The US International Development Finance Corporation has struck a deal to help Ecuador repay billions of dollars in loans to China in exchange for excluding Chinese companies from its telecommunications networks.
Adam Boehler, the chief executive of the US development bank, signed the deal at an event with Ecuadorian President Lenín Moreno on Thursday, calling it a “new model” for expelling China from the Latin American nation.
“It is an innovative approach which combines the two missions of the DFC very strongly,” said Mr Boehler. “The first is that we are going to have a very positive impact on the development of Ecuador. And the second reason the DFC was created was that no authoritarian country exerted undue influence over another country and we are dealing with that factor with this agreement. “
The outgoing Trump administration hopes the deal will provide a model that will encourage other countries to wean themselves off Chinese debt and remove Chinese telecoms companies from their networks.
The DFC has briefed President-elect Joe Biden as well as Democratic and Republican senators. Mr Boehler said the Biden team viewed the new structure as an interesting and innovative approach.
“It’s not a Democratic priority or a Republican priority. It’s an American priority, ”Boehler told the Financial Times.
While DFC partners with private sector financial institutions on development projects around the world, Washington sees it as a foreign policy tool since the bank can attach conditions to its development finance.
In a previous interview with the FT, Boehler said that DFC did not take the lead in foreign policy, but was aware of what China was doing in the world and the need for the United States to ” play the offense ”. He said Chinese investments have become a “drug” for countries that create debt traps.
One of the key terms of the deal with Ecuador is that Quito endorse what the Trump administration calls “The Clean Network” – a State Department initiative designed to ensure countries exclude telecommunications services and Chinese equipment suppliers as they develop their high standard. speed of 5G networks.
Under the deal, DFC will team up with private sector financial institutions to help create a special procurement vehicle that will buy oil assets and infrastructure in Ecuador. The sale of the assets will provide Quito with liquidity to repay debt to China sooner than expected – $ 3.5 billion will be unpaid after an upcoming repayment to Beijing – and also provide money to be pumped into various development projects. .
Ecuador’s debt to China dates back to ten years of Rafael Correa’s reign, including the government failed on the country’s sovereign debt in 2008. It then turned its back on Washington’s credit institutions and concluded a series of oil-for-loan deals with China, which it is still in the process of repaying.
Mr Moreno criticized the deals with China as opaque and damaging to the country. His government renegotiated the terms of part of the debt and last year obtained $ 2 billion in new money from a Chinese bank.
The deal with the US development bank comes just three weeks before Ecuador goes to the polls to choose a new president.
Mr. Moreno is not seeking re-election and Mr. Correa is prohibited from running after being found guilty of corruption in what he says was a politically motivated witch hunt. He lives in Belgium, but is still active in Ecuadorian politics and enjoys staunch support from the left.
Mr Correa has anointed a young economist, Andrés Arauz, as his preferred candidate for the February 7 vote. While Mr. Arauz leads some polls, in others he sits second behind Guillermo Lasso, a right-wing banker and former Coca-Cola executive.
Mr. Arauz threatened to return to the $ 6.5 billion loan program that the Moreno government secured with the IMF last year. “We do not see any sense in continuing the current program,” he told FT recently.
Mr. Arauz and Mr. Correa are likely to have an equally grim view of any plan to bring Ecuador closer to Washington and away from Beijing – especially so close to elections and a change of government.
To follow Demetri Sevastopulo on Twitter