Ecuador restructures Chinese debt

Ecuador has reached a deal with China this week to restructure $4.4 billion of outstanding debt. The period of repayment has been extended with some discounts on the amount due.
 
The deal was reached directly with China’s policy banks, China Development Bank and the Export-Import Bank of China, which together have provided over $18 billion in loans to Ecuador since 2010.
 
The loans were used to build roads, hospitals, schools and hydroelectric projects, often by Chinese construction companies. Most of the loans were taken by the leftist president Rafael Correa during his term between 2007 and 2017. 

President Correa had refused to honour some of the debt incurred by his predecessors on the ground that they were illegitimate loans taken by corrupt politicians for non-productive purposes from greedy bankers. Calling foreign creditors "monsters, he declared a default in 2008 on his country's foreign bonds and called for a restructuring of Ecuador's foreign debt. So the international financial mafia ostracized Ecuador. Thereafter Correa had no other option but to turn to China which had seized the opportunity quickly with large loans. But the centre-right government which succeeded President Correa had accused him and his officials of violating public debt regulations by negotiating up-front payments for future oil deliveries without registering the operations as indebtedness. There are also allegations of defects  and poor quality in the hydroelectric dams built by China. The largest portion of the Chinese credit has gone into six hydroelectric projects amounting to three billion dollars.
 
Some of the debt was also tied to future oil sales. PetroEcuador, the government company has been supplying oil to China’s state-run PetroChina at a discount towards debt settlement. Last week, PetroEcuador announced a deal with China on the price formula and got extension of the remaining oil deliveries to 2027 from 2024. This allows Ecuador to sell more of its crude on the spot market.
 
Ecuador is negotiating a Free Trade Agreement (FTA) with China and aims to sign it during the China-LAC business summit in December. Ecuador’s exports to China were 3.64 billion dollars and imports 6 billion in 2021. China is the second largest trading partner of Ecuador and the #1 source of imports.
 
The centre-right but pragmatic President Guillermo Lasso is trying his best to reduce overdependence on China. He has called for transparency in the terms of Chinese contracts and projects. He has expressed interest in a FTA with US, the largest trading partner of Ecuador.  
 
Details of the Chinese loans to Ecuador are in the link…https://www.thedialogue.org/map_list/
 

Ecuador is the third largest recipient of Chinese credit to Latin America after Venezuela ($62.5 bn) and Brazil ($30.5 bn). Argentina is the fourth largest recipient with 17 billion dollars.
 

The Ecuador restructuring will be noted carefully by the other countries in Latin America which has received a total of 138 billion dollars of Chinese credit. Argentina and Venezuela will be the next candidates for restructuring. Argentina, which owes 17 billion dollars to China, will be the next country to look for restructuring. Argentina is currently struggling to repay its  bigger debt of 40 billion dollars owed to IMF. The country faces shortage of foreign exchange reserves besides high inflation and currency depreciation. Venezuela, which is in a worse economic situation than Argentina, will have a greater challenge to repay the Chinese debt.