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Former President Gloria Macapagal Arroyo has dismissed concerns about the Philippines’ mounting loans from China, saying they are not a “debt trap.”
Speaking at the Belt and Road China-Philippines Forum on People-to-People Exchange & Economic Cooperation on July 26 at the Sofitel Hotel, Arroyo said, “As long as we can serve the interests, it’s not a debt trap."
Arroyo’s views are similar to what Chinese embassy’s deputy chief of mission Tan Qingsheng said in a speech at the same forum. “All the cooperation projects are not ‘imposed on anyone’ or designed to ‘frame’ any other country. The so called ‘China debt trap’ is completely groundless. The BRI (Belt and Road Initiative) is a ‘pie’ for everyone to share, not a ‘pitfall’ that hinders development,” he said.
Arroyo asked: “How come when we borrow from America and from Japan, they don't call it a debt trap? The most important thing is the ratio of our debt to our GDP (Gross Domestic Product).”
Under her presidency (20 January 2001 – 30 June 2010), Arroyo was able to service 9.6 per cent of the country’s debt. Debt service, according to the Philippine Statistics Authority, is the sum of loan repayments, interest payments, commitment fees, and other charges on foreign and domestic borrowings.
According to the latest figures from the Department of Finance, the country’s debt-to-GDP ratio increased from 42.6 percent in March 2018 to P44 percent in end-March 2019. The debt-to-GDP ratio is an indicator of the ability of a country to pay its debts; the lower the figure, the better.
China has been criticized for engaging in debt trap diplomacy, in which a country extends excessive credit to another country with the intention of extracting economic or political concessions when the latter becomes unable to honor debt obligations.
Unveiled in 2013, China’s BRI is an ambitious global development strategy involving infrastructure development and investments in 152 countries and international organizations in Asia, Europe, Africa, the Middle East, and the Americas.
Tan said the BRI is not a geopolitical tool, but a “peaceful development platform.”
In March, Finance Secretary Carlos Dominguez III gave assurances that the country will not fall into a debt trap. The Philippines, as of end of 2018, has nearly $980 million worth of loans from China. He said that no government projects funded through Official Development Assistance allow the takeover or appropriation of domestic assets.
Critics have questioned some projects under the BRI. Members of the Makabayan Bloc urged the Supreme Court to stop the implementation of the US$62-million Chico River Pump Irrigation Project loan from the Export-Import Bank of China for being “onerous.” The government defended the project, saying it has gone through a lot of reviews and is not violative of the Constitution.
In recent years, China’s BRI, which includes investments in infrastructures, has faced scrutiny. In 2017, it was reported that the Sri Lankan government agreed to lease its Hambantota Port to a Chinese firm after it failed to pay its debts to China.
According to the Center for Strategic and International Studies, China’s BRI-related credit has a high impact on the debt-to-GDP ratio of countries availing of its loans. CSIS said countries such as Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan, and Tajikistan are “at a high risk of debt distress” due to their BRI obligations.