China will lend Ecuador $1 billion for investments in the oil, refining and electricity industries, Economy Minister Diego Borja said.
Including a similar loan for construction of a 1,500- megawatt power plant in the northeast Andes, China has agreed to lend Ecuador almost $2 billion after Vice-Premier Hui Liangyu visited Ecuador in February, Borja said.
“The China Development Bank will provide a total of $1 billion for strategic projects,” Borja told reporters today at his office in Quito. “It will all go to new investments.”
Ecuador plans to borrow about $3.5 billion this year, after defaulting on $3.2 billion in bonds last December. In addition to the Chinese loans, multilateral lenders such as the Inter- American Development Bank and the Latin American Reserve Fund have pledged $1.5 billion to finance the budget deficit that the government expects this year.
Ecuador has also imposed caps on imports to offset a decline in dollar inflows tied to the 64 percent fall in the price of oil, its main export, which could put its use of the dollar as its currency at risk.
“All the prophets of disaster who said dollarization won’t last and that there’s no finance for Ecuador have been proven wrong,” Borja said. “There’s enormous international interest in providing finance.”
Ecuador may eventually issue debt to fund infrastructure projects, he added.
Regarding the defaulted bonds due 2012 and 2030, Borja said that markets reacted positively to President Rafael Correa’s pledge last Saturday to offer bondholders a comprehensive deal on the bonds on April 20. That demonstrates a willingness to negotiate, he said.
Following the announcement, the 2012 bond rose to 30 cents on the dollar today from 27 cents on the dollar on March 27, while the 2030 bond rose to 30 cents on the dollar from 27.5 cents, according to JPMorgan Chase & Co.
Correa on Dec. 12 defaulted on the two bonds, about a third of Ecuador’s foreign debt, although the country had cash to continue interest payments, calling the bonds “illegitimate” and “illegal.”
Ecuador’s second default in a decade has since slowed access to credit along with the global financial crisis, Correa has said