Aquino wary of AIIB due to Northrail called loan

Posted on June 04, 2015

THE PHILIPPINES needs to be “very very cautious” about becoming a member of China’s Asia Infrastructure Investment Bank (AIIB), President Benigno S. C. Aquino III said at a conference in Japan on Wednesday, with the government obliged to consider Beijing’s behavior in the Scarborough Shoal crisis of 2012, during which the Export-Import Bank of China (China EximBank) called in a loan that was to fund a rail line to Clark International Airport.

The president, during the question-and-answer portion of the Nikkei Conference on the Future of Asia in Tokyo, said: “We are unfortunately also possessor of an experience wherein there was a concessional loan allegedly granted to my predecessor, which... was neither concessional nor helpful to our country... The drawdowns from this loan were demanded very, very early that potentially could have led us to a cross-default.”

According to a transcript of the proceedings provided by Malacañang, Mr. Aquino had been asked why he “announced” Manila’s intention to join the AIIB, and clarified that though the need for infrastructure is great, “we have not joined the AIIB. We have not indicated that we are ready to join also.”

A major concern for the Philippines, which is locked in territorial dispute with China and faces the prospect of punitive economic measures by Beijing, is that “the economic help that is supposed to be afforded will not be subjected to vagaries of politics.”

He noted that “the only thing we can show for the hundred of millions of dollars that we had to pay immediately was about a kilometer of columns and the plans for this project. So that behooves us to be very, very cautious whether or not to join the AIIB.”

The rail line project to Clark, known as Northrail, was awarded to China National Machinery and Industry Corp. (Sinomach) in 2003 for an initial $431 million, with China EximBank signing a loan agreement in 2004 to finance $400 million. A further tranche of $500 million was never disbursed.

The project soured after the disbursal of about $185 million, with the Supreme Court ruling that the project was not a government-to-government agreement, effectively invalidating the contract, which had not been awarded via competitive bidding as the law requires. Northrail then notified Sinomach of its inability to carry out the agreement, prompting EximBank to declare a default event.

Scarborough shoal, known by the Philippines as Panatag shoal. In older maps it is designated Bajo de Masinloc, reflecting its position west-southwest of Masinloc, Zambales on the Luzon mainland. The shoal was the scene of a standoff between Chinese and Philippine vessels in 2012 against a broader dispute over fishing and other economic rights to the South China Sea.

Fielding other economic questions, Mr. Aquino also clarified that the Philippines has not actually declined to join negotiations for the Trans-Pacific Partnership (TPP), noting that the Philippines has not been formally invited to the TPP. “We were not part of the first group that organized it, and under the rules, we do have to wait for their formal invitation... But we are very, very interested in joining.”

On the matter of Filipinos working in Japan, Mr. Aquino said: “The major difficulty is the language barrier and we are convinced that there have been steps to address that situation.” He also noted that Japan’s Nidec Corp. is seeking applicants with masteral and doctoral engineering degrees, and that “we are in the process right now of inventorying our countrymen who have those degrees.”

“We recognize that the opening up of your market is not simply an edict that happens overnight. There are difficulties and there are legitimate concerns, but we are convinced that your government and our negotiators are doing their best to come up with a solution,” he said.

On Wednesday the president also addressed Japan’s parliament, known as the Diet, and was received at the Imperial Palace by Emperor Akihito. He is due to meet with leaders of Japanese industry to invite them to invest in the Philippines.