Friday, December 14, 2018

Ecuador Goes More Into Debt With China

For many years, the United States and then U.S. banks were deep in the loan business in Latin America. It's a great setup. You loan money to less developed countries and they often have a difficult time repaying on time. To ensure repayment, you loan them more money. As long as you keep friendly governments in power, you make a ton of money even if their economy falls apart. 

Now it's China. Rafael Correa borrowed about $6.5 billion from China between 2007 and 2017. Just as Mexico felt the pinch in the early 1980s, the fall of oil prices has made repayment more painful over time. So now Lenín Moreno felt obligated to go to China and get $900 million at the "lowest interest rate in history."

Rafael Correa, who is responsible for getting all this going, actually once said he thought Ecuador was being "ill treated" by China. Well, yes, countries that were heavily in debt to the U.S. or U.S. banks were ill treated too. What that means is that you are controlled and you have no leverage. When you owe huge sums of money, the loaning country is free to do as it wants.

Correa went that direction in large part to proclaim his independence from the United States. This was the same path Cuba took after the Bay of Pigs. All it means is shifting economic dependence from one great power to another. It does not lead to independence.

Moreno and Correa do not agree on much but apparently they agree that heavy indebtedness to China is the way.


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