Gov’t denies ‘Dutertenomics’ comes with heavy debt burden

by Ian Nicolas P. Cigaral, Elijah Joseph C. Tubayan, Businessworld, May 16, 2017

CABINET officials rejected claims that Chinese funding for infrastructure will burden the economy with too much debt, saying that tax reform will help the Philippines raise the bulk of the needed funds internally.

In a briefing in Beijing, Trade Secretary Ramon M. Lopez — who joined President Rodrigo R. Duterte and other Cabinet officials in the China-backed “One Belt, One Road” forum — said the government will finance only a small portion of its infrastructure projects through foreign loans.

Mr. Lopez said 80% of the funds for the infrastructure drive, one of the key planks of the so-called “Dutertenomics” plan, will be generated locally while the remaining 20% will come from external creditors.

He also stressed the “importance” of passing the proposed comprehensive tax reform program to “internally” raise funds for the state’s big infrastructure push.

Economic managers have said that infrastructure projects, which are expected to cost P8.4 trillion, will be funded by government appropriations — supported by expected additional revenue from the comprehensive tax reform program — Official Development Assistance (ODA), and public-private concessions.

This year the government aims to spend P860.7 billion, equivalent to 5.4% of gross domestic product (GDP), on public infrastructure.

In an opinion piece dated May 13, Anders Corr, principal at risk analysis firm Corr Analytics, wrote in Forbes magazine that the Philippines’ “new debt” of $167 billion to be lent by Beijing could swell the national debt to $452 billion, assuming a 10% interest rate.

Mr. Corr added that China’s possible imposition of high interest rates on the “new debt” could “balloon it to over a trillion US dollars in 10 years,” thereby “bringing Philippines’ debt to GDP ratio to 197%, second-to-worst in the world.”

Mr. Lopez said the claims of a heavy debt burden are “based on wrong information.” He did not refer to Mr. Corr’s analysis specifically.

Sought for comment, Budget Secretary Benjamin E. Diokno said in a mobile phone message on Monday that Mr. Corr’s report is “false,” adding that the article is “based on a lot of ridiculous assumptions.”

“On the contrary, we expect the debt to GDP ratio to decline from 40% in 2015 to 35% in 2022. The article is based on the wrong assumption that our borrowing costs is between 10 to 15% and that GDP (the numerator in the ratio is constant),” Mr. Diokno explained.

“Our borrowing costs will be in the neighborhood of 4%. Nominal GDP is likely to increase by 9 to 10% annually,” he added.

“Finally, we intend to have an 80:20 mix in favor of local borrowing; this is to minimize the foreign exchange risk of foreign financing of the deficit.”

For his part, Labor Secretary Silvestre H. Bello III yesterday said the state’s ambitious infrastructure programs are projected to generate “not less than 12 million jobs” over the next five years.

“They picture a ‘golden age of infrastructure’ — which to the Department of Labor is the ‘golden age of employment,’” Mr. Bello told reporters and Chinese business leaders in Beijing during a presentation of “Dutertenomics” — a roadshow on Mr. Duterte’s economic policies.

Mr. Duterte has shifted the country’s diplomatic focus by seeking support from China for massive infrastructure projects, moving away from its traditional treaty ally, the US.

In October last year, Mr. Duterte bagged aid and investment pledges from Beijing worth $24 billion, and $9 billion in soft loans that included a $3 billion credit line with the Bank of China.

Meanwhile, during his Manila trip early this year, Japanese Prime Minister Shinzo Abe pledged ¥1 trillion worth of investment and aid — the largest that Japan has committed to a single country.

Mr. Duterte arrived in Beijing on Saturday to participate in the Belt and Road Forum — during which Chinese President Xi Jinping pledged $124 billion to strengthen ties with former trading partners along the Silk Road as well as countries along the sea lanes to Europe. —