ISSUE ANALYSIS No. 06
March 19, 2008
Series of 2008

Are foreign loan agreements not international agreements?

We cannot allow a few officials and their families and cronies the privilege of further nailing and bleeding our national budget to the crucifix of foreign indebtedness and destitution.

A few years ago, the Spanish government gave the Philippines its largest overseas development assistance (ODA) for building the Sentro Ophthalmologico Jose Rizal (Jose Rizal National Eye Referral Center) at the Philippine General Hospital (PGH) in Manila. The multi-million project’s implementation went through the most rigid bidding procedures. All suppliers and services - local and foreign - had to go through Philippine procurement processes, to assure competitive and transparent bidding. Although it was a grant negotiated with a foreign government, it went, so to speak, by the book which means its strict compliance to Philippine procurement laws and regulations.

Negotiated loan agreements with foreign governments should not be exempted from our local procurement procedures. More so because, first, these are really huge projects and they impact heavily on the national budget thus greatly reducing the allocations for basic social services. The people are already burdened with so many direct and indirect taxes which do not appear to be going back in the form of services especially to the poor and marginalized. Second, these loan agreements are not subjected anymore to congressional and public scrutiny as they are normally negotiated secretly such as in the case of the now-canceled telecommunications deal with the ZTE, a private/state-owned Chinese corporation; the Southrail and Northrail Projects; the Fuhua Agricultural Projects; and the Cyber Education Project, among others. Taxpayers and citizens who are burdened with the payment of these odious debts never even get to see the loan agreement contracts.

China in particular, has mostly state enterprises for supplies and services which are made as part of the negotiated deals in loan agreements and which are not anymore subjected to our procurement laws, particularly bidding procedures. This brings us to a more fundamental question: Why should international agreements, especially those affecting the economy and natural resources, be exempted from the Philippine Senate's legislative ratification?

Another way

While it is true that current Philippine procurement laws exempt negotiated loan contracts/agreements with foreign governments, and cover only those with the private sector, there is another way to subject negotiated state-to-state loan agreements to public scrutiny and evaluation. Note that it is the Filipino people who will eventually pay for these loans for decades to the extent that even the unborn will also be made to bear the burden of payment.

One way to prevent secret – and often, shady - deals with state-negotiated loan agreements for large-scale projects is to treat these as international agreements under the 1987 Constitution. The Constitution provides, "No treaty or international agreement shall be valid and effective unless concurred in by at least two-thirds of all the Members of the Senate." (Art. VII, Sec. 21) Obviously, in letter and spirit, these refer to agreements with other foreign governments. Then, state-to-state loan agreements such as the ZTE/NBN should have been treated as "international agreements" under the Constitution as they are after all agreements negotiated with a foreign government. Furthermore, they have a greater impact on our national life in the form of the tax burden that we all - especially the poor - have to shoulder for repayment.

Subjecting this kind of international agreement with a foreign government to ratification by the Philippine Senate will allow institutional transparency and debate through the public hearings as to, first, whether we really need the project envisioned and, second, whether the project is too costly to further burden the Filipino people. Will these have the highest economic and social returns to the community and nation? Are these projects well conceived and not just "prestige" but poorly-conceived projects as in our past experience with white elephant projects through fraudulent loans especially during the Marcos dictatorship when there was not even an independently fiscalizing legislature? Should these be our priority projects? Greedy and kleptocratic officials in the executive branch (or even from the legislative) who are acting as "fixers", will find it almost impossible to engage in under-the-table deals especially when taxpayers are being informed how their money is to be spent, how much, and at what terms.

Touted as showing a best practice in transparent governance is Naga City in Camarines Sur, with its "E-Governance" online making available to constituents information about all services, contracts, transactions, collections, and the names of accountable officials and employees of the city. At the very least, the affected communities and the taxpayers who will eventually shoulder the costs of major public investment projects should be given the opportunity to intervene and play a role in the shaping of the project, before it is approved, not after, as what often happens when they are merely notified during the latter implementation stage.

Senate ratification

Still, the most ideal situation is to subject all public investment projects financed through foreign loan agreements and negotiated by the government with other states and multilateral financial agencies, to Senate ratification. These form the greater bulk of our foreign indebtedness for projects that we hardly even know of or benefit from. We cannot allow a few officials and their families and cronies the privilege of further nailing and bleeding our national budget to the crucifix of foreign indebtedness and destitution.

There should be an end to secret negotiations for foreign loans that only contribute to our nation's impoverishment and human underdevelopment. In some Latin American countries, foreign loan negotiations are not allowed in the hands of unaccountable finance officials who are only craving to eventually join the World Bank or International Monetary Fund as economists. In some progressive Latin American countries today, foreign loan negotiators include leaders from trade unions, peasant organizations, and consumer groups to ensure greater transparency and public scrutiny.

There can be no other institutional remedy to this especially in handling international agreements of this nature. NEDA's Investment Coordinating Committee (ICC), which used to have a reputation of being strict in evaluating foreign-assisted projects, is under the Office of the President who appointed its Director General with full cabinet rank. Indeed, they can be very strict and meticulous with line agency projects proposed for foreign assistance. But what if, for a major foreign-assisted public investment project with a foreign government to be financed with loans from its Export-Import Bank, the pressure to approve regardless of the cost to the Filipino people comes from the appointing power and Commander in Chief?

In the long run, it is when the country finally evolves its democratic governance that transparency problem – including corruption – will see its end. Transparency is inherent in democratic governance.

The analysis for this issue was written by Roland G. Simbulan, Senior Fellow of the Center for People Empowerment in Governance (CenPEG) and Centennial Professorial Chairholder of the University of the Philippines.