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By Nora O. Gamolo Senior Desk
Editor
(Editor’s note: An earlier
two-part series reported that civil society groups blame official
development assistance for various forms of social and economic
displacement of the poor. This next series reports how development
initiatives are distorted by tied aid and how it makes the
Philippines subservient to the wishes of creditors.)
First of two parts
Many critics of the national
broadband deal have pointed out that one of its questionable points
is pinpointing specifically China’s ZTE Corp. as main implementor
of the project.
It is already loaded dice, they
said, with Chinese funds coming in but to be primarily used to pay
an implementing Chinese corporation. In the end, taxpayers will pay
for the loan.
Critics often raise this issue of
“tied aid,” or “ODA with strings attached.” Among others,
tied loans require the receiving country to acquire most, if not
all, the technical assistance, equipment or supplies from the donor
country. In fact, aid creates business—as in, profits—for that
country, but ties the borrower country to paying back the loan, with
interest, for years to come.
Eduardo Tadem, a development
specialist who made a study of Japanese ODA and a former deputy
director general of the National Economic Development Authority,
revealed that Japan, the country’s single biggest funder, earned
from 75 cents to 95 cents for every dollar of aid it gives in the
form of goods and services purchased by the recipient country.
Japanese firms actively lobby for
and are favored for in the conduct of feasibility studies,
consultancies and engineering projects. A 1986 study showed that 90
percent of Japanese commodity loans was used to purchase Japanese
goods.
Tying loans and grants has dire
consequences to the sustainability of projects. Equipment
maintenance is especially difficult and human resource training is
sometimes lacking.
Tadem reported in a paper that
“prices of tied goods were over 20 percent higher than the lowest
available international prices and reduced aid value by an average
of 10 [percent to] 15 percent.” Tied aid remains “a major
obstacle to the redirection of ODA resources to meet the real needs
of developing countries.”
In the case of untied aid, biases
for donor-countries still remain in areas such as hiring of
consultants from the donor-country or the use of donor-country
standards in the acquisition of equipment and other project
requirements.
In a review of 50 years of
Japanese aid to the Philippines, researcher Antonio Tujan Jr., who
is chairman of the Reality of Aid international consortium of
nongovernment organizations seeking a jubilee or debt condonation
for tainted loans, noted that Philippines is the third-largest
recipient of Japanese ODA after China and Indonesia.
Japanese ODA is, in fact, the
main source of support for development projects in the Philippines
since it started 45 years ago in 1960.
Until 2002, the country received
from Japan a total of $9.991 billion in net disbursements,
equivalent to 43 percent of all development assistance received from
1960 onwards to this year.
Tujan quotes official Japanese
sources that saying takes pride that “13 percent of all national
highways improved through Japan ODA,” “Japan assisted 8 percent
of energy generation,” and “millions of Filipinos enjoy clean
water,” courtesy of Japan that provided two-thirds of all water
grants to the Philippines.
Japan gave 110 billion yen to
major airport projects, “62 major and small ports were built,”
assisted 22 major flood control projects, and “irrigated 129,000
hectares in 10 years [alone].”
Japan supported the Philippine
government in various environment management projects like
reforestation, solid-waste management and air-quality improvement.
It extended grants and technical assistance amounting to 20 billion
yen for the Philippine health sector, including the upgrading and
expansion of major hospitals. Japan also helped built 65,000
classrooms and science laboratories.
Critics have charged that
Japanese aid is tied to Japanese donor agencies that specify the use
of Japanese goods and equipment or recommend Japanese industrial
standards.
In fact, big business is closely
linked to ODA projects. Tadem reported that from 1966 to 1999, the
Asian Development Bank (ADB) awarded $20.1 billion, in contracts to
companies from donor countries for projects in various ADB-member
countries. American and Japanese private companies “have between
them won ADB contracts worth more than all ADB lending to the
thirteen least developed countries in the region,” he added.
This takes place despite an
established system of internationally competitive bidding. Untying
aid is supposedly a global trend, but this is not the case with
Japan whose decade-long economic downturn (starting in the 1997
Asian financial crisis) forces government to exert extra efforts in
assisting its suffering business community.
Tadem said, “ODA cannot be
implemented without the active participation of the Japanese
business sector” as a 1999 government medium-term policy on
official development assistance declared “the intention to
consider increased opportunities for Japanese business to
participate in ODA.”
Despite a claim by the Japanese
Ministry of Foreign Affairs that 98 percent of Japanese aid has been
untied, observers expect Japan to continue providing significant ODA
assistance on a tied basis as a time-tested approach in building
domestic business and helping win support from Japanese
multinationals.
Debt audit stalwart Freedom from
Debt Coalition has lately counted three recent projects “that were
totally tied.” Psyche Rizsavi Fontanilla, a researcher for the
coalition, said these are the Subic Clark-Tarlac Expressway project,
$388 million; the Light Rail Transit (Line 1) Capacity Expansion
Project, $197 million; and the Urgent Bridges Construction for Rural
Development Project, $147 million.
Aid is oriented toward furthering
donor foreign policy interests more than the country’s
considerable development needs, as in the case of Japan and the US.
Aid from multilateral agencies has also continued to have attached
explicit and implicit conditions that are inimical to Filipino
interests.
Donors have also used aid to
advance their foreign policy interests at the expense of the
country. Biggest donor Japan has been criticized for effectively
using its past and current yen loan packages as leverage for the
ratification of the Japan-Philippines Economic Partnership Agreement
(JPEPA), now awaiting ratification from the Senate.
Government economic managers
themselves have argued that nonratification of the JPEPA could
antagonize the country’s biggest aid source. The 27th and 28th yen
loan packages have been reported to be worth at least P67 billion,
said Arnold Padilla, a key leaders of No Deal, a group promoting
fair trade.
The United States remains to be a
major donor to the country, and its aid packages have been skewed to
its currently favored global campaign, anti-terrorism, especially in
southern Philippines.
The US, in turn, has been taking
advantage of its being the country’s largest source of grant aid
(rather than loans, like that of Japanese aid) to revive, expand and
deepen its military presence, especially in Mindanao but also in
conflict-affected areas across the country. There has been $460
million in US aid over the 2004-2007 period, not even including some
$20 million yearly in Public Law 480 loans to purchase US food
surpluses.
The biggest loans of the World
Bank and the Asian Development Bank have had “free market”
policy conditionalities attached to them since at least the 1980s.
These have required changes in overall macroeconomic and sectoral
policy frameworks, even going into very specific implementation
details.
The World Bank’s $250-million
Development Policy Loan in 2006 for instance was essentially given
because of the government’s harsh fiscal austerity, including
cutbacks on social services, the imposition of new taxes, and
continued power sector privatization.
Jose Enrique Africa, Ibon
research director, said conditionalities are part of any development
assistance package.
“The country’s first loan
with the International Monetary Fund [IMF] in 1962 was [given] on
condition of the removal of foreign exchange controls and resulted
in a sudden drastic devaluation of the peso against the dollar. The
next four decades had 24 IMF loans totaling $3 billion and SDR
[Special Drawing Rights] 3.1 billion and each of which more or less
contained the standard IMF “stabilization program” of tight
fiscal and monetary policies,” Africa said.
The last IMF loan, for instance,
was a $1.4-billion stand-by arrangement from 1998 to 2000 which had
110 conditionalities that were euphemistically called “structural
reform measures,” he added.
“IMF and WB aid
conditionalities especially since the 1990s have been far-ranging
and included, among others: tax reform, import liberalization, oil
deregulation, power sector reform, retail trade liberalization,
financial and banking sector reform, securities reform,
privatization and general foreign investment liberalization,”
Africa said.
All policy changes connected with
these programs and projects have restructured the economy and turned
the Philippines into one of Southeast Asia’s most open economies
with the lowest tariffs and least restrictions on foreign capital,
next only to Singapore.
Ironically, in a low or
zero-tariff country, the Philippines remain to have one of the most
stringent and most regressive, some say repressive, taxation systems
in the world, hitting the average citizen, but not the big
businessman nor the foreign investor who enjoy preferential
treatment.
To be continued
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