Beware of Greeks bearing gifts,” the priest Laocoon warned the people of Troy in Virgil’s “Aeneid”. His warning was famously ignored and the city fell to the invading Greek army from across the sea, thanks to the equally famous Trojan Horse ruse.
The Philippines could learn a thing or two from ancient mythology.
Only this time, the Trojan Horse comes in the form of billions of dollars’ worth of loans. China’s readiness to lend the Philippines funds appears generous on the surface, and is ostensibly meant to help fund a key campaign promise of the Duterte administration: a Bt5.5-trillion infrastructure programme that will lift the economy, provide jobs and put the country on par with its richer neighbours.
However, reports now abound of how other debtor nations, many of them less affluent and developed, have fallen into China’s “debt-trap diplomacy”. Djibouti, Kyrgyzstan, Papua New Guinea, Samoa, Pakistan, the Maldives, Laos and Fiji are just a few now in hock to China for billions of dollars.
These countries – and the Philippines, if our policymakers are not careful — may go the way of Sri Lanka which, late last year, had to cede control of a strategic port to the Chinese government for 100 years, after failing to keep up with its loan payments.
The current environment offers many examples of what the Duterte administration should think twice about, or avoid outright, in its quest to improve the country’s economic lot by tapping China’s largesse.
Finance Secretary Carlos Dominguez was correct in justifying the Duterte administration’s policy shift toward official development assistance, instead of the much-maligned public-private partnership scheme, in funding big-ticket infrastructure projects. The government, he said, can borrow funds more cheaply than the private sector and make more money down the road when it privatises completed projects, compared to what it can earn by selling rights to non-existent projects today.
No argument there. But Dominguez was probably referring to Japan’s 0.25-0.75 per cent loan rates, and not China’s staggering 3 per cent.
There are absolutely no advantages to borrowing from the Chinese at such rates and conditions. Official development loans from Beijing are more expensive and, as government loans go, come with more strings attached. More ominously, Sri Lanka’s experience shows that China has no compunction about pressing its advantage once a borrower defaults on its debts.
The best rationale Filipino economic policymakers have managed to cobble together so far is that loans from the Chinese government are faster in disbursing. However it should be pointed out that other lenders would disburse funds just as quickly, or even faster, if the country agreed to less equitable terms as well.
The growing international experience of the bitter pill of Chinese debt diplomacy should serve as a blazing red flag to Manila: The Philippines may be better off funding its infrastructure projects through loans from the governments of Japan, South Korea, the European Union or the United States. In fact, based on cost alone, anyone but China. Or, the Duterte administration can use its political will to remove the bureaucratic inertia that is preventing the private sector from bringing its own resources to bear on much-needed public infrastructure projects.
Mythology tells of how Troy became a vassal state of Greece after the weary Trojans ignored warnings against accepting too-good-to-be-true gifts from covetous neighbours. That scenario, or a variation of it, is happening to many countries around the world on the back of China’s relentless cash campaign. The Philippines must resist becoming one of them.