GMA news ran a very sensational headline that caused a lot of fuss in social media recently. The news was about how the Philippines may pay China for its loans. The headline read “Philippines can use natural resources as collateral for loans from China – Chinese report.” Reading the headline, one may think that GMA news has gotten a hold of an official Chinese report outlining how the Philippines has agreed to pay for its loans from China – by using our natural resources as collateral. This made a lot of people upset and cause a lot of Dilawans to say that they were right all a long that Duterte is selling us out to the Chinese.
This sensational headline was also picked-up by Inquirer who ran the same slanted and dishonest headline.
When you read the actual article you start doubting the truthfulness of the author. It turns out, their source is a news report from Global Times quoting a Southeast Asia expert commenting on the strengthening relationship between China and the Philippines. This is the actual quote from the expert:
Paying back its debts is not a problem for the Philippines, according to Zhuang. “The interest rate on the loans China has provided to the Southeast Asian country is very low. And the Philippines has strong debt-paying ability. Besides, the loans are usually accompanied by repayment agreements, which use certain natural resources as collateral.
Notice the difference between what the expert said and how GMA news twisted it? The actual quote was his observation about the terms in most Chinese loans to Southeast Asian countries. He was never privy to the terms of the loans between China and the Philippines. He did not have access to an official government document outlining the terms of the loans to the Philippines. In short, the expert was giving his opinion on how most loans from China is structured. There is also another more important part to what the expert said – that the Philippines has strong debt-paying ability. That means he sees no reason for the Philippines to default on the loans and therefore, even if we did use natural resource as collateral, we would never have to give up that natural resource. A collateral will only be used if the debtor is not able to repay the loan and since the Philippines, according to the expert, has strong debt-paying ability, that collateral is safe.
This whole idea of a debt trap causing the Philippines to have to give up its natural resources is a pipe dream. They compare the experience of other less developed economies who were not able to repay their loans from China. They site some alarmist examples of poor African countries ceding control of their natural resources to China due to their inability to pay back the loans which was rooted in the fact that they did not have strong economic fundamentals. These conditions for a debt trap to occur are not present in the Philippines. The Philippines was recently ranked as the best country to invest in for 2018 by a global survey. Absent a catastrophic economic disaster or a sever incompetence of our economic managers, the Philippines has a very low default risk on its loans from anybody. People who say taking loans from China is a trap are just too naive.
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