The United States and China will encourage development in Latin America – if they remain cautious

From the high peaks of Patagonia to the tropical beaches of the Dominican Republic, Latin America has long been a playground for the world’s great powers to flex their muscles. As such, a natural tendency would be to assume that the tides of today’s major geopolitical storm (the global conflict between the United States and China) will come crashing against the Pacific coast of the Americas just in time. to drag the region into a conflict it never asked for. After all, the winds of change are coming, and if US Southern Command’s record 33 mentions of the nation in a routine priorities questionnaire is any indicator, they may already be here. So given the region’s long and very tumultuous history of destructive foreign involvement, what reason is there to assume that China and the United States will give Latin America room to develop on his own terms this time around? As is always the case in geopolitics, actions speak louder than words, and this time the conduct of the great powers indicates that they are unlikely to repeat the mistakes of the past, giving way to regional misalignment. and, most importantly, sovereign and sound policies. , and measured economic development.

China, a nation that itself has fostered a few miraculous decades of economic growth while maintaining a calm and trouble-free development policy, would be the first to stress the importance of remaining peripheral until the time is right. Nonetheless, the Asian nation has become notorious for its supposedly opportunistic approach to global lending through its Belt and Road Initiative (BRI), often offering “too good to be true” deals to fund projects. in southern countries. A quick glance at the region’s recent history shows why this is particularly important for Latin America. In the mid to late 20th century, as Cold War tensions in Latin America reached a boiling point, loans from the United States and its allies to a multitude of Latin American countries reached levels totally unsustainable. As monetary policy in the United States tightened and interest rates rose again, Latin American countries were unable to weather the coming global recession. Today, the resulting default-induced economic crisis of the 1980s is dubbed Latin America’s “lost decade.” Today, despite decades of attempts to match the rampant development seen in other parts of the world, Latin America still accounts for just 5% of global GDP.

Although the merits and drawbacks of China’s initiative are unresolved and Latin America is only just beginning its involvement in the BRI, situations such as the one currently unfolding in Sri Lanka show how the flaws payment of sovereign debt in the developing world are often followed by economic and political crises. . As the world’s biggest creditors attempt to stave off recession by raising interest rates and the parallel between the Latin American debt crisis of the 1980s and the current environment becomes increasingly evident , this danger is particularly important. For this reason, the current trend of US and Chinese lending to Latin America is encouraging.

less is more

Between 2005 and 2020, the China Export-Import Bank and China Development Bank lent about US$138 billion to Latin America and the Caribbean. Despite this figure, state-to-state funding from Beijing to Latin American countries has been declining for several years now. Instead, China’s major political banks have shifted their approach to enabling Chinese influence through more lending to Chinese companies investing in the region, easing some of the burden on government balance sheets. This trend is applied throughout the region, regardless of the state of China’s political relations with recipient countries. Even Beijing’s staunchest supporters in the region (Brazil, Argentina and Venezuela) have seen their direct funding dwindle in favor of increased lending to Chinese companies. Alternatively, dollar-denominated debt in emerging markets has shrunk globally and now represents just 17% of public debt in major Latin American economies. Although the motivations for this change in attitude are unclear, the change reduces the likelihood of a Latin American loan war aimed at gaining influence, thereby reducing the risk of heavy debt accumulation in the poorest countries in the region.

Yet Latin America’s massive and potentially unhealthy trade dependence on Beijing may have been behind China’s more laid-back approach. Since 2010, Latin American trade with China has more than doubled to $450 billion, and the Asian nation is now South America’s biggest trading partner. This trading partnership mainly consists of Latin America providing natural resources such as iron ore and soybeans and China providing manufactured consumer goods. While this trading partnership may seem benign now (accurately, perhaps), the large and growing amount of trade with China as a percentage of total trade is concerning. By 2035, the World Economic Forum estimates that Chinese trade participation in Latin America could account for 25% of the entire region’s trade and more than 40% of exports from Chile, Brazil and Peru alone. Amid uncertainty over the Asian nation’s ‘zero-covid’ policy and its own resulting housing debt crisis, China’s gargantuan role in Latin American trade should rightly be the subject of of careful examination.

On the other side of the Pacific, Washington is doing everything possible to ensure that its political growth in China is also conducive to Latin America. In early June at the Summit of the Americas, the Biden administration stressed that by excluding the undemocratic regimes of Cuba, Nicaragua and Venezuela from participation, it would not compromise its values ​​for a head start in global competition. . After decades of brutal US intervention in the region, from backing Brazil’s mid-century military dictatorship to Nicaragua’s ruthless Contras, the message that this administration will not repeat the mistakes of past leaders is resounding. In anticipation of the upcoming potentially contested elections in Brazil and Argentina’s potential inclusion in the BRICS group, the timing of this de-escalation is crucial.

A natural progression

Without foreign pressure, governments in Latin America have moved almost unwaveringly towards democratization. In the two decades since the end of the Cold War and the depressurization of relations in Latin America, it has become the region with the largest proportion of democratically elected governments outside of Europe and North America. . Although China engages much more closely with undemocratic regimes in the region than the United States, it has no problem doing business with other democratic nations and as such acts in a non-intrusive with many governments in the region. For the future of the region, this hands-off approach to diplomatic relations will be essential if it is to break the status quo of stagnant economic growth. Indeed, history shows that the level of foreign intervention and the strength of government institutions in developing countries are often much better predictors of future success than their style of government. As a result, there is immense precedent for the benefits of authoritarian consolidations of power in countries seeking rapid economic development. Success of the peripheral development of Latin America, Chile sowed the seeds of its future dynamism under the authoritarian direction of Augusto Pinochet. During the last years of this period, thanks to a group of neoliberal economists trained by Milton Friedman dubbed the “Chicago Boys”, the Chilean economy paved the way for its remarkable post-Pinochet growth. Today, it is the only middle-income country in the region. More broadly, this trend is not unique to Latin America or China. South Korea under Park Chung-hee and Singapore under Lee Kuan Yew both achieved marvelous feats of development under undemocratic regimes that place them today as economic leaders in Asia. Clearly, institutional strength and calculated diplomacy are key determinants of successful economic development.

Around the world, economic development is complicated and requires a skillful combination of strong governance and a well-planned economy. Ultimately, while foreign powers can provide assistance, remove barriers, and support emerging economies in other ways, inflection points must come from within a nation’s borders. In Latin America, problems of endemic corruption and economic inequality must be addressed before meaningful progress can be made, and future successes will be catalyzed by the actions of regional leaders rather than those from abroad. However, after decades of internal conflicts, unsuccessful economic restructurings and a seemingly inevitable involvement in world conflicts, Latin America seems to be turning the page, finally able to usher in a new era of development to break its vicious circle.

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