The Economist Asia - 03.02.2018

38 The Americas The EconomistFebruary 3rd 2018

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W

HILE Donald Trump was in Davos

last weektrying to persuade the glo-

bal plutocracy that “America First” does

not mean “America alone”, China’s for-

eign minister, Wang Yi, was promoting

globalisation, free trade and co-operation

in Latin America. For his hosts, the con-

trast was striking. Mr Trump has insulted

Mexico, El Salvador and Haiti, discour-

ages investment in the United States’

southern neighbour, and talks trade pro-

tectionism. China, in the soothing words

of Mr Wang, offers Latin America a “strat-

egy of mutual benefit and shared gain”.

He was speaking at a meeting between

China and the Confederation of Latin

American and Caribbean States (CELAC),

a talking shop comprising all the region’s

33 countries. Contrary to some reports,

China did not formally invite Latin Amer-

ica to join the Belt and Road Initiative that

is the cornerstone of President Xi Jin-

ping’s foreign policy and features big in-

vestments in infrastructure in Eurasia and

Africa. But it came close, calling Latin

America a “natural extension” and “indis-

pensable participant” in the scheme. La-

bels apart, China is already investing in

infrastructure in Latin America.

The meeting marked the maturing of a

relationship that has developed preco-

ciously in this century. Total annual trade

between China and Latin America shot

up from almost nothing to more than

$200bn by 2014. After stalling for the next

two years, Latin America’s exports to Chi-

na increased by around 30% last year, ac-

cording to the Inter-American Develop-

ment Bank (IDB), mainly because of an

increase in the price of South American

oil, minerals and other commodities. Chi-

na is the largest trading partner of Chile

and Peru, and nearly so of Brazil.

The biggest changes are in Chinese in-

vestment and lending. Until recently,

these focused on oil, mining and Venezue-

la. Now they are centred on Brazil and Ar-

gentina, and are in more sectors. Chinese

companiessplashed out at least $21bn on

Brazilian deals last year, including the pur-

chase of power plants, an electricity dis-

tributor and ports. China is financing a mo-

torway to Buenaventura, a port on

Colombia’s Pacific coast, and upgrading a

railway to Argentina’s north-west. Accord-

ing to Margaret Myers of the Inter-Ameri-

can Dialogue, a think-tank in Washington,

Chinese loans to Latin America totalled

$9bn last year. That is barely half the

amount that China lent in 2015 and 2016.

The main explanation for the decline is

that there was no new money for Venezue-

la, and only one oil-backed loan.

From Latin America’s viewpoint, the re-

lationship is “really about the money”,

says Oliver Stuenkel, who teaches interna-

tional relations at Fundação Getulio Var-

gas, a university in São Paulo. That is espe-

cially so in Brazil, which is recovering from

a deep recession. A few Latin Americans

worry that Chinese imports are deindus-

trialising the region and fear economic de-

pendence. But there is little thinking about

the geopolitical implications of the rela-

tionship, says Mr Stuenkel.

These are considerable, and the Chi-

nese are more attentive to them. If Pana-

ma is the only country in the region to

have signed a belt-and-road agreement,

that may be because China is aware that

signing up more countries “would create

a strong reaction” in the United States,

thinks Ms Myers.

China’s interest in Latin America is not

matched byother big powers. The Trump

administration has no clear strategy, al-

though Rex Tillerson, the secretary of

state, plans to visit five countries in the re-

gion starting on February 1st. The Euro-

pean Union (EU) remains the largest sin-

gle source of foreign investment. But the

conclusion of a long-awaited trade agree-

ment with Mercosur, which includes Bra-

zil and Argentina, has so far been thwart-

ed by the desire of France and other

countries to protect their uncompetitive

farmers. “The EUhasn’t worked out clear-

ly what it wants of Latin America,” con-

cludes a new report by the Elcano Insti-

tute, a think-tank in Madrid.

The same applies to Latin America in

its embrace of China. This brings un-

doubted benefits. Apart from money, Lat-

in American governments like—and take

at face value—China’s stance on global go-

vernance and climate change. But the re-

gion is entering into a political entangle-

ment with an external power that has no

interest in democracy. In a few years, if

China has a military confrontation in the

South China Sea, for example, some Latin

American countries might feel obliged to

back their new patron. “China is not yet

calling the shots in Latin America,” says

Mr Stuenkel. “But its influence is growing

by the day.” Latin America should be

wary of the conditions that may come

with China’s offer of “shared gain”.

Bello The friendly dragon

China is taking advantage of a growing great-power vacuum in Latin America

gay-marriage opinion his main campaign

issue. That makes him the front-runner. His

supporters “want to give the finger to the

system”, as well as to gay marriage, says a

bewildered veteran politician. In fourth

place is Juan Diego Castro, a Trumpian can-

didate who claims that “traditional” par-

ties are buying addicts’ votes with drugs

and cash. Mr Castro has zeroed in on real

problems, such as expensive electricity,

burdensome bureaucracy and corruption.

But his answers are facile. His “very easy”

solution to overcrowding in prisons is to

force inmates to build more of them.

The strongest hope for avoiding a lurch

towards looniness lies with Antonio Álva-

rez, the nominee of the Party of National

Liberation, the other establishment party.

He portrays himself as the heir of Óscar

Arias, a president of the 1980s and early

2000s who won a Nobel peace prize for

helping to end civil wars in other Central

American countries. But voters are less im-

pressed with such pedigrees than they

would once have been. Mr Álvarez is run-

ning second in the polls, with the support

of 10-15% of the electorate. Carlos Alvarado

(no relation to Fabricio), a confidant of the

current president, is justbehind him.

The mainstream candidates have more

to say than the outsiders about the most

pressing problem, the budget deficit,

which was 6% ofGDPlast year. Spending

on government salaries, pushed up by pay

rises and more hiring, consumes 48% of

revenues, more than in anyOECD country.

The next president will have to cut back.

Mr Álvarez promises to reform public sala-

ries and to introduce a value-added tax.

If one of the establishment candidates

makes it to the second round, he will prob-

ably beat either the pulpit-thumping Fabri-

cio Alvarado or the Trumpesque Mr Cas-

tro. That is the best chance to keep Costa

Rica Iowa-like. 7