The real debt trap is not from China, says Integrated Development Studies Institute

The “scrapping” of the China loans for three infrastructure projects was not initiated by China, but by structural constraints. Many critics forget that it is the Philippines that proposed and approved the projects. The viability is our responsibility. China is not forcing us to borrow.

The Department of Finance (DOF) under then Secretary Carlos Dominguez III informed China Eximbank that the submitted loan applications for the three railway projects would be automatically withdrawn if not approved by May 31, 2022. Undersecretary Cesar Chavez also said, “DOTr understands that this is in light of the upcoming transition of government.” The three projects were only approved by the Philippines in 2021-2022. How many billion-dollar projects with other foreign lenders were funded that quickly?

Could it be that the provision inserted by the DOF was a practical move given that the Philippines shifts priorities between administrations?

To recall, the anti-Duterte, anti-China camps threw a continuous series of fake news and misinformation at China-funded projects, causing several years of delay. The debt trap narrative dominated the airwaves for years.

After several major projects by China were completed like the donated Binondo-Intramuros and Estrella-Pantaleon bridges or underway like the Kaliwa Dam and Chico River Pump Irrigation Project, the expert-critics then invented a new term “pledge-trap” to accuse China of falling short of delivery, without giving context that much of the delays can consider the Philippines’ own processing absorptive capacity as constraints (estimated 1 million shortage of labor in 2019), bureaucratic red tape, and right of way issues.

Have the other countries, especially the loudest critics, offered alternative funding sources? The Kaliwa Dam has been in the planning stages for decades. Before Rodrigo Duterte, the majority of billion-peso projects took 10 to 20 years to even get done, if at all. Prime projects were given to Japan. Did the critics compare the cost per kilometer of Japan vs. China?

Another China-funded Angat Dam, touted by P-Noy and the Metropolitan Waterworks and Sewerage System in 2012, was “finished eight months ahead of schedule resulting from efficient project management and advanced construction methodology of the [China] contractor.”

“Debt-trap” proponents do not compare the sorry record of the World Bank and the International Monetary Fund loans in the Philippines, Latin America, etc., or that US banks brought the world to collapse in 2008, crushing several countries. On the so-called Sri Lanka debt trap, over 80 percent of its loans are from Japan, the US, and market borrowings; only 10 percent are from China. Critics don’t point to the successful projects like the Piraeus port, now rising to be a top port in Europe, after being rejected by countries due to the warnings of the China debt trap.

On the interest on the loans, the DOF in 2019 released comparative data that showed Japan’s equivalent US dollar rate is actually 2.7 percent, higher than China’s 2 percent, debunking the opposition’s fearmongering that China was imposing onerous loans. Did the experts compare cost-per-unit, maintenance, consultant costs?

On China asking for 3 percent interest, where are the comparative interest rates of the other foreign lenders? How many are complaining about Filipinos being charged 10 to 20 percent per month on their micro-loans or the 3 to 5 percent monthly on credit cards? Can the US or Europe banks also lend billions for our infrastructure needs at 3 percent? Is it better to save 1 percent a year on interest or save 30 to 40 percent on project cost?

Negotiations are time-sensitive. The rising cost of money, raw materials, inflation, global instability, and risks have changed the calculations. Fake news makers and fake experts are the obstacles to our Philippines’ recovery and development.

Given the myriad of problems and our neighbors also speeding ahead by working with all countries including the US and China, we need to focus on the real challenges, not on bogeymen.

We should get the best deals for our country. Instead of being obstructionists, the critics can help by presenting better overall packages and showing some successful project propositions.

AUSTIN ONG
Integrated Development Studies Institute
[email protected]