China aided Ecuador in the 2008 financial meltdown
Ecuador is the “clearest example” of Chinese investment in Latin America, making up for a dearth of Western capital in the aftermath of the 2008 financial crisis, experts said.
The country had partially defaulted on its loans in 2008, which restrained its access to international capital markets or Western-based ones.
Chinese finance has really plugged the hole of Western finance.” Kevin Gallagher, author
“Chinese finance has really plugged the hole of Western finance,” said Kevin Gallagher, author of The China Triangle: Latin America’s China Boom and the Fate of the Washington Consensus.
“Overall, at least when the oil prices were higher, Ecuador is probably the country that put the Chinese finance to best use,” he said.
Investment in Ecuador as a percentage of the country’s GDP was 25 percent in the decade between 2003 and 2013.
“That’s a higher level of investment than any country in Latin America, and when you go to Ecuador and you see Chinese-financed hydroelectric power plants, Chinese financed energy, Chinese fi-roads; they took the roads and built things,” he said.
The country received $2 billion from the China Development Bank in April to finance public investment, according to Reuters.
Ecuador’s economy had slipped into a recession in late 2015 as the price of oil — the country’s biggest export commodity — dropped across the globe. Ecuador had struggled to borrow enough money to offset the price slump, and GDP shrank 0.3 percent in the fourth quarter.
After China started investing in Ecuador after the 2008 recession, credit agency Moody’s visited and saw that Chinese financing went to productive investment, and that the country was paying back its Chinese debtors.
The agency upgraded Ecuador’s credit rating, which allowed it to gain access to debt markets again and “actually slowly moved towards more balanced debt diversification,” Gallagher said. “So it was really a success story.”
The country’s president, Rafael Correa, is “very much a friend of the Chinese government” and is somebody who has tried to diversify Ecuador’s commercial partners, said Jason Marczak, director of Latin America Economic Growth Initiative at the Atlantic Council.
“There are significant Chinese mining interests in the eastern parts of Ecuador, whole communities in Ecuador that are really dependent on the trade and investments in China,” he said.
“At the same time, the government in Ecuador has been very much in favor of bringing in currency however it could for economic development in many different ways,” he said.