Little Papua dares the giant China

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Amelia H. C. Ylagan-125

Corporate Watch

Why should seemingly irrelevant news about Papua New Guinea refusing to pay a loan of $53 million from China be among the opening salvo of posts last Friday on various Viber chats among bored mostly middle class Filipinos quarantined and restricted for five months — and going — in this coronavirus pandemic?

Enough of recycled corny jokes, lachrymose prayer-exhortations, home remedies against the unrelentingly virulent COVID-19 and breaking news of discovered vaccines from Russia or China yet to be tested on some developing countries! But Papua New Guinea (PNG) still insinuated itself into Viber and YouTube when it sent back a planeload of 180 Chinese workers trial-tested on the coronavirus vaccine developed in mainland China before coming to work in the mines of PNG.

See, that’s the way it should be for us Filipinos too, swarming netizens of social media buzzed. No way that Filipinos will be guinea pigs for untested and non-WHO compliant vaccines from China, even if allegedly offered free to President Rodrigo Duterte. And while we are talking about little PNG telling giant China that they will not pay their loans from the Export-Import Bank of China: there’s the roused hypochondria of being afflicted with the China loan pandemic as PNG and some 150 economically disadvantaged countries who have borrowed, with unsure capacity to pay, about $1.5 trillion from China. The China “debt-trap.”

This $1.5 trillion from China exceeds 5% of world GDP, the February (2020) Harvard Business Review (HBR) warns. HBR has compiled multi-year academic and empirical data that China is now the world’s largest official creditor — surpassing traditional official lenders such as the World Bank, the IMF, or all OECD creditor governments combined.

The Philippines, as with many other countries, is in great need of funds now because of the devastation of COVID-19. This year, the government is planning to borrow P3 trillion from domestic and foreign lenders to finance the government’s coronavirus efforts. Another P3 trillion will be borrowed next year, according to the Department of Finance (DoF), according to a Philippine Star report on Aug. 9. National government’s debt to gross domestic product rose to 48.1% in the first half as the economy plunged into a recession from a 16.5% plummet in GDP growth in the second quarter. Debt-to-GDP ratio is projected to further rise to 53.9% by year end and 58.3% in 2021.


The national government’s outstanding debt as of end-June reached a new record high of P9.054 trillion, 1.8 % up from the P8.89 trillion of the previous month, the DoF bulletin showed (P2.864 trillion or 32% was sourced externally). Add the P3 trillion to be borrowed up to end this year, exacerbated by the drying up of revenues and the widening budget deficit, and ordinary mortals might doubt the DoF’s repeated assurances of “fiscal space” — meaning, can we just borrow more and more? Last April, with P461.7 billion of spending and only P187.8 billion of revenues, the government’s budget deficit reached P273.9 billion — easily the highest in decades (Rappler, June 19).

Okay, we must trust that our government finance managers know what they are doing, and are doing what is best for the country. Put aside the whimpering and whining on why they did not think of the small domestic investors and savers and at least protecting yields in “the most risk-free investment of all time” — government securities. “On top of the new foreign borrowings, the government also received in March a whopping P300 billion from the Bangko Sentral ng Pilipinas (BSP) through a so-called repurchase agreement. Government also regularly earns billions in the sale of government securities,” UP economist JC Punongbayan noted in Rappler on June 19.

Punongbayan asked why “the economic managers seem singularly bent on pursuing policies — such as CREATE (corporate tax cuts) and “Build, Build, Build” (big-ticket infrastructure) — that are not particularly needed at this time and will likely crowd out other important programs, notably Test, Trace, and Treat (for the coronavirus recovery plan). On June 16, the Department of Finance secured a new P75.5-billion loan to build road projects in Davao and Cebu. Borrowing billions for road projects in the middle of a pandemic? Really?” Punongbayan chided.

Those thoughts on the national debt bring the collective stream of consciousness back to the story of Papua New Guinea, and the shiver for how close the Philippines might be to borrowing again from China, forced by present fiscal and monetary trials in this coronavirus situation. Now, to be fair: in spite of open declarations by the President of his love for Chinese President Xi Jin Ping, the Philippines has borrowed from China only for the $62-million Chico River pump  irrigation project in Kalinga/Cagayan early last year. It was the first flagship infrastructure project financed by China under Duterte’s “Build, Build, Build” program.

But rights activists and nationalist critics of the Chinese loan pointed out dangerous provisions of the agreement that would kick in, if the Philippines somehow cannot pay back the loan. Then-Supreme Court Senior Associate Justice Antonio Carpio warned that “the loan agreement for the Chico River pump irrigation project has a provision that said China can seize Reed Bank if the government fails to pay the P3.69-billion loan” (Philippine Star, March 27, 2019). Carpio — proponent and defender of the triumphal UN declaration of the Chinese-contested territories in the West Philippine Sea as territories of the Philippines — said that as early as 1972, oil and gas in the Reed Bank have been classified as patrimonial property.

“If all loan agreements will follow the Chico River template, that will be a huge problem,” Carpio said. He also pointed out that collaterals are not standard in Official Development Assistance loans. But China is different.

See what happened to Sri Lanka, which in 2017 was forced to hand the state-owned Hambantota Port over to China for 99 years, this after the port racked up more than $1 billion in debt to Chinese companies. An Australian think tank report cited as examples the sorry experiences of Sri Lanka and that of Tajikistan, when in 2011, China reportedly agreed to write off an unknown amount of debt owed by Tajikistan in exchange for some 1,158 sq km of disputed territory.

The Australian Center for Global Development cited the plight of countries, which after borrowing money from China for infrastructure projects, are now pushing their debt-to-GDP ratios higher and higher, with China holding a rising share in them. And that is why Australian Prime Minister Scott Morrison actively investigated Papua New Guinea’s looming defaults for its $147-million loans from China. It cannot be that the strategic Port Moresby, for example, should fall into Chinese control, like Sri Lanka’s Hambantota Port.

Is this all just paranoia about China’s “debt colonialism” — as it forecloses on ports and takes control of debtor nations’ patrimony, in a discernible strategy to hegemonic power, as it brazenly claims other countries’ sacred territorial limits as in the West Philippine Sea?

In the forced isolation of the coronavirus threat, it is not paranoia; there must be the much-needed focusing on the health and survival of the people and the country, not just physically but morally and spiritually. We look to our leaders to do their duties and responsibilities for both.

And our leaders might look to Papua New Guinea for standing up against the Giant China.


Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.