WALK THE LINE

Ecuador’s new administration is trying to strike a balance in its diplomatic and economic ties with Washington and Beijing, and perhaps this can make the world a better place.

AS THE TENSION BETWEEN THE TWO SUPERPOWERS and economic giants of the West and the East continues, many emerging economies find themselves in a tricky situation. While they want to maintain their economic ties with China, which provides them with affordable technological products and long-term loans, they do not want to displease the US or jeopardize their ties with the West. Maintaining diplomatic and economic ties with both China and the US, in short, involves walking a very fine line.

Ecuador has been trying to walk this fine line over the last decade, without falling out with either China or the US. First, let us have look at Quito-Washington relations. Aside from being Ecuador’s largest trade partner, the US considers Ecuador an ally. Ecuador is one of the few Latin American nations that did not gravitate toward communism in someway or another during the Cold War. “Our two nations collaborate on a wide range of issues of bilateral, regional, and global importance. US and Ecuadorian law enforcement and security personnel work cooperatively to counter threats posed by transnational crime,” reads a statement by the US diplomatic mission in Ecuador.

As such, it is not difficult to imagine Washington’s feeling of betrayal if Ecuador gets too friendly with Beijing. Many commentators believe that, among all Latin American nations, Ecuador has the closest relationships with China. The Chinese influence became particularly tangible during the term of former president Rafael Correa in office between 2007 and 2017. Everything started with PetroChina, a satellite company of China National Petroleum Corporation (CNPC), taking an interest in oil exploration and extraction activities in Ecuador. One thing led to another until Ecuador found itself in a lot of debt to China—debts that Ecuador was unable to repay.

China offered loans to Ecuador around 2009-2010, when the Ecuadorian economy was on the verge of a meltdown. Giving loans to developing, solvency-challenged countries with the potential of repaying the loans in some way or another has become something of a signature move by China over the last decade. In the case of Ecuador, the first loan, to the tune of USD1 billion, was given to Ecuador in July 2009. Since then, China has lent another USD10 billion—and possibly more—to Ecuador in various installments. The sums have been mainly spent on infrastructure and petroleum megaprojects. Some critics believed that dependence on China went too far during Correa’s administration. In 2013, for example, Chinese loans accounted for over 60% of the Ecuadorian government’s spendings.

Ecuador’s main method of repayment is by shipping crude oil to China. By the end of 2019, just before the pandemic brought the global economy to a standstill, Ecuador had shipped over USD265 million worth of Amazonian crude oil to Chinese oil-thirsty refineries. Since the vaccination and partial recovery of global markets, the trade balance has always been in favor of China. In October 2021, China’s exports to Ecuador was around USD420 million, showing a staggering 99% YoY increase. Ecuador’s exports to China, meanwhile, showed a slight 3-4% drop. It is not difficult to see that China has the upper hand in China-Ecuador trade.

Things, however, may be about to change. Guillermo Lasso was elected as the 47th president of Ecuador in May 2021. A former banker and businessman, he is Ecuador’s first right-of-center president in almost two decades—albeit with some liberal overtones. President Lasso is a big believer in the power of free market, which suggests that Ecuador will rely on its ties with Washington and the West more than those with Beijing. Instead of turning to Beijing for loans, like his two predecessors, President Lasso prefers asking for help from Western or international institutions such as the IMF.

In September 2021, Ecuador reached an agreement with the IMF for a USD1.5 billion payout. This follows a previous USD6.5-billion deal to help kickstart the economy. The administration is also working on a “fiscal reform that would not affect the country’s poor and that additional tax revenue would come from high-income brackets,” according to Reuters citing the words of Simon Cueva, the new administration’s minster of economics and finance.

Despite all its right-of-center politics and belief in the free market economy, however, the new administration is by no means anti-China. Ecuador is already working on a comprehensive trade framework with China to be unveiled toward the end of 2022. The repayment of Ecuador’s previous loans to the Red Giant, too, will be renegotiated soon, said President Lasso after meeting China’s President Xi Jinping during a state visit to China in February 2022.

In the larger scheme of things, Ecuador’s efforts to stay on good terms with both the US and China is not hypocritical; on the contrary, it is a good thing in and of itself. If there were more countries around the world like Ecuador, which managed to strike a balance in its diplomatic and economic ties with the two superpowers of our age, there would be less polarization of the developing economies of the world, perhaps reducing the tension between the US and China and making the world a safer place for everyone.

President Guillermo Lasso pictured at COP26, where Ecuador announced the creation of a new marine reserve in the Galápagos, increasing the area from 133,000sqkm to 193,000sqkm