Ecuador Is Being Taken Over By China

The steady rise in Ecuador's debt to China (currently over US$7bn), and recent revelations of the terms on which it has been granted, has sparked concerns over an erosion of Ecuador's sovereignty.
Analysis

The Ecuadorean state started to receive loans from China in exchange for oil shipments in July 2009. The first deal was for US$1bn in exchange for 69.1m barrels of crude. The interest rate on the loan was 7.25% over two years. In August 2010, 36,000 barrels of oil per day were committed in exchange for US$1bn at a 6% interest rate over four years. In February 2011, the first "advance sale" for 69.1m barrels was renewed at a 7.09% interest rate over two years, and in June 2011 a US$2bn credit was agreed in exchange for 130m barrels over six years.

Additionally, two of the largest hydroelectric infrastructure projects (Coca-Codo-Sinclair and Sopladora) are being financed with loans from China. Although these are not being financed though oil exports, Ecuador is obliged to use Chinese contractors to build the projects. The loans for the two projects total US$2.25bn.

Critics initially focused on the high interest rates attached to the loans and the obligations to use Chinese contractors. Concern has also grown over the concentration of debt to a single creditor and a lack of transparency regarding the specifics of the deal (the contracts are not made public). However, the recent emergence of a letter signed by both Petroecuador and Petrochina in 2009 has further fuelled criticism.

The letter appears to suggest that Petrochina has the authority to seize oil from Ecuador's other international clients if the country fails to repay any part of the loans. Petroecuador has since claimed this is in line with the constitution and is not a guarantee over Ecuadorean assets. However, it does set a precedent of ceding some rights to Ecuador's strategic assets to an external power.