US Policy in Latin America: What a difference a decade makes

Theodore Kahn argues that things are looking up for the United States in Latin America

anti-imperialism

Anti-imperialism: not as fun as it used to be

In a speech Wednesday to the Chicago Council on Global Affairs, presidential hopeful Jeb Bush voiced his support for a free trade area of the Americas.  Somewhere south of the border, Hugo Chávez rolled over in his grave.

It was only a decade ago, after all, that Chávez triumphantly denounced Jeb’s older brother at the Summit of the Americas in Mar del Plata Argentina. While then-President Bush held a closed-door meeting with US allies, Chávez convened a rally of tens of thousands in a nearby soccer stadium. The immediate source of their ire was the Free Trade Area of the Americas, the cornerstone of US policy in Latin America since the late 1990s.

As Chávez put it, “each one of us brought a shovel, a gravedigger’s shovel, because here in Mar del Plata is the tomb of the Free Trade Area of the Americas.”

While the younger Bush’s speech means little at this stage, his reference to a continent-wide FTA underscores a subtle truth: as 2015 begins, Uncle Sam should feel pretty good about his standing in Latin America. To see why, just think back to a decade ago.

The FTAA did in fact die out soon after Mar del Plata, and Chávez expanded his influence in the region in the following years, buttressed by rising oil revenues and a growing partnership with Lula’s Brazil. The oil wealth allowed Chávez to consolidate power at home while winning allies in the region through the PetroCaribe program that sold cut-rate oil to neighboring countries.

Chávez and Lula championed regional blocs that deliberately excluded the United States such as UNASUR and CELAC, while tying their economies closer together. Brazil’s giant construction and agribusiness firms did billions of dollars of business in Venezuela, while the countries’ state-owned oil firms undertook new partnerships.

The cost of doing business with China?

The cost of doing business with China?

Another factor pushing the US to the sidelines was China’s emergence as a major force in the region. In 2005, trade with China had already begun its rapid take-off, boosting public finances and accelerating growth throughout the region. Strong economic ties with the rising global power gave countries confidence they could prosper while shunning the policies promoted by Washington and its ilk at the World Bank and IMF.

China’s promise went well beyond a voracious appetite for the region’s commodity exports, however. In a landmark 2004 visit to the region, President Hu Jintao promised US$ 100 billion in investment over ten years. He left leaders from Patagonia to Havana dreaming of a brave new world of South-South cooperation—and too ready to turn a blind eye to the risks of growing ties with China.

With booming trans-Pacific trade, promises of a flood of Chinese investment, and ascendant anti-American governments throughout the region, the United States and its thoroughly unpopular president seemed destined to lose relevance.

A lot has changed in ten years.

For one, the appeal of Venezuela-style statism has ended along with the commodities boom. The presumptive Chávez model has proved to be nothing more than the unsustainable petro-state populism that created the conditions for his rise in the first place. To a lesser degree, Argentina and Brazil too are under pressure to adjust fiscal and monetary policies—or to seek more financing abroad.

That brings us to China, which undoubtedly exerts more influence today than it did ten years ago. Indeed, many observers still believe China holds the key to the region’s future. However, an even-handed assessment suggests its presence in the region is wrought with contradictions and weaknesses.

More than a decade after Hu promised $100 billion of investment, precious little of that money has materialized. Based on official Chinese statistics, FDI in the region has totaled a paltry $7.5 billion since 2004. It is true that Chinese financial flows have been much greater, but the vast majority of these have been loans-for-resources deals to be repaid in cut-rate oil or tied loans that require countries to hire Chinese firms or buy Chinese equipment to carry out projects.

Is the decade of obligatory dragon references in Latin America finally over?

Is the decade of obligatory dragon references in Latin America finally over?

The exact nature and size of these deals is unknown. What is clear is that they require terms that are often unfavorable for the Latin American side and—not coincidentally—have only generated interest from countries with few other options: Argentina, Ecuador, and Venezuela.

The recent experience of Argentina is instructive. Increasingly desperate for financing and investment, the government recently signed a series of deals that give Chinese firms unprecedented privileges. The Argentine Senate, in its final session of 2014, approved an agreement allowing the government to award infrastructure projects to Chinese firms without a bidding process and opening the door to an influx of Chinese labor.

Even for countries such as Chile and Peru whose relationship with China has primarily been through arms-length trade, China’s slowing economy has translated into lower prices for key exports and hurt growth.

Despite all the reason for skepticism, pipe dreams that China will underwrite the region’s development deficit persist. Optimists point to a new generation of China’s “going out” policy which will focus on opportunities for its firms to build large infrastructure projects in developing countries.

However, this has been the narrative for several years now, even as grandiose projects have been left on the drawing board—assuming they even got that far. The core problem is that China’s objectives prioritize as much control and Chinese sourcing as possible, which governments in the region generally find unpalatable.

He said Xi said: China was mum on future financing for Maduro's government

He said Xi said: China was mum on future financing for Maduro’s government

Eventually China will need to rethink its strategy in the region. Chinese authorities recently stonewalled Venezuelan President Nicolás Maduro, who came looking for fresh financing last month and left with a dubious claim of securing $20 billion in future investment projects.

The upshot of all this is the US finds itself in a stronger position in Latin America than any time since the heyday of the Washington Consensus.

This strength is not only the result of the failure of other options. For one, its solid economic performance since the Great Recession—the only developed country that can make such a boast—means that countries in the region can no longer be quite so blasé about the benefits of closer ties with the US. In Brazil, President Rousseff, faced with an anemic economy, seems to have realized that shunning the US may have paid short-term political dividends but is not the best strategy to revive growth. Subtle moves to encourage trade and investment with the US are likely to be part of Dilma’s second term.

Another critical piece of the puzzle is the Obama administration’s move to normalize relations with Cuba, which marks the beginning of the end of a lamentable policy, and removes a significant roadblock to better relations with Latin America.

Suffice to say, the 2015 Summit of the Americas in Panama City this April should offer a warmer welcome for the US president.

Theodore Kahn is a PhD candidate in International Relations at the Johns Hopkins School of Advanced International Studies and previously worked as a reporter in Argentina and Chile. Follow him on twitter: @TheoAKahn

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Se Mancha covers US foreign policy in Latin America

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