Interview: Chen Feng, “Neither the Government nor Chinese Financial Institutions Force Ecuador to Take Loans”

Chen Feng, commercial advisor of the Chinese Embassy in Ecuador

August 23, 2020 – 07h00

Quito – The commercial adviser of the Chinese Embassy in Ecuador, Chen Feng, defends the financial relationship between China and Ecuador. He announces that the possibility of contracting a Chinese loan with the China Development Bank (CDB) is advancing, different from the contract with the ICBC (tied to oil) and that it would be further delayed. He also rejects the criticisms made, from various voices, about the conditions of Chinese loans. He says China should be seen as a friend who “offers firewood in snowy weather.”

How is the renegotiation of the debt with China progressing? The Ministry of Finance has told us that there has been a progress with the CDB, but there are other debts with the Eximbank and the Bank of China, so what can we expect?

Financial cooperation is an important part of the comprehensive strategic partnership between China and Ecuador, in our opinion this has been an important contribution to economic development for Ecuador. The Chinese side is well aware of Ecuador’s liquidity problems and therefore offers financial cooperation.

Right now, due to the joint efforts of the Chinese government and financial institutions, there have been important advances. According to the communication from the Ministry of Economy and Finance, the CDB has reached an agreement with the Ecuadorian Government, specifically with the Ministry of Economy, on a deferral of amortization of $ 417 million of the debt.

And it has also made significant progress on a new line of credit to be offered from the CBD. Eximbank and other entities are also actively evaluating a possible deferral of some existing loans, and the feasibility of offering new loans.

This credit line from the CDB, how much would you have and when could it arrive? A few months ago, Minister Martínez had mentioned that he could reach loans of $ 1 billion with CDB and $ 1.4 billion with ICBC, the latter tied to oil.

On the CBD line, it is a considerable amount, but the exact figure is handled by the Ministry of Economy and Finance. We know that he is in full consultation and that there is close contact, but we have to wait for the official information.

Now my question is instead, how is the credit of $ 1.4 billion with the ICBC progressing, tying to the sale of 50 million barrels and that has generated discomfort in Petroecuador, since it is considered that it could generate losses to the company?

According to what we know, this line of credit is still under negotiation. It is not fully confirmed at the technical level of both parties, it is under negotiation. What we can say is that all credit is handled according to market rules and the price of crude is also based on the market price. Both parties at a technical level must negotiate under commercial rules and market terms. Of this there is no doubt.

But could you explain how traders like Taurus participate in these contracts? Why, despite the fact that the negotiation is with Chinese companies, does resale ultimately take place?

This we do not know. What we know that now there are two or three companies that want to participate in the tender. The premise is that both parties reach an agreement on the loan and in this there is a formula, just as Minister René Ortiz has said is a formula.

On the one hand it is a loan, but on the other hand it is an oil sale. As for this loan, he is still negotiating and the sale contract is being negotiated. It is necessary to advance both in parallel. But the other line of credit with the CBD is moving faster.

There are voices that have criticized credit contracts with China, for various reasons, terms, rates, what is your position on this?

Lately in Ecuador there are voices that say that Chinese loans suffer from a lack of transparency and that it has imposed conditions that harm Ecuador’s interests, and there are even politicians from other countries who criticize this. I would like to explain these issues point by point.

In the first place, both in the previous administration of Correa, and in the present one of Mr. Lenín Moreno, neither the Government of China, nor the financial institutions have ever forced Ecuador to receive any credit, but all have been at the request of Ecuador.

We offer them to support Ecuador and they have been offered when Ecuador has been in a complex situation, and the doors of the international market are closed. This should be interpreted, in our view, as China offering firewood in snowy weather.

We believe that there have been benefits for Ecuador, as it has considerably eased the liquidity pressure. China’s credits have been for infrastructure, electricity, housing, public health, and sanitation projects. If there were not these credits, the infrastructure could not be the current one. Lastly, they have helped Ecuador to generate a lot of employment.

One of the criticisms has been that the loans reach Ecuador, but they are tied to contracts with Chinese companies and this has even generated surcharges in the contracts. What is your opinion?

On this subject, the credits offered by China are, on the one hand, freely available to the Ecuadorian side. Another party may have a condition that it must have some participation of Chinese content, that is why Chinese companies participate. That is a commercial condition, in a credit agreement. But as for the participation of companies, it is based on commercial rules.

The price is set in accordance with the bids and offers. None of them can force Ecuador to contract. Many Chinese companies have the capacity to build the infrastructure and therefore must compete. Regarding interest rates, the CDB, which is the bank that offers the most financing, has a fixed interest rate: between 6% and 7.25%.

In addition, Eximbank also manages a portion with fixed rates of 6.35% and 6.9% that are lower than the cost of issuing bonds in the international market. It is smaller than Ecuadorian financial institutions or foreign banks based in Ecuador. I have also seen that some media compare commercial rates with those of multilaterals. This is not fair, you cannot compare pears to apples.

It has also been criticized that the credits have very strong conditions and tied to oil …

Most loans are of a commercial nature, they are different from grants or non-repayable aid. Therefore, they are governed by market rules and international practices. For example, how the Bank of China can guarantee its credits, sometimes it needs a guarantee, that is understandable. Perhaps other countries consider the high risk and therefore do not deliver.

From the point of view of financial institutions, they are responsible for profit and loss and must be accountable to their shareholders. I am convinced that if there were no hidden political motive or intention, any reasonable person in Ecuador could understand it.

I would like to emphasize that China’s loans never have political strings attached. Everything is the product of friendly consultations, it is the product of a technical agreement, never an imposition by China.

You already mentioned it, but another controversial point is the transparency of contracts. What is the reason for declaring them reserved?

All financial cooperation is always based on principles of equality, transparency and openness. Some media have criticized the lack of transparency, but the truth is that the conditions can be consulted on the website of the Ministry of Finance: interest rates, terms, amortization, other conditions. You can also find the full texts of the published text contracts of line 1 and 2 on that same page.

The Comptroller’s Office has pointed out as a lack of transparency that they have been declared reserved. Until a few days ago they were not known and these texts of contracts from 2009 and 2011 have actually just been published recently; all that generated the image of little transparency …

I have also spoken with Finance about these two contracts and they have told me that they have already ended.

Additionally, former Minister Carlos de la Torre assured that the contracts were declared reserved, at the request of the Chinese counterpart.

But the conditions are open, the contract model that CBD uses with the Ministry of Economy and Finance is an international model, it is not a clause from China. It is the APLMA model. It is not one-sided.If any public institution in Ecuador requests it, it can inform you of the entire contract, no problem.

Didn’t you ask that the contracts be declared reserved?

Of course not. These contracts are under the APLMA model.

Read the entire interview via El Universo at:

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