DOF: China debt trap fears overblown

MANILA, Philippines — Fears of the Philippines succumbing to a China debt trap as the government implements an aggressive Build, Build, Build infrastructure program are overblown, the chief economist of the Department of Finance said.

Speaking at the Economic Journalist Association of the Philippines-San Miguel Corp. Business Journalism seminar on Saturday, Finance Undersecretary Gil Beltran said that China’s  infrastructure projects in the country were “overdiscussed.”

At an interest rate of 2 percent per annum for projects financed by China versus an internal rate of return (IRR) of at least 15 percent, Beltran said the Philippines would easily gain 13 percent from these projects.

You lose if mismanaged

“You only lose money if you mismanage the project and that will take a very stupid manager or a very corrupt manager.  And these are very good projects which should have been implemented 20 years ago,” Beltran said.

IRR is a metric used in capital budgeting to estimate the profitability of potential investments.

Given that the Philippines was in dire need of infrastructure and the prospective IRR was very high but with sufficient project and corporate evaluation, Beltran suggested there’s no harm in taking advantage of official development assistance (ODA) while these are still available.

“There’s a limit to how much you can get from  ODA source and what we’re getting from China is what they allocated to us,” Beltran said.

$4,000 income seen

“We are not favoring China; It’s just they allocated $9 billion for us and Japan also said they’re going to give $9 billion. So we let them choose which projects which they can implement given their resources and capabilities,” Beltran said.

Within this year, Beltran said the Philippine per capita income might breach $4,000, which will make it an upper-middle income country.  With per capita income of over $3,000, the country is currently in the low-middle income category which qualifies it for most ODA packages.

Beltran said that while the private sector might be more effective in implementing certain infrastructure projects, such as airport development, some projects were better done by the government, such as the road projects of the Department of Public Works and Highways.