China arrived in Ecuador with deep pockets, but loan terms were not transparent and many conditions were unknown, according to opposition sectors. Some of the money was used to boost power generation, flood prevention, and agricultural irrigation works. Yet several of these projects are now under investigation, including the country’s largest hydroelectric power station, Coca Codo Sinclair. According to a review by the Office of the Comptroller, the plant’s distributors have thousands of cracks, endangering the project.
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Ecuador’s debt to China increased from $ 6 million to $ 8.1 billion between 2008 and 2016.
Debt with China increased dramatically from 2008 to 2016. During those eight years, it rose from $ 6 million to $ 8.1 billion. A year later, Lenín Moreno wins the Ecuadorian presidential elections. He successfully renegotiated $ 891 million in debt with the China Development Bank (CDB) and Eximbank. Moreno also got a $ 6.5 billion IMF loan at a rate of 2.9 percent, four percentage points lower than Chinese loans.
The American plan
The first indications are that Lasso will seek to refinance the debt with the help of North America. While still a presidential candidate, he told CNN of his interest in reaching out to the United States and seeking deals with the IMF or the US government’s International Development Finance Corporation (DFC). Earlier this year, the Moreno administration and the DFC signed an agreement for a loan of up to US $ 3.5 billion at an interest rate of 2.48%.
The DFC was created in 2018 as part of the US policy to regain its hegemony in Latin America in the face of intensifying Chinese economic activity in the region. On its website, and implying a differentiation with China, the company declares: “The contracts are transparent, the funding is sustainable, the social impacts are correctly assessed (…). The DFC helps countries to avoid opaque financing which often results in unsustainable debts ”.
According to Chinese geopolitics experts, however, DFC’s actions in Ecuador have more to do with politics than economics.
For the United States, Ecuador’s development is of secondary importance. More importantly, the United States hopes to drive out China and Chinese companies in Latin America
“For the United States, Ecuador’s development is of secondary importance. More importantly, the United States hopes to drive out China and Chinese companies from Latin America, ”commented Vijay Prasad, visiting scholar at the Chongyang Institute for Financial Studies at Renmin University of China, and John Ross , a senior researcher at the Chongyang Institute, in an article published on Chinese nationalist media Guancha just before the election results in Ecuador were confirmed.
The benefits of Ecuador’s relationship with China
Analysts agree that President Guillermo Lasso must seek financing opportunities on favorable terms, while strengthening his trade relationship with China, looking beyond just a financier.
“China is currently the world’s largest economy in terms of market recovery despite the pandemic. The Chinese market, due to its reactivation, is starting to consume more and more every day, ”explains Gustavo Cáceres, president of the Ecuadorian-Chinese Chamber of Commerce (CCECH). Cáceres sees a promising niche among more than 600 million consumers in China.
million barrels of oil exported from Ecuador to China in 2020
In 2020, Ecuador’s total exports to China were US $ 3.2 billion in FOB value (market value at customs borders, including transport costs, export duties and freight) . Shrimp (59%), oil (12%), balsa wood (11%) and bananas (5%) account for 87% of Ecuador’s export earnings to China.
“Imports have increased while exports have declined considerably … In terms of the volume exported (metric tons), [there has been] a reduction of almost 50% ”, indicates a CCECH report.
To boost production and exports to China, Cáceres said the Lasso government should seek a balanced trade deal with Beijing to improve the competitiveness of Ecuador’s flagship products, such as shrimp, oil and bananas.
In the case of oil, in 2020 the main Ecuadorian oil markets were Panama (55.76 million barrels), the United States (40.4 million barrels), Chile (14.83 million barrels) and China (10.98 million barrels).
However, Lasso’s speech has not been entirely rigid on trade relations with China. In the same interview with CNN, he said that the relationship must be balanced: “I believe in international diplomacy we must be on good terms with God, with the devil and with the whole world”.