What happens if the Philippines can't pay off loans from China?

MANILA, Philippines (UPDATED) – Will the Philippines fall into China's debt trap?

This was the concern of former Bayan Muna representative and senatorial candidate Neri Colmenares, zeroing in on the Chico River Pump Irrigation Project.

He raised the alarm over the "onerous" project requiring high interest rates and provisions seemingly waiving off the country's sovereign immunity.

What is the project about? The Chico River Pump Irrigation Project is the first flagship infrastructure project financed by China under President Rodrigo Duterte's "Build, Build, Build" program.

It aims to help some 4,000 farming families by irrigating around 8,700 hectares of agricultural land in Kalinga and Cagayan.

What are the loan terms? In a document obtained by Colmenares, the project has an interest rate of 2%, much higher than Japan's rates of 0.25% to 0.75%

The total project cost totals to P4.37 billion, while the loan agreement only covers P3.69 billion. 

The agreement also slaps a "management fee" worth $186,260 and a "commitment fee" worth 0.3% per annum. According to the agreement, this will be "calculated on the undrawn and uncanceled balance of the Facility."

This is to be paid "in full without counterclaim or retention." (READ: [OPINION] What scares me the most about China's new, 'friendly' loans)

Dangerous provisions? Colmenares was wary of the provisions that state that the Philippines' sovereignty will not be recognized, which means that China may take control of the country's patrimonial assets. 

Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.

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