The Department of Finance (DOF) has allayed misapprehensions over a possible Chinese takeover of the Philippines’ patrimonial assets. There is no provision in the loan agreements signed between the two countries under the Duterte presidency that includes any form of collateral even in the unlikely scenario of the country failing to pay its debts to China.
Finance Undersecretary Bayani Agabin said that concerns over the waiver-of-sovereign-immunity clause in the loan accord between the Philippines and China for the Chico River Irrigation Project are unfounded, given that this part of the agreement only allows the “counterparties” to seek arbitration in case of a loan default, but not a Chinese takeover of any of the country’s properties.
Agabin said the waiver-of-immunity and arbitration clauses are standard in any loan agreements forged between states. These clauses are present not only in the loan agreements between the Philippines and China under the current government, but also in other loans accords entered into by the past administrations, with, among others, France and China.
“The waiver-of-immunity clause is usually included as a standard provision in loan agreements to enable the lender to bring the borrower before an arbitral court in case of a default on the loan,” Agabin said. “No takeover of our state assets is possible because we do not provide any collateral for any of the loan agreements we have entered into with any government.”
Agabin also said it is very unlikely that the Philippines will default on any of its loans, more so now with its strong fiscal position and low debt-to-GDP (gross domestic product) ratio on the Duterte watch.
Moreover, he maintained that the unlikely scenario of the Philippines defaulting on its loan payments is far-fetched because a Philippine law–Presidential Decree (PD) No. 1177–mandates the automatic appropriation of funds under the annual national budget for debt service.
By 2022, when most of the financing for the “Build, Build, Build” program will have been accessed, the country’s project debt to China will account for 4.5 percent, while that of Japan’s will be twice as large at 9.5 percent of the total debt.
Dominguez further said the highly concessional loans and grants received by the government to help fund the Duterte administration’s “Build, Build, Build” program will help make the economy fully competitive, create jobs, open more business opportunities, bring down logistics costs and realize better-distributed growth. DOF