The paradox of a gift: Foreign

aid and its conditions

Justin See
Published 10:45 PM, April 14, 2019
Updated 10:45 PM, April 14, 2019

President Duterte is not the only world leader who sees China as a friend. After signing economic
agreements in 2015, then-Zimbabwe president Robert Mugabe called Chinese President Xi
Jinping "God-sent."

China is one of the world's largest providers of foreign aid, spending approximately $354.3 billion
across 140 countries from 2000 to 2014, according to AidData.

China has reiterated that its assistance to developing countries is premised on equality between
partners and respect for sovereignty in order to enhance the productivity of its recipients.
However, researchers caution that there may be "strings attached" to these acts of generosity.
French philosopher Jacques Derrida argues that a gift always involves a cycle of giving, receiving,
and taking back. He claims that giving most often involves recompense, debit, credit, and interest.

This is the paradox of foreign aid as a gift: on the one hand, it is depicted as genuine help without
any expectations of reward, but the practice of aid has historically involved economic and political
conditionalities.

Economic conditions: Loans and grants

Foreign aid has been used to create debt among the recipient countries. One of the major findings
of the same AidData study indicates that a very small portion (21%) of the money China gives to
other countries is considered a direct grant (and therefore does not lead to debt). Majority (79%) is
in loan form that needs to be repaid over time with interest.

Socioeconomic Planning Secretary Ernesto Pernia admitted that in the case of the Philippines,
Chinese loans carry 2% to 3% interest rates which is 12 times more expensive than the interest
rates of Japanese loans (0.25% to 0.75%).

Consequently, several critics have voiced out concerns after witnessing the fate of Sri Lanka,
Tajikistan, and Zambia, among others. Under its "debt-trap diplomacy," China has demanded
concessions when countries were unable to keep up with repayment.
How the Philippines fell for
China’s infamous debt trap
JC Punongbayan
Published 2:13 PM, March 27, 2019
Updated 2:13 PM, March 27, 2019

Duterte himself fell for China’s debt trap – hook, line, and sinker – and in the process put at risk
the country’s natural resources and strategic assets

JC Punongbayan
Published 2:13 PM, March 27, 2019
Updated 2:13 PM, March 27, 2019

China’s debt trap was completely avoidable. Yet we still fell for it.
No less than Senior Associate Justice Antonio Carpio of the Supreme Court has combed
through the Chinese loan agreements entered into by the Duterte administration and found
onerous provisions that imperil our nation’s “patrimonial assets.”

That China is capable of imposing such conditions should come as no surprise.

China, in its bid for global economic and political dominance, has wantonly trampled on the rights
and sovereignty of many a developing country.

But how exactly does China’s debt trap work? How deep are Filipinos into this mess? And who
must be held accountable?

Onerous provisions

It was only recently – after much public pressure – that the Department of Finance (DOF)
published on its website the full text of the loan agreements recently entered into by the Philippine
government.

Justice Carpio zeroed in on the loan agreement for the Chico River Pump Irrigation project and
pointed to 3 onerous provisions:

First, the Philippines apparently agreed to waive its sovereign rights on “patrimonial assets” or
properties owned by the state not “intended for some public service or for the development of the
national wealth.”

Carpio claimed that Reed Bank – along with its estimated 5.4 billion barrels of oil and 55.1 trillion
cubic feet of natural gas – is in danger since a 1972 law had already declared such resources as
patrimonial.

Second, in the event of a dispute about this loan, the Philippines also agreed to subject itself to an
arbitration to be held in Beijing, overseen by a tribunal that will always be composed by a majority
of Chinese nationals – thus putting us at a disadvantage by default.
Third, the loan agreement also stipulates that its details are to be held in “strict confidentiality,” in
direct contravention of the 1987 Constitution.

Debt-trap diplomacy

These provisions are characteristic of loan agreements handed out by China across the world
under President Xi Jinping’s ambitious Belt and Road Initiative or BRI.

Here’s how China’s infamous debt trap works:

 First, China offers to build and finance infrastructure projects

in a developing country even if such projects have low
expected returns or are wholly unfeasible.
 Second, the borrower-country, often small and poor, finds
itself unable to pay.
 Third, China collects as collateral the borrower-country’s
natural resources or strategic assets.

One famous example is Sri Lanka: after failing to repay China for the construction of the $1-
billion Hambantota Port, the Sri Lankan government was forced to lease the said port to the
Chinese for the next 99 years.

Another example is Ecuador: China built near an active volcano the $1.68-billion Coca Codo
Sinclair hydroelectric dam, and Ecuador repays its loans by giving up 80% of its oil resources to
China.

Many other countries are in peril.

A 2018 study by the Center for Global Development found 8 countries at high risk of defaulting on
their new Chinese loans: Pakistan, Djibouti, Maldives, Laos, Mongolia, Montenegro, Tajikistan,
and Kyrgyzstan.

Figure 1 shows that not only do these countries have dangerously high levels of e
xternal debt to begin with, but the share of debt they owe to the Chinese is also projected to jump
tremendously in the coming years.

Pakistan, for example, incurred a whopping $50-billion additional debt from China under BRI,
slapped with high interest rates. Meanwhile, in Laos, one BRI project (the China-Laos Railway)
costs $6.7 billion or about half the size of Laos’ national output.

Imprudent management

Thankfully, the Philippines is not remotely at risk of defaulting on its new Chinese loans – yet.

As of 2017 the Philippines’ debt-to-GNI ratio – which pits the country’s debt against the size of our
national income – was recorded at just 19.4%. Figure 2 shows that it’s in fact the lowest in
ASEAN.

Our debt-to-GNI ratio has also dropped significantly since its peak in the mid-1980s, when it
reached 99% (back then our external debt was almost as large as our economy).
The amounts we borrowed from China so far are also not terribly large.

The Chico River Pump Irrigation project costs P4.7 billion, while the Kaliwa Dam project costs
P12.2 billion. By contrast, the Japanese-funded Metro Manila Subway and North-South Commuter
Railway Extension projects cost P357 billion and P628 billion, respectively.

This is not to say, of course, that there is no cause for concern.

To ably repay our loans we must ensure that our economy’s growth (as measured by GDP growth)
remains robust.

But latest data show that GDP growth clocked in at just 6.1% in the last quarter of 2018, lower
than the government’s target, and lower than the 7.2% growth rate that Duterte started with in
2016.

Unfortunately, growth might only falter further.

Failure to sign into law the 2019 budget, for example, could stall important projects like Duterte’s
infrastructure push called Build, Build, Build.

The economic managers themselves conceded that GDP growth might drop to a mere 4.9% if the
reenacted budget lasts until August, or even to 4.2%, if the 2019 budget is not signed into law.

In this time of wobbly growth, continuing to enter into patently onerous loan agreements could
qualify as imprudent economic management.

Learn to say no

It strikes me as hypocritical that Duterte wishes to arrest without warrant (even kill) “5-6” lenders
for their supposedly onerous loans. Yet Duterte himself fell for China’s debt trap – hook, line, and
sinker – and in the process put at risk the country’s natural resources and strategic assets.

For this betrayal of public trust, heads must roll.

Manageable debt is no excuse for government to indiscriminately sign demonstrably onerous

Chinese loan agreements. It’s the Filipino people who will ultimately repay such loans, and
prudence dictates that government should avoid them.

But our officials will have to learn to say no to China.

Malaysian Prime Minister Mahathir Mohamad shows us a way forward: in his latest visit to China
he bravely announced that Malaysia will be shelving 3 China-backed projects.

He said, “I believe China itself does not want to see Malaysia become a bankrupt country.” He
even branded China’s BRI as a form of “neocolonialism.”

Mahathir’s example should inspire small countries seeking to stand up to China’s economic and
political bullying.
Will Duterte do a Mahathir? I doubt it. But more than ever, we need a leader who will. –
Rappler.com
MADE IN CHINA:
Loan terms with waivers, shrouded in secrecy
Beijing likes its contracts tough and countries quiet. Is the Philippines learning from
others' mistakes?

BY RALF RIVAS
MARCH 27, 2019

AT A GLANCE

 China is very categorical: it wants countries to sign a waiver and settle disputes
using Chinese laws.
 Beijing also wants things under wraps, but the Philippines was able to push for some
transparency.
 Domestic politics can spoil economic prospects and can be a gaping hole for China
to exploit.

MANILA, Philippines – The Philippine government has repeatedly downplayed fears of the country
falling into what is dubbed as the Chinese debt trap.

However, critics like senatorial bet Neri Colmenares pointed out that the loan agreements had
waivers, which were “onerous” and “one-sided.”

To understand the issues on the Chinese contracts, Rappler reviewed all 9 loan
agreements recently made public by the Department of Finance (DOF) and looked for clauses
pertaining to waivers, confidentiality, and arbitration. We also reviewed publicly-available loan
agreements entered into with other countries involving the Export-Import Bank of China
(Eximbank).

Currently, there are two signed loans with China, two with South Korea, 4 with Japan, and one
with the World Bank for the big-ticket infrastructure projects. We found that of the 9 contracts, only
deals with China had specific waivers on sovereign immunity and mentioned patrimonial assets.

Rappler also found that Chinese contracts were templated to include confidentiality clauses, but
the Philippine government was able to negotiate striking these off. Other countries had no clauses
on confidentiality at all. China was also very explicit where it wants arbitration to be held in case of
a dispute, and specified that its laws should be followed in such proceedings.

Meanwhile, we also found some form of waivers in deals with South Korea and Japan, which were
implied in arbitration clauses. Literature on waivers in government-to-government loans also
suggest that waivers are present in most loan agreements, whether explicit or implicit.

The Philippine government maintains that it is managing debt well and the numbers back this
claim. While this may be the case, the case of Chinese loans should be appreciated in the context
of how Beijing continued to lend to countries which had bad loan management records.

China, positioning itself to be a global superpower, should have foreseen the downward spiral of
countries like Sri Lanka.
Moreover, while the two loan agreements entered into by the Philippines with China are relatively
smaller than other infrastructure project costs, the choice of words and demands of China in its
contracts, as well as its cunning strategies, must always be taken into consideration as the
Philippines moves forward with its ambitious infrastructure push.

The Duterte administration aims to strike a total of 75 major projects on or before 2022, when the
President's term ends. About one-fourth or 19 of these will be funded by China. If not managed
well, these can put the country at a huge disadvantage.

China’s style

The DOF said that waivers on sovereign immunity are usual, while Malacañang said such terms
are but “standard” clauses in loan agreements. The Palace even went on to say that the
Philippines "had no say" on the terms.

Waivers. Rappler found out that indeed, waivers on sovereign immunity are standard in Chinese
contracts.

In the case of the Kaliwa Dam project worth $211 million, it had this provision:

Article 8.1 Waiver of immunity. The borrower hereby irrevocably waives any immunity on the
grounds of sovereignty or otherwise for itself or its property in connection with any arbitration
proceeding…or with the enforcement of any arbitral award pursuant thereto, except any other
assets of the borrower located within the territory of the Philippines to the extent that the borrower
is prohibited by the laws or public policies having force of law in the Republic of the Philippines,
applicable and in effect at the signing date of this agreement from waiving such immunity.

Such provision was very similar to that in the contract of Eximbank for Guyana’s road
improvement project worth around $46.7 million in 2017:

Article 8.1. The borrower hereby irrevocably waives any immunity on the grounds of sovereignty or
otherwise for itself or its property in connection with any arbitration proceeding…or with the
enforcement of any arbitral award pursuant thereto.

A similar clause waiving sovereign immunity can also be found in a contract between Eximbank
and Kyrgyzstan made in 2013 for a thermal power plant worth $386 million.

The Center for Global Development, a non-profit research organization looking into China's Belt
and Road initiative, cited Kyrgyzstan as among the countries vulnerable to above-average debt.

The contract for the Chico River irrigation project worth $186 million, where 85% of the cost will be
loaned from Eximbank, included more provisions.

In particular, it made mention of patrimonial assets, which Supreme Court Associate

Justice Antonio Carpio said would put the Philippines at risk of losing gas-rich Reed Bank.

The clause in the Chico River project states:

8.1 Waiver of Immunity. The borrower hereby irrevocably waives any immunity on the grounds
of sovereign or otherwise for itself or its property in connection with any arbitration proceeding…or
with the enforcement of any arbitral award thereto. Notwithstanding the foregoing, the borrower
does not waive any immunity of its assets which are (i) used by a diplomatic or consular mission of
the Republic of the Philippines, (ii) or a military character and under control of a military authority
or defense agency of the Republic of the Philippines, or (iii) located in the Philippines and
dedicated to a public or governmental use (as distinguished from patrimonial assets and assets
dedicated to commercial use).

Such clauses were cited by various international news outlets as the reason why some countries
like Sri Lanka coughed up its port to pay off loans.

Arbitration. Should a “friendly consultation” fail between the Philippines and China, an arbitration
will take place.

For the Kaliwa dam project, the contract was clear that arbitration will be held in the Hong Kong
International Arbitration Center (HKIAC) for arbitration. Under its rules, both parties can either
agree on the number of arbitrators, follow the usual 3-member tribunal, or just choose a single
arbitrator.

In the likely case that parties choose a 3-member setup, one member will come from each party.
The 3rd member shall be decided upon by the two selected members.

Should the two fail to designate a 3rd member who will act as presiding arbitrator within 30 days
from appointment of the 2nd arbitrator, HKIAC will appoint the 3rd member.

As for the Chico River project, the rules of the China International Economic and Trade Arbitration
Commission (CIETAC) will be followed.

According to CIETAC’s rules, the tribunal shall be composed of 3 arbitrators. However, CIETAC’s
rules state that the parties involved in the arbitration shall nominate arbitrators from a list provided
by CIETAC.

Article 26. Nomination or Appointment of Arbitrator

1. CIETAC maintains a Panel of Arbitrators which uniformly applies to itself and all its
subcommissions/arbitration centers. The parties shall nominate arbitrators from the Panel
of Arbitrators provided by CIETAC.

2. Where the parties have agreed to nominate arbitrators from outside CIETAC’s Panel
of Arbitrators, an arbitrator so nominated by the parties or nominated according to the agreement
of the parties may act as arbitrator subject to the confirmation by the Chairman of CIETAC.

Carpio earlier warned that the venue and rules put the Philippines at a great disadvantage, even
calling them “lutong Macau” (rigged in favor of China).

Meanwhile, Finance Undersecretary Bayani Agabin clarified on Wednesday, March 27, that the
Philippines did not provide a collateral for any loans with China. The contracts confirm this claim,
as there were no clauses pertaining to collaterals.

"Collateral is, you know, when you want to take out a loan and the [lender] wants security for
payment of the loan. Usually – private example, you want to borrow for your business, banks will
require you to put up collateral," Agabin said.
"The collateral is agreed upon by the parties at the start of the loan. The loans we have,
regardless of which country, the Philippines does not offer any collateral," he added.

Moreover, Agabin said that enforcement of any arbitral decision will still have to be taken to
Philippine courts.

Confidentiality. Critics have repeatedly asked for loan documents to be made public for them to
be scrutinized.

The Freedom of Information website already had various requests for the loan agreements as
early as 2018. Even senators demanded more transparency.

The DOF made public all 9 infrastructure loan agreements, including the two funded by China.

Finance Assistant Secretary Antonio Lambino said the Philippines was able to “negotiate”
transparency.

He pointed out that the government was able to include lines which allow the documents to be
made public using Philippine laws:

8.9 Confidentiality. The borrower shall keep all the terms, conditions, and the standard of fees
hereunder or in connection with this agreement strictly confidential. Without the prior written
consent of the lender, the borrower shall not disclose any information hereunder or in connection
with this agreement to any third party unless required by any applicable Philippine laws,
regulations, and rules, or by order of any courts, tribunals, or agencies of competent
jurisdiction, or relevant regulatory bodies.

A similar clause can also be found in the Chico River project contract.

The loan documents of Guyana and Kyrgyzstan also had clauses similar to that of the Philippines,
which made the agreements available to the public.

However, sources told Rappler that China likely lobbied for the confidentiality clause for other
agreements with other countries, which is why they could not be easily accessed by those who
want to scrutinize the deals.

Loans with South Korea, Japan

Rappler also reviewed the loan agreements with South Korea and contracts with Japan. We found
that the loans implied some sort of waiver, but were not explicitly stated as such.

Lambino said that in general, loan agreements have waivers, but are worded “differently.”

In a press briefing on Wednesday, March 27, DOF Undersecretary Mark Joven emphasized that
past administrations had already agreed to similar sovereign immunity waivers.

For instance, Joven said a very similar provision can be found in a loan agreement with France for
the Cebu bus rapid transport system.
In various journal articles by Mark Weidemaier, a legal expert on sovereign immunity and debt, he
emphasized that loan agreements almost always include some forms of waivers of immunity from
suit and other terms designed to facilitate legal enforcement.

Weidemaier argued that before such immunity waivers got popular in the 20th century, lenders
could only impose informal sanctions such as denying the borrower-country future loans until it
resumed payments or relied on diplomatic or military means.

He said that the waivers provided strong legal enforcement rights and thus helped reduce the risk
of a default or countries being unable to pay loans.

Meanwhile, arbitration clauses were also specified in loans with South Korea and Japan, but were
clear that each disputing party had equal representation. They likewise did not specify where
arbitration will be held.

South Korea. Loans with South Korea governed by the general terms and conditions of
its Economic Development Cooperation Fund(EDCF) specified that Seoul’s laws would be applied
in case of a dispute.

This is the only clause in the EDCF rules which somewhat acts as a waiver, as it implies that the
Philippines agrees that South Korean law would be used for resolution:

Section 10.01. Governing Law. The Loan Agreement and the Guarantee, if any, shall be
governed by and construed in accordance with the laws of the Republic of Korea.

The contracts made no mention at all of immunity on the basis of sovereignty or those pertaining
to patrimonial assets.

The EDCF’s rules also included an arbitration clause. But unlike China, it did not specify where the
arbitration will take place.

The agreement said the tribunal shall consist of 3 arbitrators – one appointed by the bank, one
appointed by the borrower, and one “umpire” either appointed by both parties or by an appropriate
organ for the settlement of international disputes.

Japan. Meanwhile, the general terms and conditions in the Japan International Cooperation
Agency (JICA) also did not mention waivers of immunity on the basis of sovereignty. Nor did they
tackle issues related to patrimony.

JICA’s terms only said that all claims or disputes shall be settled among the parties.

Similar to South Korea, Japan’s arbitration procedure also involves 3 arbitrators – one appointed
by JICA, one from the Philippines, and one umpire either appointed by both parties or an
appropriate organ for the settlement of international disputes.

If either party fails to appoint an arbitrator, that arbitrator shall be appointed by the umpire.
The JICA rules also specified that the umpire will not be a person of the same nationality as either
of the parties to arbitration.

Hypothetical, but still worrying

The economic team's messaging is clear and simple: the scenario of the Philippines being unable
to pay debt is “highly unlikely.”

The DOF repeatedly emphasized that the country’s debt-to-gross domestic product (GDP) ratio,
the measure of a country’s debt obligations relative to the size of its economy, is at 41.9%, much
better than countries like Sri Lanka with over 75%.

However, the government should always check what the numbers cannot fully capture: political
instability.

In the case of Sri Lanka, it needed money to get back on its feet after a long civil war. However,
the projects failed to generate sufficient revenues and corruption made debt unmanageable.

Analysts said that the debt translated into strategic concessions to China.

The Philippines needs to be extra cautious. In 2018, its GDP growth stood at 6.2%, missing its
original target of 7% to 8%.

Another case of politics creating a ripple effect in the economy is the budget impasse. Due to the
late passage of the 2019 budget, the economic team revised its growth outlook to just 6% to 7%. A
full-year reenacted budget, according to the National Economic and Development Authority, would
mean growth dropping to as low as 4.2%.

Another potential threat is the possible shift to federalism. Socioeconomic Planning Secretary
Ernesto Pernia warned that the change of government will "wreak havoc” on the economy if
politicians are not careful.

The Marcos years – when the country paid off loans for overpriced projects for decades – should
also be enough cautionary tale for Filipinos.

Domestic political factors, as well as China’s global maneuvers using economic power and the fine
print of its contracts, should be enough reasons for government not to be complacent. –
Rappler.com
The Philippines: A Neo-colonial
Experience
Kenneth Andres
Follow
Apr 19

Like many countries in Latin America, the Philippines has been a

continuous colony, first of Spain from 1565 until 1898, then by the United
States (U.S.) in 1898 until July 4, 1946. That is three hundred eighty-one
years of subjugation under two successive foreign masters. But even after
its formal independence from the United States, the country has suffered
further foreign control in the form of neo-colonial rule by the United
States disguised in the seemingly innocuous international financial
institutions (IFIs) known as the World Bank (WB) and the International
Monetary Fund (IMF). Through these IFIs many Filipinos were driven to
poverty — if they were not already impoverished — partly by the policies
instituted by the US in its meddling in Philippine domestic affairs. Some
may dismiss this line of argument as inaccurate, as things such as
corruption, natural disasters and high population growth, should count as
major contributors to its impoverishment. And I agree that these are
reasonable arguments, but these only cover part of the problem.

To put this topic into proper perspective, we should consider the case of
post-war Japan. Like the Philippines, Japan has suffered a comparable
degree of destruction during World War II; the only difference is that the
US took a very different course of action when it took control of Japan’s
post-war reconstruction. For instance, instead of keeping the traditional
social hierarchy in place, the US drafted a constitution that emphasized
social equality. Also, Japan’s economy benefited from the partial
dissolution of monopolies known as the zaibatsu. Likewise, the US
implemented land reform which helped in the distribution of wealth. And
lastly, the unionization of Japanese workers and the American attempt at
reforming the taxation system proved to be instrumental to Japan’s
recovery.[1]Contrast all of these to the reforms done to the Philippines,
and add to these all the years of resource extraction by the foreign
occupiers, aided by the local elites who owned a sizable proportion of the
country’s wealth, and one can see how colonialism and neo-colonialism
have affected the Philippine economic development in the twentieth
century. Considering all these, I argue through the context of dependency
theory[2], that the colonial and neo-colonial policies of the United States
and the subsequent Bretton Woods system of financial aid towards the
Philippines are major factors to its persistent economic underdevelopment
during the twentieth century.

In almost all newly-independent societies, extreme social inequity is often

maintained as a convenient tool by colonial powers in order to continue to
have the means to effectively control and subjugate the formerly colonized
masses. Indeed, social inequity remains as a tool for neo-colonialism,
something which is clearly reflected in the colonial legacy of the U.S. in the
Philippines. [3][4] After the Philippines’ independence from American
rule, the Americans left a society with extremely huge wealth inequality
that left a select number of families fabulously wealthy in both land and
political influence. Had the U.S. intended to leave the Philippines with a
society more conducive to democracy (such as what the U.S. did to post-
war Japan), the U.S. would have made the country more egalitarian and
the U.S. would not have left a society so unequal that only a few
indigenous families own the majority of the country’s land and wealth. As
a result, instead of making the Philippines more independent as a country,
it continues to be under U.S. control thanks to the elites that it left in
place.[5]

The Philippine-American neo-colonial relationship began immediately

after the Philippine independence in 1946, with the inauguration of the
Bell Trade Act of 1946, also known as the Philippine Trade Act. The Bell
Trade Act was anything but fair. First, the Act dismayed many Filipinos
because it pushed forward an overt neo-colonial policy in which
Americans are explicitly given “the right to own and operate public
utilities and to develop natural resources in the Republic on an equal
footing with Filipino citizens.”[6] This basically means that Americans
were allowed to maintain their colonial footing over the Philippines with
their ability to operate businesses and own properties as if they were right
inside sovereign US territory. This is obviously no different to any colonial
power operating inside their colonies. Not only was the Act an overt neo-
colonial extension of US power over the Philippines, it was also passed
under neo-colonial auspices. In an undemocratic manner, local elites did
everything in their power to muzzle dissent.[7] Allied with the U.S., these
select few undoubtedly had a stake in the Act’s passing. Second, the newly
independent Philippines was blatantly blackmailed by the United States
(specifically by the Truman administration) through its reluctance to sign
the Philippine Rehabilitation Act if the Philippine government refused to
pass the Bell Trade Act. Even though everything was already agreed upon
in advance (i.e. before independence), the Truman administration wanted
both Acts to be signed simultaneously post-independence to appear as if
the Philippines had a democratic say over the matter. This is because the
U.S. was careful not to appear to continue to exert control over the
Philippines and be accused of being an imperialist.[8] Considering their
country’s situation, the Filipino politicians who dissented were thus forced
to pass the Act out of desperation. Had they chosen not to acquiesce, the
financial help to start the Philippine reconstruction (along with all the U.S.
vested interests behind it), would have never been loaned.[9] In view of all
these, the Bell Trade Act is thus an exemplary model of neo-colonial
practice: discreet and highly favourable for the colonial power.

Still not content with all its material hold of the archipelago’s resources,
the U.S. further increased its grip over the Philippine affairs by propping
up the dictatorship of Ferdinand Marcos. This is demonstrated by the fact
that the Philippines received a marked increase in financial aid from the
World Bank during the start of the martial law years than in the years
prior.[10] It is thus safe to speculate that Marcos’s dictatorship would not
have been possible without the aid of the WB which funded his corrupt
and repressive regime in exchange for further American access to the
Philippine market and natural resources. Thanks to the financial aid
provided by the WB, the Marcos regime more than tripled its military
budget from 1972 to 1976, suggesting that the WB was complicit in the
regime’s repression of the masses.[11]

If this is not enough meddling, the WB also provided money to the

Philippine government for agricultural development to maintain the status
quo. This was done through its involvement in creating a façade of token
reforms, such as raising agricultural productivity through ‘technological
packages’ and providing farmers with a means to obtain credit. However,
all these token reforms were only meant to create the illusion of peasant
grievances being addressed without actually doing anything substantial.
The government hoped that the majority of peasants would not demand
anything beyond this façade — or call for a full reform of the system —
which was a demand that was being raised by the New People’s Army
(NPA), an armed revolutionary group led by aggrieved peasants calling for
a more equitable distribution of land.[12]
Likewise, during the Marcos regime, the World Bank encouraged, or
rather, coerced the Philippine government to give up its protectionist
policies in favour of neoliberal economics that would benefit transnational
corporations from the United States and other Western nations at the
expense of the Philippine-based industries.[13] In 1970, the Philippine
economy was structurally adjusted when the government was unable to
pay for its debt and had to loan from the World Bank. To be able to pay for
its debt, the World Bank agreed to loan money to the Philippines with the
condition that it devalues its currency, the Philippine peso, at sixty per
cent its value. This ruined many domestic businesses. Filipino
entrepreneurs went bankrupt, and workers’ wages dropped by as much as
fifty percent. Further structural adjustment programs were implemented
when Marcos initiated martial law in 1972. The World Bank subsequently
encouraged the opening up of the Philippine market to international trade.
This request was accomplished with little political resistance because
President Marcos had already systematically destroyed the Filipino
industrial elite and the urban working classes. The former through the
abolition of the Congress, and the latter through the dismantling of the
trade union movement. All these actions were approved of or sanctioned
by the World Bank.[14]

These structural adjustment programs made the Philippines an attractive

location for many transnational corporations seeking a more favourable
business environment, although at a price. The Marcos regime created a
number of export processing zones where the Philippines “allows
[transnational corporations] tax holidays for the first few years of their
operation, and [the country] give them the right to deduct from their
subsequent taxable income the losses they may incur during the first five
years of their operation.”[15] The indigenous population in those export
processing zones were forcibly driven out of their lands, its environment
destroyed, to make way for the corporations.

All these examples demonstrate how the American neo-colonial policies in

the Philippines (later disguised behind the façade of the World Bank) have
contributed to the country’s economic stagnation in the latter half of the
twentieth century. The Marcos regime had also worsened the situation,
but not without the financial aid from the World Bank which lent him
billions of U.S. dollars only to squander them in unproductive projects or
for personal gain. The country accumulated a massive amount of debt that
current and future generations of Filipinos would have to pay for. Money
that should have been spent on social welfare, infrastructure, providing
quality education, and proper compensation for law enforcement
personnel to prevent corruption, etc., mostly go to servicing its massive
debt.[16] In 2005, the Philippines asked the World Bank for debt
forgiveness under the Heavily Indebted Poor Countries program, but the
Bank considers the Philippines not heavily indebted despite the eighty to
ninety percent of its tax revenue spent on debt service, with the rest
financed through loans from other sources. All these factors contribute to
the cycle of poverty, more persistent than the natural disasters and the
high birth rate, both of which can be managed through the creation of
proper infrastructures and the implementation of reproductive health
education. Ultimately, it can be argued that many other social and
economic problems could have been addressed had the Philippines not
been made responsible for the debt it has never benefited from.