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"BRI Risk Reduction" by Malcolm Cook

2019/24, 5 March 2019

Infrastructure agreements between the Duterte administration and Chinese contractors and Chinese state banks are an issue in the ongoing mid-term election campaign in the Philippines. The Philippine Senate is holding hearings into the Duterte administration’s “Build, Build, Build” infrastructure project focussing on the unreleased details of loan agreements with Chinese contractors and financiers. Leftist Senate candidate Neri Colmenares has gained much media coverage by releasing details of an alleged confidential China-Philippine loan agreement that he deems is “onerous” and “one-sided.” Colmenares claims that the agreement waives Philippine sovereign rights, and that any arbitration will be under Chinese rules. The government response has not denied these claims, simply their interpretation.

More than a decade ago, under the Macapagal-Arroyo administration, the Philippines witnessed a similar electorally-driven public debate about confidential infrastructure agreements between China and the Philippines. The succeeding Aquino administration then cancelled some of these projects deeming them, once they had access to the confidential agreements, to be against the national interest. The fact that this story is repeating itself in the Philippines questions the often touted conventional wisdom that China learns lessons well and is or will adjust the BRI accordingly. The fact that opposition claims that BRI projects are corrupt and against the national interest are a major feature of elections from the Maldives to Malaysia suggest that this is a systemic, structural problem with the BRI and not isolated local incidents.

Recipient governments can address this growing BRI problem in a way that reinforces their fiduciary responsibilities, reduces their political risk, and, if they are a democracy, may improve the incumbent administration’s electoral fortunes. Do not agree to sweeping confidentiality clauses for any major infrastructure project involving public monies, and explain upfront if any part of the agreement is covered by a confidentiality clause why this is appropriate. Regional groupings with an interest in infrastructure development and connectivity such as ASEAN, APEC, the Asian Development Bank and the Asian Infrastructure Investment Bank could lend their support to this good practice that is not being practiced when it comes to the BRI. While such prudence may slow down the BRI rollout, it will place it on firmer political and financial grounds and reduce the growing political and financial risks for recipient governments and countries and China. A true win-win outcome based on lessons learned.      

Dr Malcolm Cook is Senior Fellow at the ISEAS – Yusof Ishak Institute.

The facts and views expressed are solely that of the author/authors and do not necessarily reflect that of ISEAS – Yusof Ishak Institute.  No part of this publication may be reproduced in any form without permission.