The government has decided to suspend $1.6 billion Japanese official development assistance and will instead borrow locally.

The government move is seen to trigger increase in interest rates, put in jeopardy its plan to balance the budget and at the same time constrain growth.

Earlier it was planned that expenditures will be front-loaded this quarter to help sustain the 7 percent economic growth posted last year.

Finance secretary Margarito Teves said the government is holding off the implementation of seven projects worth $1.6-billion funded by the Japan Bank for International Cooperation pending the review of procurement procedures.

President Arroyo called for more transparent processes on ODA transactions following the scandalous China-funded ZTE-National Broadband Project.

The government is seeking ODA loans of $1.5 billion (P61.5 billion) this year, part of its $2-billion foreign borrowing program this year.

The ODAs help finance the financing gap in the budget and the government uses such long-maturing concessional loans for programs and projects needing critical funding.

Teves said the Philippine government made the decision to suspend several Japan-funded projects during his meeting with Japan’s finance minister and JBIC’s governor in Tokyo last week.

"We indicated to JBIC that we are interested in trying to harmonize with them as well as other bilateral partners, in terms of having a uniform, if possible, procurement and other related documentary and other procedures. They’re quite open to the idea," Teves said.

Teves clarified the projects will still push through but it will just "take time" as the Philippine government will also consult with other multilateral and bilateral lenders.

Teves said the government is reviewing not just ODA loans from Japan, but those sourced from other bilateral and multilateral lenders.

He said projects that are not yet in the agreement stage may be considered for local funding while those already in advanced stages of negotiations will be continued.

If the government chooses to source more funds locally, it will be able to stretch its domestic borrowing to 75 percent from 70 percent currently of its total financing requirement this year.

"Our ODA loan program may still change with us borrowing more locally depending on market opportunities," Teves said.

That means, the government may borrow more than P242 billion from the domestic borrowing of its total P346.1-billion total gross financing requirement this year.

The government availed of P67.9 billion of loans from multilateral and bilateral lenders last year, down from P74.2 billion in 2006.

The suspended projects are under the 27th Yen Loan Package and include the logistics and infrastructure facility ($395.85 million) with the Development Bank of the Philippines as borrower and the $355.3-million road enhancement and asset preservation program to be implemented by the Department of Public Works and Highways.

Also on hold are the $247.41-million environmental and development program loan, also of DBP, the $189.56-million support program for agricultural enterprise development loan of the Land Bank of the Philippines, and the $165.65-million supplemental loan for Subic-Clark Tarlac Expressway project of the Bases Conversion and Development Authority.

Also a casualty of the review are the $98.26-million forest land management loan of the Department of Environment and Natural Resources and the national government’s $150-million development policy loan, which is used for budgetary support.

Meanwhile, Teves said JBIC is releasing $271-million loan to the government for three projects: Pasig-Marikina River channel improvement ($81.2 million), agrarian reform infrastructure support project ($112.4 million), and the Pinatubo hazard urgent mitigation project ($78.4 million).