Brazil Recalls Ambassador to Ecuador in Loan Dispute

Brazil recalled its ambassador to Quito for consultations after Ecuador asked an international arbitration court to suspend a $243 million loan owed to Brazil’s state development bank.

Ecuador didn’t talk to the Brazilian government before asking the Paris-based International Chamber of Commerce to suspend loan payments to the Banco Nacional de Desenvolvimento Economico e Social, according to a Brazilian Foreign Ministry statement today.

“We recalled the ambassador to do a broad review of our cooperation” with Ecuador, Celso Amorim, Brazil’s Foreign Relations Minister, said in a press conference in Sao Paulo. Brazil hasn’t recalled an ambassador in “a long time,” Amorim said.

Brazil’s move deepens a two-month dispute with Ecuador over a hydroelectric power plant built by Rio de Janeiro-based Construtora Norberto Odebrecht SA. Ecuador sent troops Sept. 23 to seize the $338 million power station, which had to be taken offline after a year of construction, and expelled Odebrecht from the country.

The debt owed to the Brazilian development bank, or BNDES, was included in a broad audit of Ecuador’s debt that President Rafael Correa ordered. Correa, a 45-year-old economist who’s threatened to default on Ecuador’s debt since the 2006 president campaign, last week withheld a $30 million interest payment on Ecuador’s 2012 global bonds while he awaited the audit.

Ecuador’s Foreign Ministry had no comment, a spokesman in Quito told Bloomberg News

‘Seriously Concerned’

The Brazilian Foreign Ministry said it’s “seriously concerned” about Ecuador’s decision to go to an arbitration court and the lack of previous communication.

“The nature and form of Ecuador’s measures aren’t compatible with the spirit of dialogue, friendship and cooperation that has marked the relations between Brazil and Ecuador,” according to the Foreign Ministry statement.

BNDES, as the Brazilian state-bank is known, said the $243 million loan, made to Ecuador through Hidropastaza SA, was legal, the bank said in an e-mailed statement. When signed in 2000 it was approved by Ecuador’s congress and central bank and reviewed favorably by the country’s Attorney General.

The Rio de Janeiro-based bank also said that under international treaties the loan is “irrevocable” and non- payment will put Ecuador’s central bank in default with all central banks that are members of the Latin American Integration Association.

Mr Morales announced on Monday that his government was taking the country's gas industry into state hands.

The decision has cautioned consternation in Brazil and Argentina, whose energy firms - such as state-owned Petrobras - have major stakes in the Bolivian gas sector.

Petrobras boss Jose Sergio said the Bolivian move, which reduces foreign firms' production stakes to 18%, meant there would no longer be sufficient returns to justify increased investment.

As a result, he said the company was now looking towards imports of liquefied natural gas (LNG) from other countries to feed growing domestic Brazilian demand.

Brazil is currently Bolivia's biggest gas buyer.