"It's such a pity that he no longer heads the department."
"It's such a pity that he no longer heads the department."
More than once have I said, in this column and elsewhere, that Cesar E.A. Virata is the best chief fiscal policymaker that the Philippines has ever had. Why am I reiterating this statement at this time? The proposed Kaliwa Dam, or, more specifically, the terms of the agreement that the Duterte administration intends to conclude—if it has not done so already—with the People's Republic of China for the financing of the water-supply facility.
The present Secretary of Finance, Carlos Dominguez III, has defended, and continues to defend, the terms of the proposed Kaliwa loan agreement with all the skill and strength that he can muster. All the terms and conditions of the agreement are fair and can pass international standards; all in all, it’s a good deal, Mr. Dominguez has declared.
Before I expound on why Cesar Virata would not have approved the proposed Kaliwa loan agreement if he were still head of DOF (Department of Finance), let us recall the agreement’s salient terms and conditions. These relate to loan maturity (and grace period, if any), interest rate, the bidding procedures (if the project will be bidded out), the rules with regard to the selection of sub-contractors and the hiring of personnel, the process to be followed in the event of default—i.e., whether there will be a resort to arbitration—the venue and authority of an arbitral body and whether China will have the right, in the event of default by the Philippines, to seize the Philippine government’s patrimonial assets.
Having been with the then-Central Bank of the Philippines during most of the time that Cesar Virata was Secretary (later Minister) of Finance and Monetary Board member, I think I can say with absolute certainty that Mr. Virata would not have agreed to sign a loan agreement bearing the terms and conditions of the proposed Kaliwa loan agreement. He would have adjudged the Kaliwa agreement terms to be grossly disadvantageous to the government of the country for whose independence his great-uncle Emilio Aguinaldo bravely fought.
Certainly, Secretary Virata would not have approved a 2-percent annual interest rate if lower-cost funds could be obtained elsewhere. It has been established that Japanese financing with a considerably lower interest rate can be obtained for the Kaliwa Dam. As head of the DOF, Mr. Virata was a great lover of ODA (official development assistance, which had maturities of up to 40 years, with a 10-year grace period, and carried a less than 1-percent interest rate) and during his fairly long incumbency the Philippine government exhausted the available supply of ODA funds for its infrastructure projects. It bears noting that in external-financing matters, Mr. Virata enjoyed the full support of his boss, President Ferdinand Marcos, and the Chief Executive at no point indicated a preference for any particular country as a source of financing for Philippine government projects. The sources of external financing for virtually all Virata-era government projects were the multilateral financial institutions—the World Bank and the Asian Development Bank—and the ODA facilities of foreign governments.
The patriotic and thoroughly professional grand-nephew of Emilio Aguinaldo would never have agreed to all the other major terms and conditions of the proposed Kaliwa loan agreement. Like the critics of the agreement, he would have adjudged those terms and conditions to be unfair and highly disadvantageous to the Philippine government. I can almost hear Cesar Virata saying, “We cannot have the Chinese choosing the principal contractor and sub-contractors, hiring Chinese instead of Filipino workers and having contract disputes arbitrated by a Chinese arbitral body sitting in Beijing. No way.”
The contrast between the position being taken by Secretary Dominguez on the proposed Kaliwa Dam loan agreement and the position that then-Secretary Cesar Virata would have taken thereon could not be starker. In effect, Secretary Dominguez is saying that the Chinese arrangement is a very good deal; back then, Cesar Virata would have disapproved the arrangement as a very bad deal for this country. Is Mr. Dominguez right when he says that the proposed Chinese loan will be beneficial to this country, or would Cesar Virata have been right if he had said that the loan would end up being bad for the Philippine economy?
The proposed Chinese loan for the Kaliwa Dam is a very bad deal for the Philippines. Cesar Virata would have rejected its terms and conditions. It’s such a pity that he no longer heads the department that has the authority to make this country’s external-borrowings decisions.”‹