On January 14, a US government agency decided to pay off part of Ecuador’s debt to China so that the Latin American country could break ties with Chinese telecommunications firms. The US International Development Finance Corporation, which is funded by the US government, provided Ecuador with a loan of $2.8 billion.
The DFC’s head, Adam Boehler, said the loan goes to Ecuador to “refinance predatory Chinese debt” and to strengthen Ecuador’s alliance with the United States.
This move by the DFC is not economic as much as political. Ecuador’s development is secondary. What is primary is the US desire to remove Chinese businesses and political influence from Latin America.
Boehler, a close friend of the Trump family, took over the DFC and has since driven a hard agenda in Latin America against China.
The DFC was created by the US Congress’ Better Utilization of Investments Leading to Development Act of 2018.
Subsequent to this act and the formation of DFC, the US State Department developed a project called America Crece, or “Growth in the Americas”. The main goal is to use US government funds – with private assistance – to edge out Chinese business interests from the American hemisphere. Ecuador is the most recent success of the US policy.
Ecuador’s debt and the 2021 presidential election
During the Covid-19 pandemic, the debt crisis in developing countries has become a serious problem. The total external debt held by developing countries is estimated to be $11 trillion. Ecuador’s share is roughly $52 billion.
In mid-2020, Ecuador’s outgoing president Lenin Moreno tried to raise money through multilateral agencies and China to manage $17 billion of this debt, most of which would have to be paid to service the overall debt. Financial markets, unwilling to buy Ecuadoran bonds, balked but Moreno offered to buy back some bonds to raise capital.
Collapsed oil prices that led to cuts in oil subsidies, a hefty loan from the International Monetary Fund at the cost of austerity measures, and mismanagement of the pandemic battered Moreno’s legitimacy.
Ecuadorans will go to the polls on February 7 to elect a new president. Moreno is not running. His approval rating fell through the floor as a result of cascading crises,