The US International Development Finance Corporation has reached an agreement that will help Ecuador Paying back billions in loans to China and promoting development in return for excluding Chinese companies from its telecommunications networks.
Adam Boehler, the head of the US Development Bank, signed the deal at an event with the Ecuadorian president Lenin Moreno on Thursday, calling it a “novel model” to exclude China from the Latin American nation.
“It is a new approach that connects both of the DFC’s missions very strongly. Firstly, we will have a very positive impact on developments in Ecuador, ”Boehler told the Financial Times. “DFC was created so that no single authoritarian country would unduly influence any other country, and we address that factor with this agreement.”
The Trump administration hopes the deal will provide a template that will encourage other nations to wean themselves off Chinese debt and remove Chinese telecommunications companies from their networks.
The DFC briefed President-elect Joe Biden’s transition team and Democratic and Republican senators. Boehler said the Biden team sees the new structure as an interesting, innovative approach.
“This is not a Democratic or Republican priority. This is an American priority, ”Boehler told the Financial Times.
While DFC works with private sector financial institutions on development projects around the world, Washington sees it as a foreign policy tool because the bank can make its development finance conditional.
In an earlier interview with the FT, Boehler said that the DFC has not taken the lead on foreign policy but is aware of what China is doing around the world and that the US must “play attacks”. He said Chinese investment has become a “drug” for countries that have created debt traps.
One of the key terms of the deal with Ecuador is for Quito to sign what the Trump administration calls “The Clean Network,” a State Department initiative to ensure that nations help Chinese telecommunications services and equipment providers build their speed 5G. Cellular networks.
Under the agreement, DFC will work with private sector financial institutions to create a dedicated purchase vehicle to buy oil and infrastructure assets in Ecuador.
The sale of the assets will provide Quito with cash to settle its debt to China earlier than previously agreed – $ 3.5 billion will be outstanding after an upcoming repayment to Beijing – and will also provide money for various development projects.
The DFC said the framework would help Ecuador “get out of a debt trap cycle, for the benefit of its economy and people through new development and new jobs”. However, it stressed that any funds raised under the agreement would require full due diligence and DFC approval.
Ecuador’s debts to China go back to the decades-long rule of Rafael Correa, whose Government in default on the country’s national debt in 2008. Then it turned its back on Washington’s credit institutions and closed a series of oil-for-loan deals with China that it is still paying off.
Mr. Moreno has criticized the China deals as opaque and harmful to the country. His government renegotiated the terms of some of the debt and secured $ 2 billion in new money from a Chinese bank last year.
The agreement with the US Development Bank comes just three weeks before the election in Ecuador for the election of a new president.
Mr Moreno does not seek re-election and Mr Correa is not allowed to run for office after his term of office convicted of corruption in what he says was a politically motivated witch hunt. He lives in Belgium but is still active in Ecuadorian politics and has loyal support on the left.
Mr Correa has named a young economist, Andrés Arauz, as his preferred candidate for the February 7th vote. While Mr Arauz leads some polls, in others he ranks second behind Guillermo Lasso, a right-wing banker and former Coca-Cola executive.
Mr Arauz has threatened that $ 6.5 billion loan program which the Moreno government secured from the IMF last year. “We see no point in continuing the current program,” he told the FT recently.
Mr Arauz and Mr Correa are likely to see any plan to move Ecuador closer to Washington and away from Beijing equally bleak – especially so close to elections and a change of government.
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