Ecuador reaches deal with China to restructure debt
Last week, President Guillermo Lasso announced that Ecuador reached an agreement with China to restructure $4.4 billion of its outstanding debt, saving the country $1 billion over three years, reports the Wall Street Journal. Debt restructuring negotiations had begun in February of this year and concluded last Monday. As Ecuador’s most important trade partner, China’s agreement to reschedule payment was crucial for the South American country. Ecuador also currently finds itself in the throes of an IMF repayment plan. The new deal, which allows Ecuador to delay its debt payments to Chinese state banks by three years and reduces interest rates for some payments, comes accompanied by a separate agreement between Ecuador’s state-owned oil company Petroecuador and China’s state-owned Petrochina, delaying a predetermined number of crude oil deliveries from 2024 to 2027 from Ecuador to China and adding about $709 million in oil revenue for Ecuador over the next five years, explains Catherine Osborne in the Foreign Policy Latin America Brief. According to Augusto de la Torre, “The Lasso government has indeed expressed interest in redefining the bilateral dynamic. During his meeting with Xi Jinping on the sidelines of the 2022 Olympics, Lasso asked not only for debt relief but also for greater transparency in debt and investment contracts between the two nations, including by decoupling commercial relations with China involving oil sales from the financial (debtor-creditor) relations with China” (Inter-American Dialogue).
The Financial Times notes, “Analysts in Ecuador cast the debt restructuring as a political victory for the Lasso government, which has been weakened by the protests as well as its minority status in congress,” providing short-term economic relief for the country. Some analysts worry that China’s increased spending in the region could cause financial dependency on the Asian country, especially as much of its spending is spent in lending initiatives to developing countries with a special focus on infrastructure and energy projects. Others point to the restructuring deal as a potential precursor to an Ecuador-China free trade agreement, something which Ecuador has been pursuing for quite some time and hopes to achieve in December.
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