China-led bank douses debt trap fears: Problem is with use of borrowed money

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Metro Manila (CNN Philippines, March 3) — The Beijing-based Asian Infrastructure Investment Bank on Wednesday downplayed concerns countries like the Philippines could fall into a debt trap, as governments continue to borrow to fund the fight against COVID-19.

AIIB President Jin Liqun said incurring external debt should not be a problem if resources are used properly.

"It's not the borrowing that created the debt problems, it's the use of the proceeds of the debt. It's the use of the borrowed money that matters. That makes or breaks," the AIIB chief said in a forum organized by the Chinese Embassy and the Association of China-Philippines Understanding.

"We attach great importance to the use of the resources form the debt. Put them to the productive sectors, making sure that all these money would be used effectively, and the projects shall be implemented on schedule so that you can start to have revenues without delay," he added.

The China-led multilateral development bank is providing the Philippines with $300 million or around ₱14.56 billion in loans to speed up the procurement of COVID-19 vaccines. The Asian Development Bank will lend the country $400 million, or around ₱19.41 billion.

The Philippines' outstanding loans swelled to a fresh high of ₱10.327 trillion in January, according to the Bureau of Treasury.

Even before the pandemic, critics warned that the billions of pesos in grants and investments from China, mainly for the Philippines' infrastructure projects, could push the country into a debt trap and lead to the Philippines ceding control of disputed islands. This is something both Manila and Beijing officials have repeatedly denied.

In the same forum, Trade Secretary Ramon Lopez and APCU Chair Emeritus Gloria Macapagal Arroyo thanked China for its donation of 600,000 doses of Sinovac's CoronaVac—the first vaccine to be rolled out in the country.

Lopez reiterated the Philippines is seeing signs of economic recovery after being plunged into recession due to months of community quarantine.