Moreno gets billion-dollar commitment, lower interest rates from China with more to come

Dec 13, 2018

President Lenin Moreno ended his China visit this morning by announcing a package of new loan commitments and lower interest rates on some existing loans from Beijing.

President Lenin Moreno with Chinese President Xi Jinping at a Wednesday photo op.

“This has been a very successful trip,” Moreno said as he and his delegation prepared to leave China. “We have accomplished what we came to do and have strengthened our friendship with the government and people of China.”

In addition to the loan commitments, the two countries signed more than a dozen cooperation agreements in areas ranging from agriculture to technology. One agreement signs up Ecuador to participate in China’s Latin America infrastructure project, part of the so-called Silk Road.

In the new loan package, Ecuador will receive one billion dollars from the Development Bank of China (CDB), most of it going to the general budget, with $69.3 million earmarked for reconstruction from damage caused by the 2016 7.8 magnitude coastal earthquake. The interest rate on most of the loan is 6.5 percent but 2 percent on the reconstruction loan. A separate loan of $30 million will go to Ecuador’s military, primarily to combat the drug trade on the border with Colombia.

In addition, China will provide an additional $1.4 billion in 2019 with a credit line of $3.5 billion for the future.

Financial analysts say the terms of the new loans are favorable for Ecuador. “Overall the results of the trip are good,” says Walter Spurrier, director of a Quito investment firm. “The interest is lower than those of most previous loans and China is not demanding the collateral that other lenders, such as Credit Suisse and Goldman Sachs, required. Given Ecuador’s recent credit history, I have to say that Moreno did as well as he could.”

Wilson Morales, an economics professor at the University of Cuenca, agreed that the terms are better than those negotiated previously. “The 2016 loan was tied to projects involving Chinese companies and the new loan does not have these conditions. The interest rate is also better, 6.5 percent instead of 10 percent,” he said. “We still need to see more disciplined austerity measures by the government, including more reductions in the fuel subsidies, to limit our reliance on foreign money.”

Since 2010, Ecuador has taken out $13.6 billion in loans from foreign sources, much of it from China. Currently, $6.5 billion remains to be repaid.

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