THE DUAL nature of overseas development assistance (ODA) loans as both foreign aid and support for businesses in the lending country has taken an interesting, if confusing, turn in the case of loans and guarantees provided by the United Kingdom.
The NEDA lists the United Kingdom as the Philippines’ fourth biggest source of development finance, which comes in the form of guarantees provided by the UK’s Export Credit and Guarantee Department (ECGD).
Yet according to the the British Embassy in Manila, the ECGD “is not part of the UK’s (aid) infrastructure but is purely a commercial operation.”
Responding to a PCIJ letter, the British embassy’s trade and investment section said the ECGD’s only purpose is to help British exporters by providing the exporters and their financiers with insurance and guarantees against political and default risks.
“The value of the loan is usually equal to 85 percent of the contract price — the other 15 percent is either paid in cash or covered by a separate commercial load — there is no discount and there is no artificially constructed low interest rate,” the UK embassy said. “The buyer therefore, pays for the contract in full at a commercial rate, there is no aid element.”
It is easy to be misled if a transaction is purely commercial or assistance. A NEDA project evaluation report dated Nov. 26, 2004 on a UK-funded national bridge program spelled out the financing terms — and they looked the same as any other ODA loan.
The report said: “The project is being proposed for financing from the British Government’s Export Credit Guarantee Department. The credit financing shall be made available to the GOP (Government of the Philippine) to meet up to 100 percent of the contract price for the project provided by the exporter/supplier. The credit facility covers an interest rate of 2.05 percent over a loan period of 14 years with a grace period of 2.5 years.”
Still, the British Embassy could very well be right to consider the amounts as purely commercial transaction rather than aid. Almost 90 percent of £449 million guarantees extended by the ECGD to the Philippines between 2000 and 2007 backed sales to the Philippine government of just a single company, Mabey & Johnson.
The British maker of steel bridges, through the efforts of its well-connected agent in Manila, was the supplier of choice for the special bridge-building programs of three Philippine presidents: Fidel Ramos, Joseph Estrada, and Gloria Macapagal Arroyo.
More than three-quarters of the £513-million guarantees that Mabey & Johnson got from ECGD were for sales in the Philippines alone.
A December 2005 investigative report in The Guardian newspaper concluded that Mabey & Johnson’s bridge sales to the Philippines helped the Mabeys become one of Britain’s richest families.
In 2004, newspaper rich lists ranked the Mabeys No. 141, with an estimated wealth of £310 million, according to The Guardian.
“Analysis of the company’s accounts shows that the dramatic leap in fortunes has come largely from its Philippine contracts, worth £429 million and all funded by UK-backed loans,” the report noted.
Perhaps that should convince Philippine officials the UK loan guarantees are “purely commercial” transactions and nothing else.