Dominguez offers tips for avoiding the debt trap

MANILA, Philippines — The Marcos administration can avoid falling into a debt trap, especially to China, if the benefits of the projects it will pursue outweigh the costs of the borrowings it will take on, according to the former Secretary of Finance Carlos Dominguez III.

“One way to avoid the debt trap is to ensure that the financed project has an economic return greater than the cost of the loan,” Dominguez said in a text message to reporters.

“Another one [way] is to bring loan terms in line with those governing loans from respected international sources,” he said.

Dominguez released the statement in response to a question about why he stepped down before leaving his post as chief financial officer of the loan requested from China for the delivery of railway projects worth 276 billion pesos. . Last week, he warned the Marcos administration that Beijing would charge more than 3% interest for rail loans.

“I canceled the application instead of keeping it in suspended animation. If you wish to pursue this, I understand that the Chinese funding agency will charge interest rates above 3%,” Dominguez said in a message. text to Undersecretary of Transportation Cesar Chavez.

Chavez said that in comparison, Japan offers loans at rates as low as 0.1%, prompting the government to ask China to lower its interest charges.

Despite the cancellation of the bid, President Marcos has ordered his economics team to return to the negotiating table with China to determine how the parties can move the stalled rail projects forward.

Similarly, Chavez said the president also wanted to explore the possibility of soliciting proposals from private lenders, particularly for the 50 billion peso Subic-Clark railway project and Phase 1 of the Subic-Clark railway. Mindanao of 83 billion pesos.

However, Chavez said no private companies seem interested in paying the cost of the Philippine National Railways Bicol Package 1 which seeks to link Laguna and Albay. Despite this, Marcos instructed economic managers to only tackle official development assistance and public-private partnerships (PPPs).

The president took off the table the possibility of the government bearing the cost of the new railways. This, as the government consolidates its finances to reduce the budget deficit to 3% of the economy by 2028, from a record 8.6% last year.

In moving to PPPs, Dominguez reminded the Marcos administration to allocate gains based on the risks taken by both parties involved.

“For [a] For the PPP contract to be beneficial to the public, the terms must distribute the returns according to the risks taken by both the public sector and private investors,” said Dominguez.