EVEN after 15 years since the signing of the Paris Declaration on Aid Effectiveness, the Philippines still has tied loans from several of its official development assistance (ODA) partners.
The Paris Declaration on Aid Effectiveness, drafted in 2000, set 12 indicators that seek to improve the use of ODA globally. One of these indicators is to untie aid.
National Economic and Development Authority (Neda) Deputy Director General Rolando G. Tungpalan told the BusinessMirror that the country still has tied aid from China, Japan, Korea and Italy, among others.
“Overall, we’re moving close to [meeting the indicators],” Tungpalan said. “Progress is being made but you have to look at it in terms of weights. Ang weight kasi ng World Bank and ADB [Asian Development Bank] ngayon is malaki sa loans so sila compliant sila but there are individual partners like Japan, Korea, kokonti na lang sila, who may not be fully compliant.”
Aid is “tied,” the Organization for Economic Co-operation and Development (OECD) explained, when restrictions are placed on the countries that goods and services may be purchased from narrowly specified group of countries, including the donor country.
The OECD said untying aid not only improves value for money and decreases administrative burdens, but also supports the use of local resources and country systems.
Tungpalan explained that most of the tied aid the Philippines still has are usually for very concessional loans. This means that the interest rates for these loans are less than 1 percent and can be as low as 0.25 percent.
The Neda official also said that apart from low interest rates, the repayment period for these loans are 30 to 40 years. This, he said, makes these loans “practically free money.”
“Generally, parang nag-broaden na ’yung focus. Hindi na lang sa aid effectiveness. Ang pinasok na dito ngayon is more on ownership, country owership, transparency and accountability rather than tied aid. ’Yung iba sinasabi ok lang ’yung tied aid basta call ng country,” Tungpalan said.
Tungpalan added that this is one of the changes adopted in the country’s new financing framework, which allows the country to choose how specific projects and programs will be funded based on comparative advantage.
He explained that it no longer matters to the government whether a country partner uses tied aid just as long it will be able to deliver the project or program.
Tungpalan said this applies specifically to the ability of development partners to provide specific equipment, machineries, vehicles or a piece of technology.
He added that if it is the country’s competitive advantage to provide that technology, the country will choose that development partner, whether it’s tied aid or not.
In 2011 the OECD report showed that 85 percent of aid to the Philippines in 2009 was untied, which is considerably above the target of more than 68 percent.
Among the top 5 bilateral partners, Australia and Japan performed better in this respect with 100-percent untied aid reported, followed by Germany with 99 percent, the United States with 76 percent and Spain with 31 percent.
“Commercial loans and mixed credit of bilateral donors are in the form of supply or negotiated contracts, which means that they are tied loans,” the OECD said.
Data on the extent to which aid is tied are based on voluntary self-reporting by donors that are members of the OECD’s Development Assistance Committee.
The Paris Declaration target is to continue progress towards untying all aid between 2005 and 2010.