Cash-strapped Philippines government battling storm loans

IRIN Reuters AlertNet 4 Aug 10;

MANILA, 4 August 2010 (IRIN) - The perennially cash-strapped Philippines government is struggling with massive loans tied to climate change mitigation efforts after storms struck the country late last year, officials said.

Multilateral lending institutions, as well as the UN and foreign governments, lent the Philippines US$1.09 billion to address disasters blamed on climate change, according to data obtained by IRIN from the Senate's environment committee, which is now looking into how the funds were spent and whether repayments could affect the country's budget.

Senate President Juan Ponce Enrile, who is heading the inquiry, said funds to help the Philippines get back on its feet after tropical storm Ketsana and typhoon Parma in late 2009 should come in the form of grants and not loans tied to certain conditions.

The back-to-back storms killed more than 1,000 people and affected more than 10 million, according to government data. A third typhoon, Mirinae, exacerbated the emergency situation in October; most of those affected belonged to the third of the country's 92 million who live on less than $1 a day. [http://www.irinnews.org/Report.aspx?ReportId=89921]

Not our doing

"We must stop the current practice of seeking concessional loans even as they come with very low interest rates from developed economies for our adaptation and mitigation efforts," Enrile told reporters recently.

"We must also avoid foreign grants that impose conditions for the same purposes. If it becomes necessary for us to borrow money from foreign lenders, we must see to it that project loans are not blended with climate-related programme loans."

He said the government must instead ensure that climate change be a key priority reflected in the national budget.

"The tremendous damage we suffer due to the effects of climate change is not our own doing," Enrile said. "[It arises] from acts done by developed and industrialized countries. We are the victims, why should we pay back monies and assistance that they extend to us for adaptation and mitigation measures?

"Instead of loans and charitable grants, developed countries must pay actual compensation to developing countries," he said.

Little left in fund

The controversy over the loans comes as the Philippines is grappling with its cash position, with President Benigno Aquino admitting shock after finding out upon assuming office on 30 June that last year's typhoons had nearly depleted the country's disaster fund of $44 million.

"Of this minuscule amount, at a time when the rainy season has yet to set in, 70 percent was already spent," Aquino said, adding that the funds were mismanaged by the previous administration of Gloria Macapagal-Arroyo, who stepped down after nine years in power.

Part of the problem is that funds from donors were also partly used to bridge the huge budget deficit, according to evidence uncovered by the Senate. For instance, a 150 million euro ($198 million) loan from Agence Française de Développement was spent to service the deficit, which had risen by 12.1 percent in the first three months of the year to $3.04 billion.

"At the very least, 20 percent of the loan should have been earmarked for its intended purposes, especially at this time when the country is beginning to experience another season of violent typhoons and storm surges," said Heherson Alvarez, who heads the Climate Change Commission.