Friend in need, friend indeed

Japan, by most measures, has consistently been a most reliable friend to the Philippines and has proven even more so with recent developments. It figures dominantly in our economic linkages, including trade, investment, and overseas employment. Japan has always been a top buyer of our exports, where our export earnings of $11.1 billion in 2022 were a close second to the United States’ $12.8 billion, even as the economy of the latter is nearly five times larger. The largest contributor to our foreign direct investment inflows in 2022 was Japan, which has always been a top source of job-creating investments over the years. Japan is also among the top four contributors to our overseas remittances, next to the US, Singapore, and Saudi Arabia.

But where Japan has consistently stood out is in supporting our development needs through official development assistance or ODA (aka foreign aid). It has been, for the longest time, our single largest foreign donor for a wide range of development projects. When it was my job in the Ramos Cabinet in the 1990s to oversee and coordinate the ODA received by the country, Japan was our top bilateral donor, still eclipsed then by the multilateral lender World Bank (WB). But not long thereafter, Japan overtook even the large multilateral lenders WB and Asian Development Bank and has since become our largest single source of soft or concessional loans and grant assistance over more than two decades now.

How soft is “soft”? Most large-scale projects funded by Japan are under the special terms for economic partnership or Step loan, with interest of only 0.1 percent (and even much lower at 0.01 percent for consulting services), a grace period of 12 years (i.e., we need not start paying back until after 12 years) and a repayment period stretched over a generous 40 years. Contrast that to the Chinese loans prominently dangled to the previous administration, with an interest rate effectively 23 times higher at 2 percent plus 0.3 percent management fee, less than half the grace period at only five years, and only half the repayment period at 20 years. This is not to mention the onerous conditions in the event of loan default, which amount to giving up sovereignty over state assets. No wonder President Duterte’s economic managers made no effort to hide their aversion to the Chinese loans so glorified by their boss, only a fraction of which actually materialized.

Perhaps the most widely visible and concrete legacy of Japanese aid to us, without most of us realizing it as we use it, is the 3,000-kilometer Philippine-Japan Friendship Highway started in 1968, traversing the length of the country across Luzon, Visayas, and Mindanao. Apart from that most vital road artery, Japan’s assistance to our transport sector also covers railways, seaports, and airports, along with supporting infrastructure such as radar systems. Most prominent in its current portfolio of infrastructure assistance is the ongoing construction of the Metro Manila Subway, the first in the country. It will stretch across some 30 kilometers to connect major business districts from Quirino Highway in Quezon City to Taguig, branching off to the Ninoy Aquino International Airport. Along with that is the North-South Commuter Railway that will stretch across 150 kilometers from Clark International Airport in Pampanga to Calamba, Laguna. But well beyond transport infrastructure, Japan has assisted us in projects for maritime security, disaster management including flood control, agriculture and fisheries, health and education, and reconstruction and development in the Bangsamoro region. All told, nearly 60 percent of cumulative ODA received by the country from 1966 to the present has come from Japan.

But the recent visit by Japanese Prime Minister Fumio Kishida in early November heralded a new phase in Philippines-Japan cooperation, as Japan unveiled its first official security assistance (OSA) to us worth 600 million Japanese yen (P235 million). After decades of downplaying its military establishment following World War II, Japan has found itself pressured in recent years to restrengthen its military capability in the face of tensions in the region from military actuations of China and North Korea. The first OSA from Japan will fund the upgrading of the Philippine Navy’s coastal radar system. More importantly, our two countries are pursuing a reciprocal access agreement (RAA) that will permit our respective armed forces to enter each other’s territory for joint training and exercises, similar to our visiting forces agreement with the US. We now have another formidable friend to lean on in the face of China’s bullying in the West Philippine Sea.