For the past few years we have been reading incessant accusations from Western media and academic circles, then echoed in social media about China’s alleged “debt trap diplomacy.”
Here in the Philippines we are also bombarded with propaganda that the Philippines-China agreements is leading the country into a debt trap with Beijing. This is a very timely subject as the Bangko Sentral ng Pilipinas (BSP) reported the good news that the country’s foreign debt had been reduced by $997 million at $72.2 billion.
This total foreign debt the BSP is reporting is accumulated debt from the 1960s to this day, from the time the US backed International Monetary Fund (IMF) compelled President Diosdado Macapagal in 1961 to accept “structural adjustments,” i.e. “decontrol” trade, devalue the peso and liberalize capital flows causing the peso to slip from P2 to $1 to P3.80 and doubling the Philippines’ debt to almost $400 million. Since that time the cycle of rising debt multiplied by massive devaluation has relentlessly plagued the Philippines.
Earlier in July, in a very significant statement of Finance Secretary Carlos “Sonny” Dominguez at a Senate budget hearing, the government’s attitude to debt was explained: “We are not naïve. We know all ODA projects of all countries are designed to influence. The Japanese do it, the Americans… even Koreans… When the Americans bombed Manila (in 1945), then gave us little money to fix it up, they extracted from us…” Clearly, the Philippines has been chained to a debt trap since the 1950s under IMF structural conditionalities that eventually led to the passing of an “automatic debt service” law in 1977.
The Philippines has been chained to the IMF, World Bank and ADB debt trap since the 1960s, yet Amboys (American boys) in the country such as Magdalo’s Rep. Gary Alejano, Amboy “think tanks” like the Albert del Rosario Institute and its stable of writers and talking heads such as Richard Heydarian, behave as this fact did not exist and instead point an accusing finger at the Duterte administration’s financial dealings with China constituting such a miniscule amount today as the “debt trap” problem.
Secretary of Foreign Affairs Alan Peter Cayetano told reporters at the sidelines of a Senate Finance Committee hearing last 27 August, the startling fact loans from China today constitute only no more than 1 percent that it could not possibly pose any danger of becoming a “debt trap.” In all likelihood, there will never be a China trap as the Filipino people have become so alert to that very bitter experience with the IMF, WB and ADB that everyone in this country is looking under every rug to detect any such danger.
Another significant fact is that much of China’s financial commitment so far has come in the form of grants, for the two bridges over Pasig, the multimillion-peso drug rehab centers in Mindanao and assistance programs such as that for the Hybrid Rice program at the Central Luzon State University, the financial assistance to the victims of past calamities and major crises like the Marawi siege. All loan packages for components of the “Build, Build, Build” programs are productive projects that ensure earnings to pay back such loans.
The real big ticket financing will be signed this coming November during the visit of President Xi Jinping to President Duterte in Manila. One of these major projects is the $3.5-billion loan agreement for the construction of the Philippines’ legendary Bicol Express or the P175-billion 600-kilometer Manila-Matnog rail line. This project constitutes about 14 percent of the $24-billion investment deals agreed between Presidents Xi Jinping and Rodrigo R. Duterte during the historic October 2016 visit of the latter to China — which is an amazingly fast pace of development.
Yet, even before this mega government-to-government project is being signed privately led Chinese investments have already been arriving by the droves. Prof. Alvin Camba, a Filipino doctoral candidate at John Hopkins University, wrote this in July 2018:
“A year and a half later (after President Duterte’s visit to China in 2016), newspapers have argued that the predicted boom has failed to materialize… (But) according to actualized FDI data of the Central Bank of the Philippines… China and Hong Kong’s FDI inflows (which should be counted as one) had already reached $1.06 billion by March 2018… (surpassing) the entirety of Chinese and Hong Kong investments received under President Gloria Arroyo ($828 million) and already reached five-sixths of the $1.2 billion under Benigno Aquino’s term.”
Mid-year in 2019, Package Two consisting of rails and bridges in the Visayas and Mindanao, water supply and flood control projects in Metro Manila and Luzon, industrial parks from North to South of the country, and a host of other projects worth billion more will be signed. The Philippines-China financial and infrastructure deals, with rates at or just above 2 percent interest are actually financial assistance packages to help develop Third World economies to become mature economies able to both supply and consume goods and services in the regional and global market.
So let’s get it straight, the “debt trap” has been the legacy of the Western Powers working through their multilateral financial institutions — the IMF, World Bank and the Japanese-led ADB. This debt trap scheme has been recorded in books of John Perkins, particularly his account of his personal experience as a “loan consultant” of the Western financial institution assigned to developing countries. Perkins’ The Economic Hitman recounts the methods by which Third World country leaders are entrapped and how the Western Powers arranged to get rid of such uncooperative leaders.
