Legal basis and amendment scope
- Section 1 amends Section 1 of Republic Act No. 4860, as amended.
- Section 2 inserts a new Section 4-A into Republic Act No. 4860.
- Section 3 modifies or repeals any inconsistent provisions of Republic Act No. 4860 (as amended) and other pertinent laws.
- The Decree expressly states it is adopted as part of the law of the land.
Policy and intent for flexibility
- The law declares that future changes in lending policies of international financial organizations may increase financing of local costs of certain projects.
- The law recognizes that flexibility in tapping foreign sources of funding is needed.
- The law is enacted to assure a sustained and accelerated implementation of the development program.
Expanded foreign borrowing authority
- Section 1 authorizes the President of the Philippines, in behalf of the Republic, to contract loans, credits (including supplier’s credit), deferred payment arrangements, and other official assistance.
- The President may enter into bilateral agreements involving grants, commodity credit arrangements, or indebtedness as may be necessary.
- The President may contract these obligations with:
- governments of foreign countries with whom the Philippines has diplomatic or trade relations, or members of the United Nations;
- their agencies, instrumentalities, or financial institutions;
- reputable international organizations; or
- non-governmental national or international lending institutions or firms extending supplier’s credit or deferred payment arrangements.
- The borrowing and agreements must be not inconsistent with the Act.
What foreign funds may be used for
- Section 1(A) authorizes foreign loans, credits, or indebtedness to enable the Government to undertake industrial, agricultural, or other economic and social development projects and feasibility studies.
- The authorized projects include those enumerated in Annex “A”, integrated as part of the Act, including lists 1, 2, 3 and 4.
- Projects may also be recommended by the National Economic and Development Authority and approved by the President.
- Seventy-five percent (75%) of the loans, credits, or indebtedness under Section 1(A) must be spent for income-generating projects.
- Foreign loans, credits, or indebtedness under Section 1(A) must be used to meet the direct and indirect foreign exchange requirements and peso costs of the project, including studies, technical surveys, equipment, machineries, supplies, construction, installation, and related technical services.
- The law requires that when necessary, part of the proceeds shall be used for environmental, health, and ecological management and control.
Lending to government entities
- Section 1(B) authorizes the Government to lend the proceeds of the loans, credits, or indebtedness to government-owned or controlled corporations.
- Lending must be for development projects authorized by the charters of those corporations or by law.
- The proceeds must be used to meet the direct and indirect foreign exchange requirements and peso costs of the project, including studies, technical surveys, equipment, machineries, supplies, construction, installation, and related technical services.
Relending through Development Bank of the Philippines
- Section 1(C) authorizes the Government to lend proceeds to the Development Bank of the Philippines, which administers the proceeds for relending.
- The Development Bank of the Philippines must relend to individuals, partnerships, cooperatives, associations, or private corporations.
- Relending beneficiaries must include those whose capital stock is open to subscription by the general public when not fully subscribed.
- Relending must meet the direct and indirect foreign exchange requirements and peso costs for industrial, agricultural, and other economic development projects.
- Relending is subject to the Development Bank of the Philippines’ charter, its rules and regulations, and the terms and conditions agreed upon by the Government and the financing institution.
- The Development Bank of the Philippines must pay the Republic of the Philippines at least for the principal, interests, and other charges on loans, credits, or indebtedness turned over to it.
- The total authorized borrowing for relending to the private sector must be allocated by the National Economic and Development Authority to achieve a proper balance among industrial, public utility, and agricultural projects.
- Industrial and public utility projects must be approved by the Board of Investments and the pertinent specialized regulatory boards.
- Agricultural projects must be recommended by the Department of Agriculture and Natural Resources and approved by the National Economic and Development Authority.
Restrictions on relending and use of proceeds
- Section 1 prohibits relending of proceeds under the Development Bank of the Philippines arrangement to any individual, partnership, cooperative, association, or private corporation whose account with the Development Bank of the Philippines or with any government financial institutions is in arrears for three or more installments for causes other than force majeure or those beyond its control.
- Section 1 prohibits using paid proceeds or portions thereof for any purpose other than the purpose for which the loan, credit, or indebtedness has been granted.
Default rule and special penalty
- If any debtor fails to meet three amortization payments due for causes other than force majeure or those beyond its control, the entire obligation on any balance becomes due and demandable.
- The debtor must pay a special penalty of two per centum (2%) of the total amount due.
International-market securities and tax exemption
- Section 1 authorizes the President, for the stated purposes, to issue bonds, debentures, securities, or other evidences of indebtedness for sale in the international market.
- The income from such international-market securities must be fully tax exempt in the Philippines.
Tax exemptions for loan-related agreements
- Section 4-A provides that, upon the recommendation of the Secretary of Finance, and in consultation with the National Economic and Development Authority, and with approval of the President of the Philippines, loan agreements may provide exemption from taxes, charges, or other levies.
- Section 4-A extends the same tax-exemption authority to contracts involving the availment of or utilization of proceeds of loans, credits, or indebtedness obtained under the Act.
Effective date and implementation control
- Section 4 makes the Decree effective immediately.
- Implementation decisions for project inclusion and approvals rest on the National Economic and Development Authority, the President, the Board of Investments, specialized regulatory boards, and the Department of Agriculture and Natural Resources as expressly assigned by Section 1.