China funding initiative
Despite its territorial dispute with China, it’s possible for the Philippines to have strong trade and investment relations with the global economic powerhouse. One major avenue for this is the Asian Infrastructure Investment Bank (AIIB), which the Philippines joined at the last minute in December 2015. Since its launch last January, the Beijing-based bank has approved four loans worth $509 million for projects in Pakistan, Tajikistan, Indonesia and Bangladesh. Multilateral lenders such as the World Bank usually take more than a year to approve similar project loans.
Given China’s bullying of smaller nations contesting territories in the South China Sea, the infrastructure lending program through the AIIB has been met with suspicion. But while China is its single biggest shareholder, there are 56 other countries that account for more than two-thirds of the AIIB. Still, being the proponent and the biggest shareholder with a 26-percent stake, China designed the bank to tie in with its overall economic agenda, particularly the “New Silk Road” initiative, which aims to link Asia, Europe and Africa through the construction of massive infrastructure such as railways and ports, with the AIIB financing many of these projects.
Also called the “One Belt One Road” program, the New Silk Road is believed by some experts to even help ease tension around the South China Sea as it expands economic cooperation among neighbors in the region, including those with which China is in dispute, such as the Philippines and Vietnam. Billions of dollars in investments are expected to pour into the construction of railway facilities, airports and sea ports and power plants that, in turn, would trigger the growth of job-generating factories. Besides, while it is true that the AIIB is linked to China’s own economic and strategic goals, what is wrong in having better China-funded infrastructure in the country?
Even without the New Silk Road, the Philippines and other developing countries in the region need the AIIB. The Asian Development Bank (ADB) has estimated the infrastructure needs in the region as requiring $750 billion in investments annually until 2020, which it cannot finance on its own. The Philippines’ infrastructure financing needs from 2010 through 2020 was placed at $127.12 billion (or P5.98 trillion). This will require an annual investment of $11.56 billion (P543.5 billion), which the government failed to fill in the past six years.
The AIIB has been described as modern and multilateral, or China’s “21st-century” answer to lenders like the World Bank, which has always been led by Americans, and the ADB, which is dominated by Japan. And the Philippines will be better off borrowing through a more transparent AIIB lending window now, especially after the controversies that surrounded past infrastructure projects funded by China through bilateral agreements. These include the North Rail project and the planned national broadband network, which were eventually cancelled following allegations of corruption and irregularities, and caused international embarrassment to the two countries.
The other international economic cooperation program open to the Philippines is the Trans-Pacific Partnership (TPP) spearheaded by the United States. Although it looks inspiring, the TPP still has a long way to go before it can take off: The US Congress has yet to approve its framework. The Philippines also has to amend its Constitution to ease the restriction on foreign ownership of certain businesses.
Those who push for membership in the TPP usually cite one big disadvantage of being outside the agreement: The Philippines will suffer a decline in exports as TPP members buy more from, and have zero or near-zero tariff for, one another, while the old tariff and nontariff barriers will remain for non-TPP members. But this might no longer hold true because tariffs have all but been removed through the World Trade Organization, of which the Philippines is a member.
While the TPP is being processed by its founding members, the Philippines can work on building its infrastructure base—specifically airports and sea ports outside Metro Manila with sufficient rail or road linkages to the capital—through the AIIB. With an adequate infrastructure system, it will then be ready to take on increased trade that could be brought about by the TPP further down the road.
