Facts
The Government of the Republic of the Philippines (GRP), represented by the Department of Finance (DOF), and the Export-Import Bank of China (EXIM Bank) entered into a Memorandum of Understanding on Financing Cooperation, which served as the precursor to the Preferential Buyer’s Credit Loan Agreement on The Chico River Pump Irrigation Project (CRPIP) and The New Centennial Water Source-Kaliwa Dam Project (NCWS) (collectively, Loan Agreements). The financing procedures required the Chinese Government to provide a shortlist of at least three qualified Chinese contractors, among whom the relevant Implementing Agencies (IAs) would conduct Limited Competitive Bidding (LCB).
Prior to the execution (signing) of the Loan Agreements, the Bangko Sentral ng Pilipinas’ (BSP) Monetary Board (MB) issued resolutions granting Approval-in-Principle for both proposed loans. The Loan Agreements were then executed by the GRP and EXIM Bank, stipulating that the Final Approval of the MB was a necessary condition for the loan’s effectivity and disbursement. Petitioners sought to invalidate the Loan Agreements, arguing, among other things, that they lacked the Constitutionally-required prior concurrence of the MB, violated the Filipino First Policy, and contained unconstitutional Confidentiality and Arbitration Clauses.
Issues
- Whether the consolidated petitions for prohibition should be dismissed based on procedural grounds.
- Whether the Loan Agreements are unconstitutional for lacking the prior concurrence of the Monetary Board as required by the Constitution.
- Whether the financing agreements violate the Constitutional policy to give preference to qualified Filipinos and circumvent procurement laws, given the limitation of bidding to Chinese contractors.
- Whether the Loan Agreements’ Confidentiality Clause unduly restricts public access to information.
- Whether the Arbitration Clauses offend the State’s pursuit of an independent foreign policy.
Ruling
WHEREFORE, the consolidated petitions for prohibition in G.R. Nos. 245981 and 246594 are DENIED. The Court declares VALID and NOT UNCONSTITUTIONAL the Preferential Buyer’s Credit Loan Agreement on The Chico River Pump Irrigation Project and the Preferential Buyer’s Credit Loan Agreement on The New Centennial Water Source-Kaliwa Dam Project.
Essential Elements of Jurisprudence
- Monetary Board Concurrence (Art. VII, Sec. 20): The requirement of “prior concurrence” of the Monetary Board (MB) for the President to contract or guarantee foreign loans is not interpreted rigidly as requiring full approval before signing. It is implemented through a detailed, three-stage procedure outlined in the Foreign Exchange Regulations (ForEx Regulations), balancing prudence and expediency in public sector foreign borrowings.
- The Three Stages of MB Approval:
- Approval-in-Principle: This refers to the MB’s approval granted to the indicative financial terms and purpose of the loan. It is the step that strictly requires prior action from the MB before the commencement of actual negotiations or issuance of commitment to foreign funders.
- Review of Loan Documents: This stage involves the negotiation, finalization, and clearance of loan documents.
- Final Approval: This is the approval granted by the MB to a loan previously approved-in-principle, after its terms have been finalized, the covering loan agreement signed, and other preconditions for final approval have been complied with. Only upon Final Approval is the borrower authorized to draw on the loan. The procedure of signing the agreement after Approval-in-Principle but before Final Approval is therefore compliant with relevant regulations and does not circumvent the constitutional requirement.
- Procurement under Executive Agreements (Pacta Sunt Servanda): The Loan Agreements and the preceding instruments (MOU, Notes Verbales, etc.) partake of executive agreements. Pursuant to the fundamental principle of international law, pacta sunt servanda, these agreements—which stipulated a “hybrid” procurement approach limiting bidders to shortlisted Chinese contractors—must be observed, even if they deviate from the standard procedures of the Government Procurement Reform Act (GPRA).
- Right to Information (Art. XII, Sec. 21): The Constitutional mandate that “[i]nformation on foreign loans obtained or guaranteed by the Government shall be made available to the public” is proactive and unqualified. The Confidentiality Clause in the Loan Agreements, which requires the lender’s prior written consent for disclosure, unduly diminishes this obligation, making disclosure the exception rather than the rule.
- Arbitration Clauses: Stipulations choosing foreign law and foreign arbitral tribunals are valid exercises of the principle of party autonomy in contracts with a foreign element and are sustained under the principle of lex loci intentionis (the law intended by the parties), absent proof that they violate law, morals, or public policy.
Sample Q&A
Question: The Constitution requires the President to secure the prior concurrence of the Monetary Board (MB) before contracting or guaranteeing foreign loans (Art. VII, Sec. 20). If the GRP signs a multi-billion dollar loan agreement after the MB has issued an Approval-in-Principle, but before it issues the Final Approval, has the GRP violated this constitutional requirement, given that the loan agreement itself makes MB Final Approval a condition precedent to disbursement?
Answer: No, the GRP has not violated the prior concurrence requirement. The Supreme Court has held that the constitutional requirement for MB “prior concurrence” must be understood in the context of detailed regulations, such as the Foreign Exchange Regulations. These regulations define a three-stage approval process:
- Approval-in-Principle (Prior Concurrence): This stage, which must occur prior to the commencement of negotiations or the issuance of a commitment, grants MB approval to the indicative financial terms and purpose of the loan, allowing negotiations to proceed.
- Review of Loan Documents.
- Final Approval: This occurs after the loan agreement has been signed and its terms finalized, provided all preconditions from the Approval-in-Principle have been met. Final Approval authorizes the borrower to draw on the loan.
Therefore, the signing of the agreement after securing the Approval-in-Principle is consistent with the established regulatory framework, as the MB’s participation is ongoing and culminating in the Final Approval that sanctions the actual disbursement, thereby satisfying the objective of Article VII, Section 20 of the 1987 Constitution, which is to check improvidence in foreign borrowings.
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