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Anatomy of a scam Featured

A YEAR has gone by since the famous DU30 profanity against Barack Obama and subsequent Philippine “pivot to China.” His declaration shocked the world, especially the US government, which was in the midst of a presidential campaign that also propelled an “outsider,” the Donald, to the “most powerful presidency” of the Western world.
The Deegong’s declaration of non-alignment, or “independent” foreign policy, was hailed by China in its win column. It is unfortunate that China’s own setback at the Permanent Court of Arbitration, which rejected its 9-dash line claim to the South China Sea region, seems to have been reversed by the Philippines’ virtual acquiescence to everything that Beijing wants.

 

The Deegong, with the newfound confidence of a bit player in the global stage, proceeded to visit China with a historic full entourage of Cabinet men, business tycoons, well-connected bureaucrats and prospective Chinese middlemen contacts. Playing this role to the hilt, he subsequently declared “the Philippines, China and Russia together against the world.” Quite a number of Filipinos cheered with a vicarious thrill over this “global triumvirate.” We can only guess Xi Jinping’s and Vladimir Putin’s thoughts on this presumptuous pronouncement by an upstart “wannabee of a country” claiming a seat at the table with the superpowers. But they were the perfect hosts, leaving the Filipino entourage to cherish the moments as “legends in our own minds.”

 

On his triumphant return, the Deegong brought along goodies worth an estimated $24 billion consisting of two major parts.

 

• $9 billion, or about P450 billion, for some 40 proposed government-to-government, or G2G projects that have been proposed to be funded with loans from China; and
• $15 billion, or about P750 billion, for 27 proposed business-to-business, or B2B projects that will come from “direct investments” of Chinese companies in partnership with Philippine companies.

 

As a result, a new Philippine mantra has emerged: Build! Build! Build! The ambitious and unparalleled infrastructure projects of the Duterte administration could dramatically transform our landscape as these do not merely involve infrastructure but also transportation, agriculture, and inter-island bridge systems, and even energy and manufacturing. A memorandum of understanding and joint-venture agreements were signed for loans from China worth P1.2 trillion. It is estimated that about two million jobs will be generated. Not bad, for a four-day state visit.

 

But then, questions began to be asked.

 

In its excellent research, the Philippine Center for Investigative Journalism has identified Filipino parties involved in these deals. The information they have uncovered is rather disturbing. Twenty-two companies in the business-to-business deals have no track record in “doing big-ticket infrastructure projects”; and have inadequate operating capital and considerably small asset base. Two of the firms (Zonar Systems, MVP Global Infrastructure Ventures) only registered with the Securities and Exchange Commission after they signed MOUs with their Chinese counterparts sometime in November 2016 and January 2017. These unknown companies with multi-million-peso deals (on paper) whose “name-droppable” principals were in the entourage of PRRD to China could thus be inferred as the new cronies, “friends of the administration”. Shades of the Marcosian prototype.

 

Budget Secretary Benjamin E. Diokno said the preferential interest rate has not yet been discussed as the Chinese do not want other countries to get jealous as it will be much lower. This is what a slick secondhand car salesman will tell you supposedly in confidence. But would you seriously want to borrow money from the bank and not discuss the interest rate?

 

I talked to several government and private potential business partners. Their response: the Chinese just love to sign MOUs here and MOAs there. And funds…are they in place? Nada.

 

These deals are simply not even in the pipeline. Which brought me to research similar deals in other countries. Sri Lanka was one of the underdeveloped countries that similarly arranged for Chinese loans. Over the years, China has provided Sri Lanka loans for infrastructure which include a deepwater port, airport and railway projects. One of these, the Hambantota deepwater port, was built with loans with interest rates of 6.3 percent per annum, compared to the World Bank’s and Asian Development Bank’s 0.25 to 3percent. Sri Lanka was unable to pay, forcing it to an onerous debt-to-equity conversion that gave Chinese firms 80 percent share (and profits, if any) of the port over the 99-year lease period. Similarly, Chinese firms took over operating and management control of the nearby Mattala Airport, also built with Chinese loans.

 

China’s intentions are also suspect as the Sri Lankan port and airport “provides Beijing with a strategic military position in the event of an Indian Ocean conflict and is also key for its ‘Belt and Road’ initiative.”

 

According to knowledgeable government sources, in the proposed railways and other infra-projects for the Philippines, the joint-venture agreements call for the Chinese government to recommend three to five Chinese mainland contractors for the Philippine partners to choose from (no international public bidding); supplies and equipment must all come from China; Chinese personnel may have to be allowed to work in the projects; and accompanying long term-maintenance and service arrangements.

 

Shouldn’t we rethink these “soft and concessionary” loans from China in light of what we have already conceded? We have been silent and helpless on China’s encroachments on our claimed territories in the Spratlys archipelago, Reed Bank and Scarborough Shoal.

 

While the euphoria over this novel relationship struck with China still lingers, it may be prudent for the DU30 administration to examine more closely this new partnership lest we find ourselves later in a quandary on how to disembark from the tiger’s back. Let us learn from the lessons from past mistakes of China’s partnership with other Asian countries. We do not wish to be in any way near Sri Lanka’s fate.
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