Ecuador Contests $243 Million Brazilian Loan -- Brazil Recalls Ambassador

LAHT, Nov 23, 2008

President Correa is challenging Quito's obligation to repay loan from Brazil government's BNDES that underwrote construction of the San Francisco dam.

SAO PAULO -- Brazil recalled its ambassador in Quito after Ecuador said it would seek arbitration of a debt to Brazilian state-owned development bank BNDES, Foreign Minister Celso Amorim said here Friday.

"Everyone knows what that means," the minister said when reporters asked him for details.

Amorim, who is in Sao Paulo for a conference on biofuels, said that Ecuador's decision to contest the debt would lead Brazil to reconsider various joint projects with Quito.

"The Brazilian government received with much concern the news of the Ecuadorian government's decision to initiate an arbitration before the International Court of Arbitration of the International Chamber of Commerce with an eye toward suspending repayment of the debt," Amorim's office said in a statement.

The BNDES loan helped finance the construction - by Brazilian engineering firm Odebrecht - of the problem-plagued San Francisco hydroelectric dam.

Brazil complained Friday that Ecuador announced the loan arbitration "at a public event without full consulation or notification to the Brazilian government."

"The nature and form of the measures adopted by the Ecuadorian government do not correspond to the spirit of dialogue, friendship and cooperation in the relations between Brazil and Ecuador," the Foreign Ministry statement said.

President Rafael Correa's government is challenging Quito's obligation to repay the $243 million loan from BNDES that underwrote construction of the San Francisco dam, which opened in June 2007 and has been out of commission for the past six months due to structural problems.

"BNDES will comment about the allegations made by the Ecuadorian government about the financing contract," the Brazilian Foreign Ministry said.

Accusing Odebrecht of shoddy workmanship and bad faith in the San Francisco dam fiasco, Correa expelled the giant Brazilian firm from Ecuador a few months ago.