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Philippine Justice, Lawmakers Express Concern over Chinese Loan Details

Dennis Jay Santos and Jeoffrey Maitem
Davao and Cotabato, Philippines
2019-03-26
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Activists in Manila protest during Chinese leader Xi Jinping’s visit to the Philippines, Nov. 20, 2018.
Activists in Manila protest during Chinese leader Xi Jinping’s visit to the Philippines, Nov. 20, 2018.
Karl Romano/BenarNews

Filipino lawmakers raised concerns Tuesday about financing agreements with China after a Supreme Court justice alleged that Beijing could take over Philippine maritime assets if Manila defaulted on a Chinese loan for a local irrigation project.

Sen. Joel Villanueva, an ally of President Rodrigo Duterte, was among those airing concerns about loan deals with China. He stressed that the government should not be allowed to “pawn assets” to its richer neighbor.

“We have already seen the negative effects of this type of arrangement with China in a number of countries where China eventually ended up controlling the resources and critical assets of a country,” Villanueva said.

Antonio Carpio, a senior associate justice at the Supreme Court, had called for greater public scrutiny of bilateral deals with China. Beijing could end up with assets from the gas-rich Reed Bank in the disputed South China Sea, if Manila failed to meet its loan obligation on the Chico River irrigation scheme, he had alleged.

“In case of default by the Philippines in repayment of the loan, China can seize, to satisfy any arbitral award in favor of China, ‘patrimonial assets and assets dedicated to commercial use’ of the Philippine government,” Carpio told a forum on Friday.

Those patrimonial assets could include South China Sea resources such as those around Reed Bank (called Recto Bank in the Philippines) that lie within the country’s exclusive economic zone, according to Carpio.

Carpio’s forum presentation included a slide showing that the Philippines “irrevocably waives any immunity on the grounds of sovereign or otherwise for itself or its property in connection with any arbitration proceeding … or with the enforcement of any arbitral award.”

The presidential palace responded on Monday by saying that the 3.6 billion peso (U.S. $68.4 million) Chico River project deal was above board.

Chico River is one of the first infrastructure projects financed by China under President Rodrigo Duterte’s “Build, Build, Build” program. It aims to help about 4,000 farming families by irrigating agricultural land through the Chico river basin in the Northern Philippines, according to officials.

On Monday, Duterte spokesman Salvador Panelo said provisions were “standard between the lender and the borrower.” He also said there was nothing wrong with using natural resources as collateral.

“I don’t see anything wrong because I know it will never happen. That is precisely why I am saying that perhaps the economic managers who entered into a contract know that it will never happen,” he said.

Panelo said the Philippines was known for paying its obligations, as he sought to assure the public that the government would never default on loans to any international group.

‘We cannot pawn our sovereignty’

A bilateral deal on joint exploration of Reed Bank was among 29 vaguely worded economic agreements signed last year when Chinese President Xi Jinping visited Manila.

“The president and I both agreed to elevate our relationship into one of comprehensive, strategic cooperation,” Xi said during the state visit in November. He stressed this would send a “strong message” to the world that China and the Philippines were “partners in seeking common development.”

“China and the Philippines have a lot of common interests in the South China Sea,” Xi said. “We will continue to manage contentious issues and promote maritime cooperation through friendly consultation.”

While all details of that agreement were not made public, a document seen by BenarNews showed that the Philippines had agreed to a 60 percent stake in resources extracted from the Reed Bank, and China would get the remaining 40 percent.

On Tuesday, opposition Sen. Risa Hontiveros described the Reed Bank deal as “grossly disadvantageous” to the Philippines.

“The Philippines is not pawning in a ‘China’s pawnshop’ in the region. We cannot pawn our sovereignty and make our assets collateral,” she said.

“Calling these onerous provisions alarming is an understatement. Despite Malacanang’s denials, it is clear as day that these loan agreements will have catastrophic results for our sovereignty, natural resources and economic security,” she said, referring to the presidential palace.

Hontiveros also called on Duterte’s government to fully disclose details of all its loan deals, particularly those struck with China.

Financial institutions

Villanueva noted that other multilateral financial institutions were offering loans at much lower rates.

“We are essentially putting the future generation at a bind when we are entering into long-term agreements,” he said, adding that communities would be displaced by infrastructure development in the north.

“We should ensure that the provisions of these agreements are consistent with the constitution and our existing laws. We have to guarantee that the Filipino people are not worse off with these loans,” he said.

Rep. Gary Alejano, a leading opposition figure, meanwhile accused the government of willingly falling into a Chinese debt trap, rather than seeking other sources of development funding at a friendly rate.

Assurances by the government were not enough “especially from an administration who has kept the disadvantageous provision of Chinese loans from the public.”

“The mere fact that they have not been transparent on the loan agreements with China speaks of the dangers that our country may fall into,” he said.

Alejano called on the Duterte government to make public all the natural resources it had allegedly agreed to use as collateral for Chinese loans.

“This is a national security issue and a public concern,” said Alejano, a former Marine captain who has criticized the government for what he calls its soft handling of territorial issues in the South China Sea.

“We are already witnessing how many countries have fallen into the debt trap of China and lost control of their patrimonial assets. We should not let our country suffer the same fate,” he said, citing the cases of China-backed projects in Sri Lanka and African states.

Last month, the Philippine Senate held an inquiry into Chinese interest rates and alleged that questionable rates were offered to the Philippines as it sought closer economic and bilateral ties with its giant Asian neighbor.

China has made available nearly $10 billion (526 billion pesos) in credit for the Duterte government, including dam and irrigation projects, the finance department has said.

Karl Romano in Dagupan City, Philippines, contributed to this report.

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