Ecuador has reached an agreement to restructure its debt with Chinese banks, the government said in a statement on Monday, providing relief worth some $1.4 billion until 2025. Ecuador’s President Guillermo Lasso announced in February that he was looking to restructure the country’s debt and improve the conditions of long-term oil sales contracts with Beijing.
In an another agreement announced Friday, state-owned energy company Petroecuador said China had agreed to delay debt-connected oil deliveries, allowing it sell as much as a billion dollars of oil on the spot market.
“Both agreements allow us to strengthen our balance sheet and provide resources we need for critical social and infrastructure programs,” Lasso said in a Tuesday statement. “We are pleased that China understands our situation and is willing to grant us needed relief.”
China has become Ecuador’s main financial partner in the past decade.
The agreements were reached with both the China Development Bank (CHDB.UL) and the Export-Import Bank of China (Eximbank) for loans worth $1.4 billion and $1.8 billion respectively, extending the loans’ maturity and reducing amortization.
“As a result of these agreements, the maturities are extended to 2027 for China Development Bank and 2032 for Eximbank, allowing the cash-flow relief to support government priorities,” Lasso said.
Ecuador also managed to reduce certain applicable interest rates and suspend all amortizations with China Eximbank for a six-month grace period, the president’s office said. The loans were agreed during the government of former President Rafael Correa, while several were linked to long-term oil sales contracts with Chinese companies. Lasso and former president Lenin Moreno claim Correa’s deal was bad for the country.
Since taking office last May, Lasso has turned to multilateral organizations for financing to reactivate Ecuador’s economy, which was battered by the coronavirus pandemic, and renegotiated a $6.5 billion credit agreement with the International Monetary Fund, which ends this year.
The Wall Street Journal first reported on Monday that Lasso had announced a deal to with China to restructure $4.4 billion worth of debt.
China is the world’s second-largest economy and the biggest bilateral creditor globally, but discloses little about lending conditions or how it renegotiates with borrowers in distress.
The world’s poorest countries face $35 billion in debt-service payments to official and private sector creditors in 2022, with over 40% of the total due to China, according to World Bank data.