Goodbye China, hello Japan

With uncertainties threatening China’s – and the world’s – economy resulting from the still raging COVID-19 virus, the Duterte administration would be better placed to not expect funding discussions to significantly progress for many of its flagship Build Build Build (BBB) projects.

Just how abnormal the situation is for China is anybody’s guess at this time, but even if the country successfully eradicates the virus’s spread within the first half of the year, the damage wreaked on its economy would take more time to repair.

The Chinese government would likely be on a rebuilding mode, focusing on reopening manufacturing sites and helping its industries as well as bringing back the flow of supplies all over the country. Tax breaks, subsidies, and other relevant financial interventions are being deliberated to help affected entrepreneurs and farmers.

The situation in China is “still grim and complex,” according to Chinese President Xi Jinping as he called for more focus on curbing the virus outbreak to prevent disrupting the spring planting in farms, to ensure the continuity of food production in the coming months.

 Best bet

That said, after the Duterte government recently further distanced the Philippines from the United States with the cancellation of the Visiting Forces Agreement, our best bet at the moment for official development assistance (ODA) to fund BBB projects would be no other than Japan.

Not that such a turn of events would seem bad for us.  Japanese ODA comes with much lower interest rates and far more generous terms. Furthermore, the Japanese government through its aid arm the Japan International Cooperation Agency (JICA), has a faster system in approving funding and disbursing funds.

As a result, Japanese-funded infrastructure projects, including those categorized as flagship under the BBB list, have steadily increased in number since the President started office in 2016 compared to those on the Chinese side.

Last year, more than 10 loan agreements were firmed up between the Philippine and Japanese governments for BBB projects, including the much- anticipated first phase of the Metro Manila Subway Project, the North-South Commuter Railway Extension Projects, and the Metro Rail Transit Line 3 Rehabilitation Project.

‘Fast and sure’

Finance Secretary Carlos Dominguez attributes the efficiency of the process to an adopted “fast and sure” approach by the two governments when it comes to dealing with BBB projects, significantly shortening the period of processing and approval for some to just three months.

Transparency also plays a significant role. The website of the Japan embassy in the Philippines keeps a mean list of Philippine projects funded by Japan not only to the Philippine government, but also to other agencies involved in delivering aid to the country.

An example of the latter would be the $2.12 million fund for the International Organization for Migration supporting the development of the autonomous Bangsamoro’s electricity sector through the provision of solar power generation systems in the provinces of Basilan, Sulu and Tawi-Tawi.

When it comes to speed, when Taal Volcano erupted last Jan. 12, the Japanese government was able to quickly muster the donation of masks, water, portable jerry cans, generators, and cord reels for relief work of the Department of Social Welfare and Development.

All these has elevated Japan as the top source of the Philippines’ loans and grants which now account for about half of the country’s total ODA portfolio.

‘Cautious and strict’

In contrast, the much ballyhooed ODA from China is not coming in as fast as expected, which  Socioeconomic Planning Secretary Ernesto Pernia cites as the cause of the slow processing by Beijing when vetting possible projects.

Pernia was also quick to add that Manila has been “cautious and strict” about the potential loan agreements with China after the National Economic Development Authority’s Investment Coordination Committee issued in 2016 more stringent guidelines in choosing contractors of China-assisted projects.

The lack of transparency in getting Chinese-funded projects off the ground before during the time of former president Gloria Arroyo led to the approval of two controversial and graft-ridden projects, the national broadband project and Northrail.

To date, only two big projects funded by China are in the clear. These are the ongoing Chico River Irrigation project in Cagayan and the barely-there construction of the Kaliwa Dam which is embroiled in issues dealing with indigenous people’s ancestral land rights.

Embracing multilateral lenders

The Duterte government has now rolled out the red carpet to the Asian Development Bank, of which the Japanese government has the biggest share, in hopes that a stronger partnership with the Philippine government will lead to more funds for BBB.

ADB is looking at lending a record-high of $3.3 billion this year to the Philippines, half of which would be for infrastructure projects. Its biggest project in the Asia-Pacific region is the $2.75-billion Malolos-Clark Railway Project.

Among the Philippine projects funded by the ADB (with JICA) is the $2.75 billion Malolos–Clark railway, noted to be the largest project financing of the development bank in the Asia and Pacific region last year. Project groundbreaking has been firmed up later this year.

In contrast, the Chinese-led Asian Infrastructure Investment Bank has not been able to support the Philippines’ infrastructure program as vigorously. To date, the Beijing-based multilateral lender had processed just one loan, the $500-million Metro Manila Flood Management Project co-financed with the Washington-based World Bank.

When its crunch time for the Duterte government, with a little over two years left to accomplish its ambitious golden age of infrastructure promise, choosing wisely whose side you’re on is just prudent.

Facebook and Twitter

We are actively using two social networking websites to reach out more often and even interact with and engage our readers, friends and colleagues in the various areas of interest that I tackle in my column. Please like us on www.facebook.com/ReyGamboa and follow us on www.twitter.com/ReyGamboa.

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.