By Chino S. Leyco
The Department of Finance (DOF) dispelled the “misapprehensions” over a possible Chinese takeover of the Philippines’ patrimonial assets.
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In a statement, Finance Undersecretary Bayani H. Agabin said there is no provision in the loan agreements signed between the Philippines and China that includes any form of collateral even in the unlikely event of Manila failing to pay its debts to Beijing.
Agabin said that concerns over the waiver-of-sovereign-immunity clause in the $62.09-million loan accord between the Manila and Beijing for the Chico river irrigation project are “unfounded.”
He explained the waiver-of-sovereign-immunity clause only allows the “counterparties” to seek arbitration in case of a loan default, but China cannot takeover any of the Philippine properties.
Agabin, however, said the waiver-of-immunity and arbitration clauses are standard in any loan agreements forged between states.
He said 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,” he added.
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-gross domestic product ratio.
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.
Assuming, for the sake of argument, that the Philippines defaulted on its loan, any ruling by the arbitral court that would compel the government to pay its debt would have to conform with the provisions of Philippine constitution and public policy, Agabin said.
He also added that the adverse ruling could only be enforced if and when Philippine courts rule that such an arbitral decision is binding.
Finance Undersecretary Mark Dennis Joven, meanwhile, said it is incorrect to compare the Philippines with other countries like Sri Lanka that had failed to pay their loans to China, because of the starkly different numbers when it comes to what they owe and what their respective economies produce.
In terms of the debt-to-GDP ratio, Sri Lanka’s is almost 80 percent, while the Philippines’ ratio is around 40 percent. The debt-to-GDP ratio compares what a country owes to what it produces. Hence, a lower debt-to-GDP ratio indicates a slimmer probability for a country to default on its loan.