SO MUCH MONEY
The Philippines has so much fresh loan commitments it even backed out of a $70-million loan deal for a water supply project with the Asian Development Bank (ADB) last year. The government instead turned to China, which was offering cheaper money while imposing less stringent environmental and social conditions.

	Table 2: New Loans in 2007 (US$ Million) Source: NEDA LENDER AMOUNT DATE SIGNED ADB 250.0 8 February ADB 300.0 17 December ADB 300.0 17 December World Bank 33.8 23 January World Bank 50.0 29 August World Bank 83.8 29 March World Bank 250.0 21 December World Bank 38.4 no date given JBIC 76.4 27 February JBIC 173.8 3 December TOTAL 1,256.0

Far from being pleased, a worried Roberto de Ocampo, former finance secretary, recalls a similar flood of cheap credits in the early 1970s that ended in a debt crisis for the country a decade later. He notes:“A lot of the alleged hanky-panky that took place during the Marcos administration with respect to loans to some extent had their roots with the easy money that was floating around from commercial banks that were awash with cash from Arab liquidity. That is a lesson to be learned.”

De Ocampo believes that China, like the West before it, will sooner or later adopt strict and formal credit policies as befits an emerging economic power. But he warns that the deal struck with the Chinese telecommunications firm ZTE Corporation for the NBN project underscores a number of trends that could increase credit risks.

INFORMAL SYSTEM
“The lending arrangements that you find in the case of ZTE are a reflection of, again, the informality of a system that is taking advantage of liquidity, a rising economy’s desire to expand its sphere of economic and political influence, and the pressing need of third world countries like the Philippines to have access to them,” says De Ocampo. “And finally you sprinkle it with a lower than desired sensitivity to good governance in transacting these relationships.”

Japan, the Philippines’ biggest ODA provider, resumed fresh lending to Manila last year after ceasing loan approvals since April 2004 because of the government’s low absorptive capacity.

In 2006, ADB approved a record $650 million worth of loans, a sign of the lender’s growing confidence in the government’s financial position after Arroyo imposed new and higher taxes following a brush with fiscal crisis the previous year.

Doubts linger about whether the Arroyo administration is keen or able to spend the growing amounts of aid money wisely.

SUPPLY-DRIVEN LOANS
“Many economists are worried if the government is still interested in using funds efficiently,” says Benjamin Diokno, former budget secretary and professor of public finance at the University of the Philippines School of Economics. “The government is becoming lax in project evaluation because the loans are supply-driven.”

	President Arroyo inaugurates Bohol’s P3.6-billion Bayongan Dam, said to be “the most expensive irrigation dam” ever constructed in the Philippines, October 13, 2007. [photo courtesy of Bohol Chronicle]

Diokno notes an avalanche of Chinese ODA loans going into projects of doubtful social or economic value, citing as example the Cyber Education Project, which assigns more weight to information technology than to the training of teachers. Studies show, he cites, that good teachers account for 60 percent of improvements in student performance.

“It’s like the U.S. subprime crisis in effect because they (lenders) are lending to debtors or projects that are not really qualified,” says Diokno, referring to turmoil in global financial markets that stemmed from excessive lending by American banks to home buyers without capacity to pay back the mortgage loans.

At the core of the doubts is NEDA, which used to command a reputation of being fiercely independent and competent, an agency that stood up to top officials and politicians pushing ill-conceived if not corrupt projects. The late journalist Luis Beltran Jr. once even called NEDA as the only agency that could not be bribed.

For sure, its former chief Neri earned praise for his moral courage when he told the Senate last August that then Comelec Chairman Abalos offered him P200 million to approve the NBN project. Neri, however, was also rebuked for approving the project anyway with perfunctory scrutiny.

From Neri’s account, it seemed like the NEDA staff just limited themselves to validating the cost-benefit analysis submitted by the project proponent, the Department of Transportation and Communications (DOTC), and its supplier, ZTE Corp. Little effort was made to verify the project’s costs. Worse, NEDA did not examine alternative financing methods, such as build-operate-transfer (BOT) or other schemes.