ADB agrees to renegotiate terms of grains sector loan

The Asian Development Bank (ADB) has agreed to renegotiate its conditions to the third tranche of the Grains Sector Development Program Loan, including the privatization of the National Food Authority (NFA)’s grains trading operations.

The controversial loan has two components: the $100-million program loan and the $75-million investment loan. It was intended for balance of payment support and carried several critical policy conditions that the government has repeatedly failed to meet.

The first tranche of the loan was released in 2000. Another $30 million was scheduled for release in 2001 but the government failed to meet the conditions attached to the loan. Consequently, the third tranche amounting to $40 million, was also delayed because the government did not expect to be able to meet the conditions attached to that tranche either.

Finance Undersecretary Juanita Amatong said yesterday that government has floated the idea of renegotiating the terms of the loan and the ADB was "receptive".

According to Amatong, the main contention in the third tranche was the proposed privatization of the NFA’s grains trading operations. "I don’t know who agreed to that," she said.

However, government sources privy to the on-going talks explained that the key policy decision was not the privatization of the NFA but the separation of its regulatory and trading functions.

According to the source, the terms contained in the existing loan agreement called for the separation of these functions, allowing the NFA to retain its grains trading function as a private corporation while delegating its regulatory functions to a government line agency, possibly the Department of Agriculture (DA).

The source explained that the problem arose when the government changed its mind about the restructuring of the NFA and even now, it has not made up its mind about what to do with the agency.

The NFA was attached to the Department of Agriculture (DA) until the Arroyo administration decided to put it under the Office of the President. Then it was moved back to the DA, together with the Philippine Coconut Authority and the Agricultural Credit Policy Council.

"It is not also just the issue of the NFA’s role but the whole issue of tariffication," the source said. "We are the only country in the entire World Trade Organization that still has quantitative restrictions on grains importation."

The source said even Japan and South Korea, both extremely protective of their rice farmers, have already announced that they plan to phase out quantitative restrictions on rice imports.

Moreover, the source pointed out that before discussing the third tranche of the ADB loan, the government has to first clear the path for the release of the second tranche which was being blocked by the failure of the Arroyo administration to prioritize two key legislative measures.

Two proposed measures on grains tariff reforms are pending in both houses of Congress and they have to be classified as "urgent" before the ADB would agree to release the second tranche of the loan.

According to the source, however, there is no executive push to certify the bills as urgent.