In a first for Latin America, on November 1 Ecuador became a fully-fledged member of the Asian Infrastructure Investment Bank (AIIB), the China-led multilateral bank that began operating in 2015 with a mandate to finance development projects around the world.<\/p>\n
Whether or not Ecuador<\/a> can properly take advantage of its AIIB membership will depend on managing new resources in such a way that promotes good practices, tempers social conflict, and encourages greater transparency and high environmental standards.\u00a0<\/strong><\/p>\n \u201cThis is a very special opportunity for our country to further integrate with the Pacific Rim and the countries linked to this bank,\u201d said<\/a> Jos\u00e9 Valencia, Ecuador\u2019s minister of foreign affairs, at an AIIB signing ceremony in Beijing.<\/p>\n Headquartered in Beijing, today the AIIB has more than 90 member countries. The bank\u2019s investments in energy projects, public transport and internet connectivity in Asia and Africa, have created high expectations in Latin America of a new source of vital development finance to compete with the Inter-American Development Bank (IDB) or even the International Monetary Fund (IMF).<\/p>\n AAA<\/p>\n Given its AAA<\/a> credit rating, the bank can also act as a \u2018seal of approval\u2019 to catalyse<\/a> private sector loans, analysts have said.<\/p>\n Yet despite the opportunity to obtain finance for projects that could boost Ecuador\u2019s economy, like many countries in the region, Ecuador was slow<\/a> to pay up the minimum required capital subscription of US$5 million after expressing its interest in joining in 2017.<\/p>\n Furthermore, analysts say President Len\u00edn Moreno\u2019s government should proceed with caution in order to avoid links with corruption schemes and unnecessary projects.<\/p>\n Paulina Garz\u00f3n, director of the China-Latin America Sustainable Investment Initiative (CLASII) at the American University in Washington, says it\u2019s important for Ecuador that financial authorities learn lessons from failed Chinese-funded projects promoted under the government of Rafael Correa. These include the notorious Coca Codo Sinclair hydroelectric plant in eastern Ecuador, which ran some US$2 billion<\/a> over budget.<\/p>\n \u201cIf the flagship project of China-Ecuador cooperation is representative of others, the responses are not encouraging,\u201d Garz\u00f3n said. \u00a0\u201cThe Coca Codo Sinclair dam was built using obsolete technical studies. Technical flaws have compromised the integrity of the work, and they have not produced the estimated amount of energy.\u201d<\/p>\n To make things worse, Garz\u00f3n said, contractor Sinohydro is facing a corruption investigation by the Attorney General’s Office.<\/p>\n In the past decade, China has become Ecuador’s main source of finance. Though the total value of all loans was not made public, more than US$11 billion<\/a> came into the country from Chinese lending institutions between 2010 and 2017, according to an investigation by Ecuadorean newspaper El Universo<\/em>. The Washington-based Inter-American Dialogue puts the figure at over US$18 billion<\/a> up until 2018.<\/p>\n As of 2018, the outstanding debt amounted to some $8 billion, according to Ecuadorean newspaper El Universal<\/a><\/em>.\u00a0The figure is equivalent to around 7% of Ecuador\u2019s GDP that year.<\/p>\n Several loans were conditional on the exclusive hiring of Chinese contractors and even special dispensation to bring engineers and other staff from China.<\/p>\n \u201cWe end up paying twice,\u201d says economist Jorge Calder\u00f3n Salazar, dean of the Arcos Technological Education Institute in Guayaquil.<\/p>\n \u201cFirstly, the money must be paid back with interest, and secondly, we are explicitly obliged to hire Chinese companies. The money does not create the desired multiplier effect that should generate labour and technology transfer.\u201d<\/p>\n The AIIB complements China’s flagship Belt and Road Initiative (BRI), one of the pillars of President Xi Jinping\u2019s geostrategic aim to catapult China into the position of a world-leading superpower by 2050.<\/p>\n 19<\/p>\n At the time of writing, 19<\/a> Latin American and Caribbean countries have signed agreements promoting the BRI, which seeks greater economic and political integration. Ecuador joined in December 2018 and is one of the countries that has sought to promote more projects<\/a> under the BRI framework than regional neighbours.<\/p>\n However, the arrival of the AIIB as a new lender raised fears<\/a> about a “race to the bottom” in terms of social and environmental standards in project planning and execution, especially in Ecuador.<\/p>\n Communities have criticised the effect of dams altering water courses and Chinese-backed mining projects have been associated with the displacement of families and the intimidation of community leaders.<\/p>\n The El Mirador mine in the C\u00f3ndor mountain range in the Ecuadorean Amazon displaced<\/a> families and generated an ongoing conflict, while the Rio Blanco mine in Nankints experienced<\/a> similar problems.<\/p>\n For Garz\u00f3n, sound project selection is essential in contributing to the country\u2019s development.<\/p>\n \u201cNational governments and international financiers should prioritise water and forest corridor connectivity and ecosystem integrity over infrastructure connectivity,\u201d said Garz\u00f3n, who authored the Handbook<\/a> on Chinese Environmental and Social Guidelines for Overseas Lending and Investment: A <\/em>Guide<\/em> for Local Communities<\/em>.<\/p>\n \u201cI think it’s time to stop calling the railways and big dams a clean means of transport and power generation. A railroad crossing the Amazon is a huge threat to the integrity of Amazon ecosystems,\u201d she added, referring to massive<\/a> Chinese funding<\/a> of hydroelectric projects in Ecuador and the proposed<\/a> railroad that bisects the sub-continent through Brazil, Bolivia and Per\u00fa.<\/p>\n Calder\u00f3n hopes that the government of Ecuador will take advantage the AIIB as a funding source to rescue and modernise the country’s agricultural sector, which today has low levels of production levels, due in part to the lack of comprehensive irrigation systems. With better marketing, Ecuador could become a food pantry for China through having recently set record shrimp sales<\/a>.\u00a0<\/strong><\/p>\n Another concern is that AIIB-funded projects must have high standards of transparency in procurement that serve as an effective shield against corruption.<\/p>\n \u201cLet everything be transparent, starting with the bidding process,\u201d says Alberto Acosta Burneo, editor of economics publication An\u00e1lisis Semanal<\/em>. \u201cMany of the funding contracts were tied to the hiring of certain operators and builders, without necessarily holding a competition to see which operator had the best offer,\u201d he added.<\/p>\n Acosta also said that projects must comply with laws on accountability so that citizens can access details of the hiring process and complete documentation in order to avoid making the same mistakes.<\/p>\n \u201cAt the end of the day, there was no accountability in projects that were oversized and unnecessary \u2013 or poorly conceived,\u201d he said.<\/p>\n Garz\u00f3n said there should be \u201cbroad and participatory oversight\u201d from projects by Ecuadorean civil society, along with Chinese regulatory bodies such as the Chinese Ministry of Commerce, the National Development and Reform Commission and the State Assets Supervision Commission, which oversee Chinese investments.<\/p>\n For Garz\u00f3n, oversight bodies should be setup during the loan approval process and remain throughout the implementation of projects, from the time they are formulated until the works are delivered and the loans repaid.<\/p>\n In such a situation, any AIIB-funded project with its first Latin American partner would meet the highest social, environmental and good governance standards.<\/p>\n Unlike other Chinese institutions whose lending criteria is somewhat secretive, the AIIB prides itself on operating under a policy of greater openness. \u201cGood governance is our hallmark and we strive to operate with the highest possible standards of transparency and accountability\u201d, says its website, which has published risk management and environmental and social frameworks<\/a>.<\/p>\n The AIIB also has a mechanism<\/a> for receiving complaints from people who claim to be affected by one of its projects, or who know of irregularities.<\/p>\nThe AIIB\u2019s first Latin American partner<\/h2>\n
\nthe AIIB's credit rating, the highest possible
\n\n <\/div>\n <\/div>\nWe end up paying twice<\/h2>\n
AIIB and Belt and Road<\/h2>\n
\nLatin American and Caribbean nations have formally endorsed the Belt and Road Initiative
\n\n <\/div>\n <\/div>\nLet everything be transparent, starting with the bidding process<\/h2>\n
Transparency<\/h2>\n