Press Release
November 13, 2007

LOREN PROPOSES STRICT RULES
FOR FOREIGN AID PROGRAMS

Sen. Loren Legarda, chairman of the Senate Committee on Economic Affairs, said yesterday she would ask the Senate to pass remedial legislation providing for safeguards in the disbursement of Overseas Development Assistance (ODA) funds to prevent corruption and ensure accountability.

Legarda made the statement during the committee's hearing on the impact of Overseas Development Assistance (ODA) loans to the Philippine government, especially "tied" loans or loans that bind the loans to purchases of equipment, supplies and technology from the lending country.

Foreign borrowings, if "tied" to conditions favoring the lending country, in the end provide smaller benefits to the debtor country and more benefits to the creditor government, experts said.

Legarda said the establishment of "safeguards" would "help maximize the impact of 'tied' loans to the national and local development, ensuring greater benefits to the country in the implementation of projects financed by ODA loans. More importantly, such safeguards will prevent if not totally eradicate corruption, and also make public officials or implementing agencies more accountable."

Filberto Llanto, senior fellow of the Philippine Institute for Development Studies (PIDS), said that the crucial part of the foreign borrowing policy should be "competitive bidding." In short, the borrower should be allowed to conduct biddings for the lowest prices

for supplies, equipment and technology in projects financed by the foreign loans.

In "tied" loans, competitive bidding is restricted as the purchase of project requirements is limited to those offered by the lender.

Nora Olivares, executive director of the Department of Budget and Management (DBM), admitted the prevalence of cost "overruns" in the implementation of ODA-financed projects. This meant that more money was spent than originally budgeted for the project.

Llanto said that in tied loans, the mechanics of disbursing the grant should be transparent and should follow clear rules and guidelines agreed upon by the Philippine government and the donor country or organization in high-level programming dialogues.

In her resolution calling for the Senate hearing, Loren noted that at least 141 ODA loans have been obtained by the Philippine government amounting to $9.5 billion as of December 31, 2006. However, ODA loan cancellations amounted to $222.34 million "due to problems and bottlenecks in implementation."

During the hearing, Loren concentrated on two issues. One is the impact of ODA funds to the growth and development of the national economy, as well as compliance of their implementation to existing laws. The other is the need for congressional approval in contracting ODA loans in relation to the procurement of goods and services for infrastructure projects.

ODA loans usually carry smaller amounts of interests than commercial loans because they are considered concessionary development assistance loans.

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