China returns to Ecuador’s radar as a financial potential, at a time when the international capital market is too expensive an option. The President of the Republic, Lenin Moreno, will visit China from December 11 to 15.
The key point of the agenda will be to finalize a new loan with the CBD bank of that country. The resources will be used to close this year’s financing and it is expected to open new lines, said Diario Richard Martinez, head of Finance,on November 11.
That Portfolio confirmed that technical teams have visited China these days to finalize the details of the agreement. This newspaper knew that the loan with the CBD would be around USD 500 million.
China became a financing alternative as of 2009, following Ecuador’s decision not to pay part of its external debt that it considered “illegitimate” which meant the closing of the capital market doors. The Asian giant became the main creditor of the State, above other countries and multilateral organizations.
The debt with China, which was only USD 7 million in 2007, reached 8 144 million in2016; that is, 31% of the total external debt. Since 2017, the weight of Chinese financing began to decline and last October it closed at USD 6,489million, that is, 18% of external obligations.
This year Ecuador has not received new loans from that nation. China offers freely available resources, although the rates are higher and the terms shorter than those of multilaterals. According to Finance data, between 2010 and 2017 there were 23 transactions with Chinese banks.
Of these, 12 were contracted at interest rates between 6 and 7.25% and less than10 years. In this period, entities such as the Inter-American Development Bank,for example, granted loans for specific investment projects at 2% and more than20 years.
The Asian giant has tied the delivery of credits to the sale of crude and the participation of Chinese firms as executors of investment projects.
Ecuador arrives in China with three sensitive issues on the agenda. The first is the Government’s decision not to receive the Sinclair Coca-Codo Hydroelectric,executed by the Chinese Sinohydro, until it complies with the observations requested by the Government. A Comptroller’s report indicates that this plant registered until December 30, 171 defects not met by Sinohydro. Among them are7,648 cracks in the water distributors, poor quality welds and wear on the turbine runners.
The ambassador of China in Ecuador, Wang Yulin, anticipated a few days ago that faults are not a quality problem and he described them as”superficial”. But he said that Sinohydro is willing to assume its responsibilities if the failures are confirmed. The firm is pending completion of an audit.
The Ambassador also mentioned that Railwy Nº9 Engineering Group wants to “sit down at the table to find a way out” of the conflict it has with the Ministry of Education. Last July the unilateral termination of the contract was announced for failing to comply with the construction of 200 Millennium schools.
At hird item on the agenda is the decision of Ambiente to suspend 40% of works in Mirador in May, due to environmental breaches. The mining concession is in charge of the Chinese Ecuacorriente.
These drawbacks may be part of the discussion between Ecuador and China to define the terms of the new financing, said Walter Spurrier, director of Análisis Semanal.”How hard China will be is an issue that is being analyzed,” he said,although he pointed out that if he sees that Ecuador has payment difficulties it may be willing to refinance.
In the visit to the Asian country, in addition, the Government will seek to unlock the issues of tariff restrictions for some Ecuadorian products. A business mission will accompany the Head of State.
Among the activities will be to attend the Investment Invest Ecuador Forum. José Antonio Hidalgo, president of the Ecuadorian-Chinese Chamber, said that the visit will mean an opportunity to insist on the total reduction of the tariffon bananas, shrimp and roses.
Bananas have a tax of 10%, shrimp is taxed with 2% and roses with 10%. Ecuador will promote products such as pitahaya, grape and avocado. For this purpose, agility in the opening of phytosanitary permits will be requested. It will also insist on animal health permits for the shipment of dairy products.
Daniel Legarda, president of the Ecuadorian Federation of Exporters, said that Ecuador is interested in selling pitahaya, quinoa and frozen vegetables already processed. And Ecuador will be sought to host the Chinese-Latin American summit by 2021, Hidalgo said. Entrepreneurs will travel on December 7. (I)