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Gov’t designed Kaliwa loan to favor China, says IBON

THE KALIWA DAM loan agreement is designed to unduly favor Chinese interests over that of the Philippines. IBON Foundation raised this concern in the wake of the release, upon public pressure, of this and other loan agreements.
Metro Manila private water concessionaire Manila Water Company, Inc. and the Metropolitan Waterworks and Sewerage Systems (MWSS) have long insisted on building the Kaliwa Dam and on a Chinese loan for this. The Department of Finance (DOF) seized on the recent disruption of water services, which IBON estimates to have affected at least 6.1 million Filipinos or 80% of the total 7.1 million population covered by the Manila Water service area, to further justify the project and the loan.
IBON executive director Sonny Africa however warned that the Kaliwa loan agreement signed last year during the visit of Chinese president Xi Jinping is unduly biased for China and against the Philippines. “Countries give official development aid (ODA) not out of charity but always to advance their foreign policy and self-interest,” Africa said. “The Chinese loans negotiated by the Duterte administration are suspiciously disadvantageous for the Philippines.”
IBON said that the practice of tied aid where loans are spent on the creditor country’s goods and services is unfortunately the norm in bilateral ODA. In the Kaliwa loan deal, for instance, the proceeds will pay for Chinese contractors and controversially even Chinese workers. China has a record of charging relatively high interest rates and for instance charges the highest nominal interest rates among all of the Philippines’ bilateral donors.
The group however pointed out that the Kaliwa loan deal goes far beyond these and creates conditions for a debt trap. This starts with the agreement’s Article 7 which makes it too easy for China to declare that the loan is in default and to subsequently declare “all the principal of and accrued interest… immediately due and payable”.
The loan for instance can apparently consider the Philippines in default if payment is more than thirty (30) days overdue, if the Philippines defaults even on other loans not in any way connected to the Kaliwa loan or project, or if “in the opinion of the Lender [there is] a material deterioration of the financial conditions of the Borrower”.
There are no such provisions in the other Japan and Korean loans that the DOF recently released. Moreover, IBON said, the loan is explicitly governed by and construed in accordance with the laws of China (Article 8.4) and any disputes will be settled in the Hong Kong International Arbitration Centre (Article 8.5).
The arbitration rules of the HKIAC are however biased for China such as in the choice of arbiters and especially if Chinese law is made the agreement’s governing law. IBON said the country is being set up to potentially give up natural and strategic resources. In the agreement’s Article 8.1, the country “waives any immunity on the grounds of sovereignty or otherwise for itself or its property in connection with any arbitration proceeding” on assets within the territory of the Philippines unless prohibited by law.
IBON stressed that this provision is dangerous especially given the current administration’s predisposition to wield the law haphazardly for narrow ends. “China rationally seeks to advance its self-interest as much as possible,” Africa said, “but it is suspicious that the Philippine government is giving so much to China and so badly failing to protect the country’s interest.”
He also pointed out: “China is not just any lender and is aggressive in asserting its global agenda even at the expense of human rights, environmental protection, and feeding corruption in debtor governments.”
The Kaliwa Dam project does not even yet have an updated feasibility study, environmental clearance, or the free, prior and informed consent (FPIC) of the communities.
IBON pointed out that the Duterte administration is seeking as much as US$14.4 billion for 23 infrastructure projects under its Build, Build, Build program. “China has already been implicated in a few controversial debts gone bad where governments were pressured to give up control over strategic assets like ports,” Africa said. “As it is, China’s actions in the mineral- and marine- rich West Philippine Sea islands and destruction of the rich marine biodiversity with reclamation activities shows that it is unconcerned about Philippine sovereignty and our interests.”
Africa said: “The Duterte administration made a big show of supposedly independent foreign policy at the start of its term — it can start now by taking bold measures to modify or terminate these disadvantageous agreements.” (IBON Foundation)

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