DOF says it trusts China, expects more deals

MANILA – The Department of Finance (DOF) on Wednesday said it trusts China to comply with the terms of the controversial loan for the $62-million Chico River pump irrigation project should there be an arbitration process.

The contract has been criticized for a provision that says in case of default, China could seize, to satisfy any arbitral award in its favor, patrimonial assets and assets dedicated to commercial use of the Philippine government.

But Malacañang and the DOF said the possibility of China taking Philippine assets would never happen because Manila had always been a responsible borrower.

The contract provides that assuming China wins the arbitration in Beijing, the decision would still have to be validated by Philippine courts before it can be enforced.

“China agreed to it eh, so it’s in the loan agreement eh…So, I guess we rely on the good faith of China to comply with the provisions of a loan agreement which they signed,” Finance undersecretary Mark Dennis Joven said at a news conference in Malacañang when asked about China’s compliance should a Philippine court rule that an arbitral award in favor of Beijing cannot be enforced in the country.

Joven later said he personally could not rely on trust alone after a reporter pointed out China’s refusal to follow the 2016 arbitral ruling that invalidated Beijing’s excessive claims in the South China Sea. The South China Sea decision stemmed from the case filed by the Philippines, which lays claim to part of the resource-rich waters.

“I cannot rely on trust alone of course. I need to look at the law and the enforceability of such a move. So now, the only way for the Chinese government to recover Philippine properties located in the Philippines is to go through Philippine courts, right?” Joven said.

“So, if it cannot go through Philippine courts, then how can it—or it opts not to go through Philippine courts, then how can it get Philippine properties?”

Joven said Article 8.6 of the loan agreement provides that an arbitral award can only be recognized in the Philippines if it was “not obtained through collusion or fraud, and such award was not based on a clear mistake of fact or law.”

The award should also be “not contrary to public policy in the Republic of the Philippines,” according to the provision.

“So you need to meet all those conditions. If you look, they refer not to Chinese law but to Philippine law. So the question is: So, to what does Chinese law govern? Basically it deals with the loan itself and not the enforcement of the payment of the loan,” Joven said.

Finance assistant secretary Tony Lambino, however, said it will be “highly unlikely” for the two sides to go through arbitration in connection with the irrigation loan.

“It’s never happened before and it’s highly unlikely to ever happen, yeah, because again the Philippine law requires automatic appropriation for our debt obligations,” he said.

Hinahamon po ng Department of Finance ang mga kritiko na tingnan at pag-aralan ang credit history ng Pilipinas. If you will look at it, we’ve never had a history where we renege on our obligations, even during the most difficult times,” Finance undersecretary Bayani Agabin added.

Amid questions on the loan agreement, the DOF said it expects more deals between the Philippines and China in the future.

“We’re expecting more agreements with China, but not necessarily the same type of agreements we now have with China,” Joven said.

“I don’t know what agreements will be signed with China but what I am saying is when you say there will be a loan signing with China it might relate to a lot of other matters other than a loan agreement. So we have to wait until that happens for us to know what those agreements are,” he added.

The DOF earlier shrugged off speculations that the Philippines might fall into a Chinese debt trap, noting that by 2022 – when most of the financing for the “Build, Build Build” infrastructure program should have been accessed – the projected debt to China will comprise 4.5 percent of the total debt as against 9.5 percent from Japan. (GMA News)


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