The provisions in the loan agreements entered into by the Philippines with China are standard in all other loan accords signed by the country with other states and even with multilateral institutions such the World Bank and the Asian Development Bank (ADB), the Department of Finance (DOF) has said.
Finance Undersecretary Bayani Agabin cited, for instance, the waiver-of-immunity and arbitration clauses, which are standard in any loan agreement 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 previous administrations, with, among others, France, and China,” said Agabin who heads the DOF’s Legal Affairs Group.
Although in some agreements, the waiver of immunity is not explicitly stated, Agabin noted that “all of them have arbitration clauses, which is effectively an implied waiver of immunity.”
Agabin said the Supreme Court (SC) has already affirmed this in one of its rulings, which states that “An agreement to submit any dispute to arbitration may be considered as an implicit waiver to immunity from suit.”
“Thus, even if the loan agreements with China do not contain the waiver-of-immunity provision, the arbitration clause in the accords already imply a waiver of immunity from suit,” Agabin said.
Finance Undersecretary Mark Dennis Joven pointed out, meanwhile, that the waiver-of-immunity clause in the loan accord with China, which some quarters have mistakenly claimed could lead to a Chinese takeover of the Philippines’ patrimonial properties, is almost the same as the one provided in the credit facility agreement entered into by the previous administration with France for the Cebu Bus Rapid Transit (BRT) project.
“Comparing the China provision with the French provision, which was signed during the Aquino administration, the wording is identical. So in that Cebu BRT Project, there was also a waiver of sovereign immunity provision as far as arbitration is concerned,” Joven, who heads the DOF International Finance Group (IFG), said.
Joven further said that concerns about Chinese laws governing the loan agreements are also unfounded because this is the same with all other loan agreements signed by the Philippines with other countries.
For the Chico River Irrigation and the New Centennial Water Source-Kaliwa Dam projects, the governing law in the loan accords are the laws of China, while for the North-South Commuter Rail project with funding support from Japan, the governing law are the laws and regulations of the Japanese government.
The same goes for the New Centennial International Container Port with funding assistance from Korea, and the Cebu BRT financed by the French government, he said.
In the case of the Cebu BRT, in which the governing laws of the loan accord are the laws of France, the agreement was signed during the Benigno Aquino III administration, while the Angat aqueduct improvement project, in which the governing laws are the laws of China, the agreement was signed during the Arroyo administration.
Moreover, he said the interest rates of the loans with China are very similar or can even be lower than those in loan agreements with other countries.
Joven said an apples-to-apples comparison in US dollar terms showS that the Chinese loans for the Kaliwa dam and Chico River irrigation projects have a nominal interest rate of 2 percent with a 20-year maturity period and a 7-year grace period, while the Angat aqueduct project of the Arroyo administration has a higher interest rate of 3 percent with a 20-year maturity period and 5-year grace period.
Japan’s loan for the North-South Commuter Rail project has 2.7 percent interest rate if converted to US dollars with the same terms as our loans from China.
For the New Centennial International Container Port funded by Korea, the US equivalent interest rate is 1.36 if converted to the same terms; the French BRT loan’s interest rate is 3.69 percent as of November 2014 if converted similarly.
Agabin has 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.
He 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 previous administrations, with, among others, France and China.
“The waiver-of-immunity clause are 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 farfetched that the Philippines will default on any of its loans, especially now with its strong fiscal position and low debt-to-GDP (gross domestic product) ratio on the Duterte watch.
A Philippine law, Presidential Decree (PD) No. 1177, also mandates the automatic appropriation for debt servicing under the national budget, Agabin said.
Assuming for the sake of argument, that the highly improbable scenario of the Philippines defaulting on its loan occurs, 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 can only be enforced if our courts rule that such an arbitral decision is binding on our part, Agabin said.
Joven said it is incorrect to compare the Philippines with other countries like Sri Lanka which had failed to pay its 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 roughly half at around 40 percent. The debt-to-GDP ratio compares what a country owes to what it produces. Hence, a high debt-to-GDP ratio indicates a high probability of a country defaulting on its loan.
In the World Economic Forum’s Global Competitiveness Index 2017-2018, the Philippines ranks among the top 40 countries with low debt-to-GDP ratios of less than 40 percent. The Philippines ranks 33rdwith a debt-to-GDP ratio of 33.7 percent while Sri Lanka ranked 109th with 77.3 percent. The WEF index is based on data from the International Monetary Fund, which tracks the general government gross debt of countries in relation to GDP.