstration center.