US cannot take Latin America for granted

By Time of article published Jun 11, 2013

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The administration of President Barack Obama and US media have made much ado about the US “pivot” to Asia. What has largely escaped their attention, however, is that China has been lining up economic allies in the erstwhile “backyard” of the US.

Well, just as serious competition ought to awaken one’s creative juices in business, it is time for the US to step up a suitable economic policy for Latin America before it is too late. The difference in approaches by the US and China were brought into focus last week when US Vice-President Joseph Biden and Chinese President Xi Jinping made tours of Latin America.

The US’s principal offer to its Latin American neighbours is the Trans-Pacific Partnership (TPP), which offers Latin American and Asian nations access to the US market on the basis of three conditions: they must deregulate their financial markets, adopt intellectual property provisions that give preference to US firms, and allow private US firms to directly sue governments of countries that sign up to the TPP for violating any of its conditions.

Talk about a heavily conditioned offering. So what is the Chinese approach? On his visit to the region, China’s president offered more than $5.3 billion (R53bn) in financing, with few conditions attached, to its new-found Latin American friends.

These offers will need to be confirmed, but according to press reports the Chinese have signed deals on this trip for:

n $3bn in commitments to eight Caribbean countries for infrastructure and energy;

n $1.3bn to Costa Rica in loans and lines of credit; and

n A $1bn credit line from the Export-Import Bank of China to Mexico for its state-owned oil company.

This financing comes on top of $86bn in financing already provided by China to Latin American governments since 2003.

To put it into proper perspective, consider this. Since 2003, China’s policy banks have provided more finance to Latin America than their counterparts at the World Bank, the Inter-American Development Bank and the US Export-Import Bank.

If anything ought to awaken the US from its past slumber, that comparison ought to do it. Simply put, the US and the array of largely Western-dominated international financial institutions have been outgunned by China’s financial muscle. Welcome to the brave new world!

But it’s not just a matter of sheer numbers. Unlike US trade treaties or the finance from the international institutions largely under US control, China offers its loans with few strings attached.

In a region that is understandably very sensitive to any notions of conditionality due to painful past experiences with the International Monetary Fund and the World Bank, China makes sure that its policy is not based on conditionalities. That said, the Chinese do not lack a strong commercial focus. Often, the offer requires that Chinese firms are hired to conduct the bulk of the envisioned project work.

In just a few years, China has become the number one (in the case of Brazil and Chile) or number two (for Peru and Mexico) trading partner. These are not just any countries. They are the most important economies in Latin America.

Of course, the US is still the most important economic partner for the region overall. However, it cannot continue to take the region for granted.

For too long, the US has relied on a rather imperial mechanism – just telling Latin America what it needs. Compare that with China’s approach: it offers Latin America what it wants (in the form of financing and trade from China).

When Obama took office, he and his team pledged to hit the reset button with the region and rethink its trade regime with Latin America. It has not worked out that way. So far, “reset” has essentially meant making the same old offer, but via new faces.

In addition, too much of the interaction with regional governments has been for drug interdiction purposes. Those countries rightfully do not see that as much of a growth-enhancing development approach but as a mechanism to protect the US.

It is high time for the US government to undertake a true rethink of its economic policy toward Latin America. Very soon, it may be too late.

Kevin Gallagher is a professor of international relations at Boston University and a research fellow at the Global Development and Environment Institute.

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