Ecuador faces a huge budget deficit because of loans it received from China

A onetime ally and now bitter enemy of Correa, Moreno and his government are straining under a huge budget deficit caused partly by obligations to the Chinese

Los Angeles Times - Chris Kraul 10/12/2018

Photo: Los Angeles Times

Rafael Correa wanted to fast-track development projects when he was president of Ecuador, so he borrowed billions of dollars from China. But the loans have come back to haunt his successor, Lenin Moreno, who will go hat in hand to China this month to seek more flexible terms and breathing space.

A onetime ally and now bitter enemy of Correa, Moreno and his government are straining under a huge budget deficit caused partly by obligations to the Chinese, whose loans financed roads, dams, schools and office buildings during Correa’s time in office from 2007 to 2017.

Ecuador is one of several Latin American countries that in recent years benefited from China’s lending spree. Like other loans China has made in the region, those to Ecuador are partially payable with shipments of natural resources — oil, in Ecuador’s case — which China needs to stoke its fast-growing economy.

Correa was a close ally of Venezuela’s socialist, anti-U.S. President Hugo Chavez and saw Chinese loans as attractive because the Asian giant made no political or ideological demands, and the loans were a way of thumbing his nose at Uncle Sam, analysts say.

But terms of Ecuador’s $6.5 billion in Chinese debt have become onerous with the global decline in the price of oil, Ecuador’s main source of revenue from exports. Moreover, some developments financed by the loans, including hydroelectric plants, are not producing the revenue that was anticipated.