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Ecuador reached a debt restructuring agreement of $ 1.4 with China

On Monday night, Ecuador announced that it had reached a debt-restructuring agreement with Chinese banks worth $1.4 billion through 2025, as Beijing increasingly offers bailouts to Chinese banks. countries at risk of financial crisis.

The government of center-right president Guillermo Lasso says it has reached agreements with the China Development Bank and the Export-Import Bank of China (Eximbank) worth $1.4 billion and $1.8 billion, respectively. billion USD. The transactions will extend the maturity of the loans and reduce interest rates and amortization.

“As a result of these agreements, the maturities are extended to 2027 for China Development Bank and 2032 for Eximbank, allowing for reduced cash flows to support government priorities,” said the General. President of Ecuador said.

The government of the South American country has been looking since February to debt restructuring with Chinawhich has been the most important financial partner in the past decade, starting under former leftist president Rafael Correa, who was in power from 2007-2017.

But the Chinese funding — about $18 billion in total in loans since Correa took office — has drawn scrutiny from economists in the region. Ecuador of high interest rates and growing dependence on the Asian powerhouse.

China has disbursed tens of billions of dollars in emergency loans to countries in recent years in bailout packages that have made Beijing a IMF’s competitor led by the West. Pakistan, Sri Lanka and Argentina are three of the biggest recipients of China’s rescue loans, receiving $32.83 billion since 2017, according to data compiled by AidData, a research lab at the University of China. School of William & Mary in America, synthesis.

Funds released by debt restructuring are expected to provide relief to Lasso, who is in talks with Indigenous protest leaders after protesters take the country came to a standstill in June due to rising fuel and food prices. Their needs include increased spending on social programs.

The company said a separate deal announced last week between state oil company Petroecuador and China will bring in $709 million, while Ecuador’s Finance Minister Pablo Arosemena has promised that the money raised Proceeds from that agreement will finance social spending.

“The idea is that part of the oil is released and it is allowed to sell at market price, which is an additional benefit for the Republic of Ecuador,” he said. “And with those resources, the president can further boost social investment.”

Analysts in Ecuador see the debt restructuring as a political victory for Lasso’s government, which has been weakened by protests as well as its minority position in parliament.

“It’s a positive deal. Sebastián Hurtado, founder of Prófitas, a political risk consulting firm based in Quito, says there is a significant political need for a more active state role and more active state spending. . “The reduction in payments being achieved is important from a public finance perspective.”

Ecuador is pursuing a free trade agreement with China, which it hopes will be reached through a China-Latin America and Caribbean business summit in December.

Hurtado, the analyst, said the restructuring deal could be a precursor to a deal. “It’s not easy, but in any case, it’s a sign of good relations with China.”

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