Ecuador announced Monday night that it has reached a debt restructuring agreement with Chinese banks worth $1.4 billion through 2025, as Beijing increasingly offers bailouts to countries at risk of financial crises.
The government of center-right chief Guillermo Lasso said it had reached agreements with the China Development Bank and the Export-Import Bank of China (Eximbank) worth $1.4 billion and $1.8 billion, respectively. The deals will extend the maturity of the loans and reduce interest and amortization rates.
“As a result of these agreements, maturities have been extended to 2027 for China Development Bank and 2032 for Eximbank, allowing for cash flow relief to support government priorities,” the Presidency of Ecuador said.
The government of the South American country has been seeking since February to restructure its debt with China, which has been its most important financial partner over the past decade, starting with former leftist President Rafael Correa, who was in office from 2007-2017.
But Chinese financing — which has totaled nearly $18 billion in loans since Correa took office — has drawn scrutiny from Ecuadorean economists over high interest rates and a growing reliance on Asian power.
China has provided tens of billions of dollars in emergency loans to countries in recent years in bailouts that have made Beijing a competitor to the Western-led International Monetary Fund. Pakistan, Sri Lanka and Argentina are the biggest recipients of China’s bailout loans, receiving $32.83 billion since 2017, according to data compiled by AidData, a research laboratory at the College of William and Mary in the United States.
The money freed up through debt restructuring is expected to relieve Lasso, who is negotiating with indigenous protest leaders after protesters brought the country to a standstill in June over high fuel and food prices. Their demands include increased spending on social programs.
The company said a separate deal announced last week between state oil company Petroecuador and China would generate $709 million, while Ecuadorean Finance Minister Pablo Arosimena promised that money raised from that deal would fund social spending.
“The idea is to free up part of the oil and allow it to be sold at the market price, which is an additional benefit for the Republic of Ecuador,” he said. “With these resources, the president can further promote social investment.”
Analysts in Ecuador have described the debt restructuring as a political victory for Lasso’s government, which has been weakened by protests as well as its minority status in Congress.
“It’s a positive deal. There is an important political demand for a more active role for the state and more active government spending,” said Sebastian Hurtado, founder of Prófitas, a political risk advisory firm based in Quito. “Reducing payments made is important from a public finance perspective.”
Ecuador is seeking a free trade agreement with China, which it hopes will reach a China-Latin America and Caribbean Business Summit in December.
Hurtado said the restructuring deal could be a precursor to an agreement. This is not easy, but in any case it is a sign of a good relationship with China.