NEW YORK—Ecuadorean President
said his country had reached a deal with China to restructure $4.4 billion of outstanding debt, saving the country $src billion from 2022 to 2025.
“This is a great development for Ecuador,” President Lasso told The Wall Street Journal on Monday, adding the deal had been completed a week earlier.
The president was in New York for meetings during the United Nations General Assembly.
Ecuador had been seeking a deal with China since February, when Mr. Lasso traveled to Beijing to meet President
Economists said a deal to roll over the debt was key for Ecuador’s government, which faced large payments to China in the coming months while also grappling with growing demands at home for more public spending including for fuel subsidies.
A failure to extend the loans, combined with a decline in the price for oil—Ecuador’s top export—would have resulted in a funding gap of $3 billion, equivalent to 43% of Ecuador’s reserves, according to a September report by the Institute of International Finance, an association of financial institutions that also serves as a think tank on emerging markets.
Sergi Lanau, deputy chief economist at the IIF, said the funding gap would have required the government to sharply cut public spending as Ecuador has few other financing options because of rising interest rates that prevent it and other emerging markets from tapping the global bond market.
The president also said Ecuador is advancing in trade talks with China and aims to reach a deal by the China-LAC business summit in December. “There we hope to make an announcement of a free-trade agreement,” Mr. Lasso said.
After years of lending heavily to emerging markets across Latin America, Africa and Asia, China is now increasingly rolling over debt as economists warn of a looming debt-crisis driven by soaring inflation, high U.S. interest rates and slowing growth.
In total, Ecuador took on about $src8 billion in loans from China, mainly during the administration of ex-president Rafael Correa, a leftist who often criticized U.S. foreign policy and sought to strengthen ties with Beijing during his 2007 to 20src7 rule.
Since Mr. Correa left office, the Chinese financing has come under increased scrutiny in Ecuador as economists say it carried high interest rates and opaque terms that investigators thought resulted in some faulty projects while also fueling corruption.
After Ecuador defaulted on some $3.2 billion in private debt, Mr. Correa looked to China to finance increased public spending. The loans were used to build roads, hospitals, schools and hydroelectric projects, often by Chinese construction companies. Some of the debt was also tied to future oil sales, contracts that Mr. Lasso has previously said were harmful for Ecuador.
The oil-backed loans tied up almost all of the country’s crude sales during some years, costing the country nearly $5 billion in lost revenue, according to a recent report by the congressional oversight committee. The oil was handed over to China’s state-run
at a discount, which then sold the crude on the international market through a series of intermediaries, according to the committee.
Last week, state oil company PetroEcuador announced a deal with China to extend to 2027 from 2024 the remaining oil deliveries, allowing Ecuador to sell more of its crude on the spot market. With current oil prices, the deal could provide the company with an additional $709 million in revenue through 2027, PetroEcuador said in a statement.
Much of that money will be used to fund Ecuador’s social programs, Mr. Lasso said.
The president also said that he was working with the U.S. on fighting narco-trafficking and that he has spoken to President Biden about pursuing a free-trade agreement between Ecuador and the U.S.
Mr. Lasso said Ecuador was seeking foreign investment in Ecuador, in sectors such as energy, infrastructure and oil, to boost growth and help the country ride out challenges in the global economy such as higher food and energy prices.
“We believe if we focus on a process that generates an ‘investment shock’ in the country, we can get through the current tough times,” he said.
Write to Sara Schaefer Muñoz at Sara.Munoz@wsj.com and Ryan Dube at email@example.com
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