Ecuador’s US bailout of Chinese debt is a trap


On January 14, a US government agency decided to repay part of Ecuador’s debt to China so that the Latin American country could sever ties with Chinese telecommunications companies. The US International Development Finance Corporation, which is funded by the US government, provided Ecuador with a $2.8 billion loan.

DFC chief Adam Boehler said the loan is going to Ecuador to “refinance predatory Chinese debt” and to strengthen Ecuador’s alliance with the United States.

This approach of the DFC is not so much economic as political. The development of Ecuador is secondary. What is paramount is the desire of the United States to remove Chinese companies and political influence from Latin America.

Boehler, a close friend of the Trump family, took over the DFC and has since run a tough program in Latin America against China.

The DFC was created by the US Congressional Development Leading Investments Best Use Act of 2018.

As a result of this act and the formation of DFC, the US State Department developed a project called America Crece, or “Growth in the Americas”. The main goal is to use US government funds – with private help – to oust Chinese business interests from the American hemisphere. Ecuador is the latest success of American policy.

Ecuador’s debt and the 2021 presidential election

During the Covid-19 pandemic, the debt crisis in developing countries has become a serious problem. The total external debt held by developing countries is estimated at $11 trillion. Ecuador’s share is approximately $52 billion.

In mid-2020, Ecuador’s incumbent President Lenin Moreno attempted to raise funds through multilateral agencies and China to manage $17 billion of that debt, most of which is expected to be paid to service the overall debt. Financial markets, reluctant to buy Ecuadorian bonds, fell back but Moreno offered to buy back some bonds to raise capital.

Collapsing oil prices that led to oil subsidy cuts, a large International Monetary Fund loan at the cost of austerity measures, and poor handling of the pandemic have shaken Moreno’s legitimacy.

Ecuadorians will go to the polls on February 7 to elect a new president. Moreno does not run. His approval ratings have plummeted following cascading crises, including evidence of grotesque personal corruption, predating the pandemic.

Ecuadorian presidential candidate Andres Arauz speaks during a press conference in Quito. Photo: Rodrigo Buendia/AFP

A September 2020 poll showed leftist Andrés Arauz leading a tight pack with almost 46% of the vote, which would see him win in the first round. Arauz is an economist who held two ministerial posts in the government of Rafael Correa from 2015 to 2017. He promises to reverse Moreno’s loyalty to the United States and his subordination to the deflationary policies of the IMF.

The US offer to buy back part of Ecuador’s debt to China and to block Ecuador from buying Chinese tech products comes during an election season. It seems almost certain that Moreno’s political orientation will be reversed by the next president.

For this reason, the hastily reached agreement between Quito and Washington will try to lock the winner of the February 2021 elections into a pro-American and anti-China policy. This is direct interference in the elections in Ecuador.

US policy towards China in Latin America

The DFC’s Boehler is unlikely to survive in Joe Biden’s administration. Boehler brought little skill to his work. Biden will likely replace him with a Democratic Party insider.

After the Ecuador deal was announced, Boehler said that deal and DFC’s America Crece would not be canceled by Biden’s team. “It’s not a Democratic priority or a Republican priority,” Boehler said. “It’s an American priority.” Biden’s team, Boehler said, views the America Crece instruments as “innovative.”

Part of the US government’s assault on China has been to portray its loans to Ecuador as predatory. These loans, according to US officials, create a “debt trap” and Boehler said they leave Ecuador at the mercy of a “single authoritarian country”.

Evidence of Chinese “debt trap” or “influence” on Ecuador is non-existent. In fact, in the last six months of 2020, Chinese banks have been willing to suspend loan repayments until 2022 (this includes a delay in repayment of the $474 million loan to ExIM Bank of China and of the $417 million loan to the China Development Bank).

Soldiers stand guard as an employee of the Military Geographical Institute works to print ballots for the February 7 presidential election. Photo: Rodrigo Buendia/AFP

Ecuador’s finance ministry said the plan for now is for repayment to begin in March 2022 and end by 2029.

Moreno took to Twitter to announce these two delays. No aggressive action has been taken by these two banks or any other Chinese financial entity.

Ecuador has taken on approximately $5 billion in debt from Chinese banks to finance several large infrastructure projects, including the construction of hydroelectric dams. These projects started when oil prices were high. President Correa has leveraged oil revenues to facilitate the transition from fossil fuels to renewable energy.

Collapsing oil prices, pressure on the country from oil giants (especially Chevron), and political chaos in the country have hurt Ecuador’s ability to move these projects forward. Chinese banks, during this period, faced the difficulties encountered by the Ecuadorian government in financing these debts.

Yet it is based on the very existence of these loans that the US government has made dire claims about Chinese influence in Ecuador. It is worth pointing out that China only holds 10% of Ecuador’s total external debt, but it is this debt that has caught the eye.

This allows the United States to continue its rivalry with China and at the same time camouflage the real source of indebtedness, namely IMF loans and loans to Western banks. Neither the IMF nor Western banks have been as generous with credit as Chinese banks.


Chinese banks lent money for construction projects. These funds came without conditions. US government money, on the other hand, came with substantial claims about the political direction of the Ecuadorian government.

Quito had to sign up for Washington’s “Clean Network,” a US State Department project to force countries to build telecommunications networks without a Chinese telecommunications provider involved. This particularly applies to fifth-generation (5G) high-speed networks. Ecuador preemptively joined the Clean Network in November 2020. This opened the door for the DFC loan to Ecuador.

The agreement with Ecuador is not considered a one-off agreement. Boehler said this “new model” can be used by other countries to “eject” China from the hemisphere. If Arauz becomes the next president of Ecuador, he will have to face the challenge of this conflict imposed by the United States against China as one of the first obstacles to a new beginning for his country.

President Moreno and former US President Donald Trump have already begun sabotaging the possibility of Arauz solving his people’s immediate problems.

This article was produced by Globetrotter, who provided it to Asia Times.

Vijay Prashad is an Indian historian, editor and journalist. He is editor and chief correspondent at Globetrotter. He is the editor of LeftWord Books and the director of Tricontinental: Institute for Social Research. He is a non-resident principal investigator at Chongyang Institute of Financial Studies, Renmin University of China. He has written over 20 books, including darkest nations and The poorest nations. His latest book is washington bullets, with an introduction by Evo Morales Ayma.


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