Ecuador agrees $1.4 billion debt restructuring with China

Ecuador announced Monday evening that it has reached a debt relief restructuring deal with Chinese banks worth $1.4 billion through 2025, as Beijing increasingly offers bailouts to countries at risk of a financial crisis.

The administration of center-right President Guillermo Lasso said it had reached an agreement with the China Development Bank and the Export-Import Bank of China (Eximbank) worth $1.4 billion and $1.8 billion, respectively. The deals extend the term of the loans and lower interest rates and amortization.

“As a result of these agreements, the terms will be extended to 2027 for China Development Bank and 2032 for Eximbank, allowing the cash flow relief to support government priorities,” the Ecuadorian presidency said.

Since February, the South American nation’s government has been seeking to restructure its debt to China, which has been its main financial partner for the past decade, starting under left-wing former President Rafael Correa, who was in office from 2007-2017. .

But China’s financing — totaling about $18 billion in loans since Correa took office — has drawn criticism from economists in Ecuador for high interest rates and growing reliance on Asian power.

In recent years, China has paid out tens of billions of dollars in emergency loans to countries under bailouts that have made Beijing a competitor to the western-led IMF. Pakistan, Sri Lanka and Argentina are three of the largest recipients of Chinese rescue loans, receiving $32.83 billion since 2017, according to data collected by AidData, a research lab at the College of William & Mary in the US.

The funds released from the debt restructuring are expected to provide relief to Lasso, who is negotiating with indigenous protest leaders after protesters brought the country to a standstill in June over rising fuel and food prices. Their demands include increased spending on social programs.

A separate deal announced last week between state oil company Petroecuador and China will raise $709 million, the company said, while Ecuador’s finance minister Pablo Arosemena has promised the money raised from that deal will fund social spending. .

“The idea is that some of the oil will be released and allowed to be sold at market price, which is an added benefit for the Republic of Ecuador,” he said. “And with those resources, the president can further strengthen social investment.”

Analysts in Ecuador view the debt restructuring as a political victory for the Lasso government, which has been weakened by the protests and its minority status in Congress.

“It’s a positive deal. There is an important political demand for a more active role of the state and more active government spending,” said Sebastián Hurtado, founder of Prófitas, a Quito-based political risk consultancy. “The reduction in payments being made is important from a public finances perspective.”

Ecuador is aiming for a free trade agreement with China, which it hopes to reach at the China-Latin America and Caribbean Business Summit in December.

Hurtado, the analyst, said the restructuring agreement could foreshadow an agreement. “It’s not easy, but at least it’s a sign of a good relationship with China.”

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