China aided Ecuador in the 2008 fi­nan­cial melt­down

China Daily (USA) - - ACROSS AMERICAS - By AMY HE in New York amyhe@chi­nadai­lyusa.com

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.

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