China, Ecuador Sign $2 Billion Loan Deal

China, Ecuador Sign $2 Billion Loan Deal
Wall Street Journal (Online)
27 June 2011
By Alvaro, Mercedes.

QUITO--Ecuador's government on Monday signed a loan agreement for $2
billion with China Development Bank Corp., the Finance Ministry said, as
China deepens its financial ties with the South American nation and the
region.

The loan was signed in Beijing by Ecuador's undersecretary of Public
Credit, William Vasconez, said the ministry in a press release, but it
didn't provide any detail.

Two weeks ago, Finance Ministry Patricio Rivera said that the loan will
be for eight years, with an interest rate of 6.9%, and a two- or
three-year grace period.

China has become the biggest source of financing for the Andean country,
after it defaulted on $3.2 billion of government bonds in 2008,
effectively losing access to overseas capital markets.

The new credit reinforces the Asian giant's growing role as Ecuador's
leading lender, and Ecuador's increasing dependence on Chinese
financing. Ecuador has also opened the door for China to invest in its
considerable oil and mineral resources, with China becoming the largest
foreign investor in the resource-rich South American nation.

At the same time, the leftist administration of President Rafael Correa
has turned its back on the Washington-based International Monetary Fund
and World Bank. Financing from other multilateral lenders such as the
Andean Development Corporation and the Inter-American Development Bank
usually is tied to specific projects.

In February, Ecuador received a $1 billion prepayment from China's
state-owned PetroChina Co. after both agreed to renew an agreement on
the supply of Ecuadorean crude oil for two years, starting in August.

In July 2009, state-run Petroecuador and PetroChina signed a similar
agreement for Petroecuador to sell Oriente and Napo crude to PetroChina.
In August of that year, the Andean country received an advance payment
of $1 billion, at an interest rate of 7.25%.

Last year, Ecuador's government signed a loan agreement for $1 billion
with the China Development Bank with a fixed interest rate of 6% per
year for a four-year term and an additional six-month grace period.
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