US rescue of Ecuador from Chinese debt is a trap, leaving the South American country as the most recent success for the US policy to edge out Beijing’s business interests.

On January 14, 2021 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” to strengthen Ecuador’s dependence on 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.

The DFC was created by the US Congress’ Better Utilization of Investments Leading to Development Act of 2018.

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 for turning their back on Wikileaks founder, Julian Assange but came 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, including evidence of grotesque personal corruption, that predate the pandemic.

A September 2020 poll showed that the left-leaning Andrés Arauz was ahead of a crowded field with close to 46% of the vote, which would allow him to win in the first round.

Arauz is an economist who held two ministerial posts in the government of Rafael Correa from 2015 to 2017. He promises to reverse Moreno’s fealty to the United States and his subordination to the IMF’s deflationary policies.

The hasty deal cut between Quito and Washington will try to lock whoever wins the February 2021 election into a pro-US and anti-China policy. This is a direct interference in the elections in Ecuador.

Part of the assault on China by the US government has been to paint its loans to Ecuador as predatory. These loans, the US officials say, create a “debt trap” and Boehler said they leave Ecuador at the mercy of a “single authoritarian country.”

Ecuador took on debt worth around $5 billion from Chinese banks to finance several major infrastructural projects, including the construction of hydroelectric dams.

These projects began when oil prices were high. President Correa leveraged oil income to help the transition away from fossil fuels toward renewable energy.

The collapse of oil prices, the pressure on the country from the oil giants (particularly Rockefeller’s Chevron), and the political chaos in the country damaged Ecuador’s ability to advance these projects.

Chinese banks, over this period, have accommodated the difficulties faced by Ecuador’s government to finance these debts.

Yet it is based on the very existence of these loans that the US government has made sinister claims about Chinese influence on Ecuador.

It is well worth pointing out that China only holds 10% of Ecuador’s total external debt, but it is this debt that has been the focus of attention.

It allows the US to prosecute its rivalry with China and at the same time camouflage the real source of indebtedness, namely the IMF loans and loans to Western banks. Neither the IMF nor the Western banks has been as generous about their credits as the Chinese banks.

Chinese banks lent money for the construction projects. These funds came with no conditions. The US government money, on the other hand, came with substantial claims on the government of Ecuador’s policy orientation.

Quito has had to sign up for Washington’s “Clean Network,” a US State Department project to force countries to build telecommunications networks without a Chinese telecom provider involved in them.

This particularly applies to the high-speed fifth-generation (5G) networks. Ecuador pre-emptively joined the Clean Network in November 2020. This opened the door for the DFC loan to Ecuador.

The deal with Ecuador is not seen as a one-time arrangement. Boehler said this “novel model” can be used by other countries to “eject” China from the hemisphere. If Arauz becomes the next president of Ecuador, he will face the challenge of this US-imposed conflict against China as one of the first obstacles to a fresh start for his country.

President Moreno and former US president Donald Trump have already begun to sabotage the possibility of Arauz solving the immediate problems of his people.

Asia Times / ABC Flash Point News 2021.

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