CEBU CITY, Philippines - The Cebu City Government has been struggling to its loan balance with the Japan International Cooperation Agency (JICA) which offered the 12,315 million yen to finance the 300-hectare South Road Properties (SRP). This loan has been amateur during the times of former mayor Tomas Osmena.
The city started implementing the Cebu City South Coastal Road Project now known as SRP in 1995 with a loan of 12,315 million yen, in which at that time is equivalent to P4.65 billion pesos and 18,391 million yen, correspondingly from JICA, which was then known as the Japan Bank for International Cooperation.
JICA is a lending agency that prioritizes developing countries. The city government allocates P589 million every year for debt servicing. The loan is payable in 30 years, ending in 2025. The city’s balance is still P2.4 billion, including interest, as of December 2014.
According to City Accountant lawyer Mark Salomon, the city will lose at least P1.2 billion that it might otherwise pay out essential services in the next 10 years if it will not convert its foreign loan for the SRP.
Salomon underscored that the P1.2 billion will not wrap the city’s payments for the principal amount of the loan it took from the JICA, but only the expenditure for currency fluctuations and the guarantee fee.
He also said the foreign exchange losses are expected to reach P993 million in the next ten years or almost P100 million every year.
For the next ten years, Salomon stressed that the city will have to pay P206,513,590 or nearly P207 million for the guarantee fee, on top of its foreign exchange losses.
Seeing as the city started paying for the loan in 2005, Salomon further emphasized that it has already endured foreign exchange losses of P90,238,812 per annum or a total of P902,388,126.
The amount forms part of the P2.63 billion that the city has so far paid for the principal. The city pays for the SRP loan twice every year, in the months of February and August.
The city suffered foreign exchange losses because when the city goes through into the loan accords for the SRP in March 1996, there was an enormous dissimilarity in the value of the yen to the US dollar and the dollar to the peso.
During that time, the exchange rate for one yen was US$1.3, while each US dollar was worth P26.30. Now, however, Salomon said the yen-to-dollar exchange rate is at P44.45.
“So there is really a big difference, foreign exchange loss occurs when an accord is entered into under a foreign currency, which in this case is Japanese yen, and at that time of disbursement, there is an eminent exchange rate due to the fluctuation of currency value,” he said.
He added that, “If we don’t convert the foreign loan into a domestic loan, we will really suffer further losses.”
The Land Bank of the Philippines (LBP) collects a one-percent guarantee fee of the city’s total outstanding loan balance for the year and remits it to the Department of Finance (DOF). LBP is the conduit bank of JICA while DOF is the guarantor of the loan.
In order to address the problem, the Cebu City Government under Mayor Michael L Rama’s administration seeks solution.
First is converting a Foreign Loan into a Domestic Loan. They will find a bank which would pay to the JICA fully and the city government will pay to that certain bank. Another option is to sell some lots in the SRP to pay in full the loan in JICA.
Mayor Rama will go ahead with his plan to take out a new loan to buy out the city’s loan balance with JICA for the SRP. He said this would relieve Cebu City of the high interest charges on the existing loan which is paid through the LBP.
Rama pointed out that any new sales of SRP lots will be spent on the city’s desires.
Looking back, the City Council approved a resolution authorizing Rama to make new SRP lot sales.
Selling large piece of the SRP with part of the money earned used to pay in full the loan incurred for the reclamation work is but one of the steps that the Rama administration wants to take to loosen the financial knot that the project has produced. Converting the foreign loan into a domestic one is another.
To date, the city government is doing its best in order to solve the problem and consequences that they are facing, giving a serious effort in order to settle the remaining debt of the city to JICA. (Cebu City Public Information Office/Greggy Jiggs P. Senados, PIO Staff with Pinky Torotoro and Charren Sambrana, Mass Comm. Interns)