ADB expected to cancel $300-M loans to RP

The Asian Development Bank (ADB) expects to cancel about $300 million in loans to the Philippines over Manila’s failure to disburse and utilize the funds, officials at the lending agency said Wednesday.

The ADB also warned that despite its resilience in the face of unfavorable foreign developments, the Philippines needed to address a number of problems.

Thomas Crouch, country director for the Philippines, said the ADB had a total of $3.2 billion in loans to the country, or about six percent of the Philippines’ total external debt.

He told a press conference that of this, $1.1 billion had not yet been disbursed and that an ADB review of the Philippines’ portfolio had identified $300 million in loans which were due to be cancelled or likely to be cancelled.

Crouch said the government was also reviewing the portfolio and had already confirmed it would be cancelling about $170 million in loans. The ADB expects Manila to seek the cancellation of the remaining $130 million by the end of this year.

Among these loans is a $70 million loan to liberalize the country’s grain sector.

He also expects the Philippines to seek the cancellation of a loan program to develop five airports in the southern Philippines.

Cancelling these loans will save the country money in committment fees, Crouch said.

He warned the Philippines had one of the largest ADB loan portfolios "yet is also one of its weakest in terms of implementation."

Among the problems preventing the proper use of the loans are obstacles to infrastructure projects like "problems of land acquisition and resettlement," said Patrick Giraud, the regional director of ADB’s infrastructure department.

"Problems with titling, identifying (owners) take enormous time to be resolved," delaying transportation and power transmission projects, Giraud said.

There is also the lengthy procurement process of government where the period from the opening of a bid to the time it is awarded can go as long as one year, or twice as long as other Asian countries.

He said the ADB was discussing these problems with government to streamline the process.

Other obstacles to loans are difficulties in mobilizing counterpart funds, the poor capacity of government agencies to absorb these funds and slow process of reforms needed to implement the loans, Crouch said.

Crouch said the Manila-based ADB had forecast that the Philippines’ gross domestic product (GDP) would grow by 3.2-3.8 percent this year due to possible effects of the Severe Acute Respiratory Syndrome (SARS) in the region.

However, with recent signs the Philippines would suffer minimal effects from SARS, Crouch said he was hopeful the country would hit the upper level of the growth target.

He stressed the government must boost its revenue collection efforts to control the budget deficit, the "Achilles heel of the economy."