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July 27, 2015


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Interesting post, as always! One question that I have is then -- assuming that China is purposefully delaying its loans to the govt (this year the Ecuadorean govt was supposed to get $4.2bn in new loans from China but I believe has only received $900mn) is it perhaps that China is indeed trying to tighten the screws further (are the Chinese negotiating up?)? From what you write above it seems like Ecuador was getting the better end of the deal and now the Chinese are fed with that. Of course it's possible that something else is delaying the Chinese loans (I've heard accounts of corruption investigations in China delaying loans).

It's also probably some worry about the recent decline in oil prices; Ecuador is a worse risk than it looked a year ago.

In addition, Ecuador has re-accessed Western markets, although admittedly at still not-very-good terms. So its demand for Chinese funds is marginally lower, ceteris paribus.

And I suspect that, as you say, some questions about what China was getting for its money combined with President Xi's anti-corruption campaign have contributed to the slowdown.

In other words, a decline in Chinese capital flows to Ecuador is overdetermined.

How's that "triumph of Ecuadorian resource nationalism" working out for Ecuador? They are losing money on every barrel produced since said "triumph"! With their inferior crude fetching around $9 less per barrel than WTI, while paying $35 and $41 dollars a barrel in service fees to oil operators, Ecuador is losing around $20 per barrel produced. Mashi Correa's greedy and short-sighted gamble was a disaster and now the people of Ecuador stand to suffer.

Hi, Cad,

This is an issue where it's important to have the data. The service contracts allow the government to postpone payments when oil falls below a certain strike price. In addition, government revenue would have been lower under the old fiscal regime.

So there are two empirical questions: (1) how much did the government earn under the new regime relative to what it would have earned; (2) how much is it earning right now relative to what it would have earned?

Those are answerable questions, but it will take a bit of research. Ecuadorean data is accessible, but I'm not quite as conversant with it as I am with its Mexican equivalent. If you have a source, I'll take a look at the numbers!

But until we see the numbers, it's premature to call Correa's fiscal reforms a "disaster."

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