By Ryan Dube 

The election of a market-friendly banker to Ecuador's presidency will provide a new ally for the U.S. in Latin America, a region awash with populist leaders whose priorities often don't align with Washington's.

But Guillermo Lasso, who on Sunday handily beat his leftist rival, will also need to court the Biden administration's biggest rival, China. Mr. Lasso, who is 65, has the challenge of digging his country out of its worst economic crisis in a generation, product of a Covid-19 pandemic that has killed more than 17,000 people.

"Lasso, if nothing else, is very pragmatic, and in Ecuador today that demands close relationships with the United States and also China," said Michael Shifter, president of the Inter-American Dialogue, a Washington-based policy group. "The country is in dire straits, and taking sides or excluding one of the countries is not realistic."

Ecuador is now so saddled with debt to Beijing that public coffers are nearly empty, forcing the country to restructure debt with private creditors and take a $6.5 billion bailout from the International Monetary Fund.

Under President Rafael Correa, who served until 2017 and guided his country away from the U.S. and toward China, Beijing's largess built everything, from dams to mines and hospitals. The debt load is huge -- $18.4 billion, the third highest in Latin America and behind two far bigger countries, Brazil and Venezuela, according to the Inter-American Dialogue.

Mr. Lasso can count on some relief coming from the U.S., which has agreed to help wean Ecuador off Chinese debt. In January, the U.S. International Development Finance Corporation announced a nearly $3 billion loan to Ecuador to refinance what the government agency called "predatory Chinese debt." The program required Ecuador to exclude China from investing in the country's 5G network.

Despite that restriction, Ecuador can't simply say goodbye to China.

"We share a lot of republican values with the United States, but that doesn't mean we have to distance ourselves from other countries," said Aparicio Caicedo, director of Ecuador Free Foundation, a policy group set up by Mr. Lasso to develop his government plan. "With China, we'll maintain a very good relationship."

Mr. Caicedo, who plans to join the incoming government, said the new administration will review all of Ecuador's financing agreements and renegotiate terms if needed. Last year, Mr. Lasso had called for renegotiating China's loans.

Mr. Caicedo declined to comment on the U.S. loan intended to block China's role in telecommunications infrastructure, saying he hadn't seen the details.

But he also stressed the importance of the U.S., a country with close cultural and economic ties, to Ecuador. "What is going to end is this ideological vision of preferring China to the United States," he said.

Javier Corrales, an Amherst College professor who tracks Ecuador, said Mr. Lasso will have an opportunity to renegotiate ties to Beijing but won't upend the relationship. "I don't think he'll be interested in decoupling Ecuador from China," he said.

For more than a decade, China has taken on an outsize role in the small country of 17 million people. Under Mr. Correa, a sharp critic of the U.S., Ecuador expelled the U.S. ambassador and kicked American military personnel out of a base used for antidrug operations. Mr. Correa increased ties with Cuba, Venezuela and other U.S. antagonists, while providing asylum to WikiLeaks founder Julian Assange.

After cutting financing ties with the IMF, Mr. Correa turned to China to fund his populist government's social programs and infrastructure projects. Trade ballooned between the nations, and President Xi Jinping praised the deepening ties while inaugurating a Chinese-built hospital and hydro project during a 2016 visit.

But critics say the close ties have come with a cost. Chinese loans had onerous interest rates and tied up oil sales for years. Chinese infrastructure projects faced questions about the quality of engineering. A lack of transparency resulted in a web of corruption under investigation by President Lenín Moreno's government.

"It was basically cronies of Correa getting intermediation contracts," said Evan Ellis, an expert on China's relations with Latin American at the U.S. Army War College Strategic Studies Institute. "Moreno tried to clean it up, and in the process he realized that Ecuador had to diversify away from its dependence on China."

Mr. Correa and 19 other people, including his former vice president, were convicted of corruption charges last year, though they weren't related to any Chinese project. Mr. Correa, who lives in Belgium, denies the accusations.

Mr. Lasso will likely seek to continue Mr. Moreno's efforts to reduce Ecuador's reliance on China, said Mr. Ellis.

"(China) has such a big role that I think you'll continue to see them building roads and bridges," he said. "But I don't think you are going to see any new China-funded white elephants."

Mr. Lasso will inherit a country that some say is a powder keg. In 2019, demonstrators upended Ecuador's cities by protesting Mr. Moreno's plans to cut fuel subsidies. Last year, gross domestic product contracted 7.5%. This year, the IMF expects growth of just 2.5%, one of the weakest on the continent.

Mr. Lasso was elected Sunday after defeating Andrés Arauz, a 36-year-old economist and protégé of Mr. Correa. His victory was the first resounding defeat of a surrogate candidate of a powerful former Latin American president. From Argentina to Bolivia and Colombia, former presidents have sought to regain influence through handpicked candidates that many people see as their puppets.

Mr. Lasso, a conservative Roman Catholic, has pledged to create 2 million jobs and open up Ecuador's economy to globe trade and investments. Growing indigenous and environmental movements will meanwhile oppose mining and oil projects. Political analysts say he'll have a fragile coalition, making it difficult to advance his laissez-faire policies.

"He'll need to figure out what to do with the new left," said Mr. Corrales, the Amherst College professor.

Write to Ryan Dube at ryan.dube@dowjones.com

(END) Dow Jones Newswires

April 12, 2021 18:44 ET (22:44 GMT)

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