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16 Jun, 2013

U.S. blind to Latin America

By Kevin P. Gallagher (China Daily)

2013-06-13 – The Barack Obama administration and US media have made much ado about the “pivot” to Asia policy of Washington. What has largely escaped their attention, however, is that China has been lining up economic allies in the erstwhile “backyard” of the US.

Just as serious competition ought to awaken one’s creative juices in business, it is time the US devised a suitable economic policy for Latin America.

The difference in the approaches of the US and China to Latin America and the Caribbean became all the more evident when US Vice-President Joseph Biden and Chinese President Xi Jinping visited the region.

The US’ principal offer to its Latin American neighbors is the Trans-Pacific Partnership. The TPP offers Latin American and Asian countries access to the US market on the basis of a triple form of conditionality.

First, they must deregulate their financial markets. Second, they should adopt intellectual property provisions that give preferences to US companies. And third, they must allow private US companies 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? During his visit to Latin America and the Caribbean, President Xi offered more than $5.3 billion in financing, with few conditions attached, to its newfound Latin American friends. These offers will need to be confirmed, but according to media reports, during Xi’s trip the Chinese signed deals for $3 billion in commitments to Caribbean countries for infrastructure and energy; $1.3 billion in loans and lines of credit to Costa Rica – a $900-million loan from China Development Bank for upgrading a petroleum refinery and a $400-million line of credit from Export-Import Bank of China for road infrastructure; and a $1-billion line of credit from Export-Import Bank of China to Mexico for its state-owned oil company PEMEX.

Making available this financing comes on top of the already $86 billion in financing provided by China to Latin American governments since 2003. Granted, that the amount – large as it sounds – seems just like another number in today’s world. To put it into proper perspective, consider this: Since 2003, China’s policy banks have provided more finance to Latin American countries 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 and to change its attitude of taking Latin America essentially for granted, the above comparison ought to do it. Simply put, the US and the array of largely Western-dominated international financial institutions have been surpassed by China’s financial strength.

But it’s not just a matter of sheer numbers. Unlike American trade treaties or the finance from international financial 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 because of the painful experiences with the International Monetary Fund and the World Bank, China makes sure that its policy is not based on conditionalities. That said, China doesn’t lack a strong commercial focus. Often, it provides a tied offer – requiring that Chinese companies be hired to conduct a bulk of the envisioned project work.

What’s more, the US offer of a TPP to all of the Latin American countries in the TPP process doesn’t amount to much in the real world, for they already have trade treaties with the US that grant them access to the US market.

In just a few years, China has become the largest (in the case of Brazil and Chile) or the second-largest trading partner (of Peru and Mexico) of Latin American countries. And they aren’t just any countries. They are the most important economies in Latin America.

Of course, the US is still the most important economic partner in the region. But 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 (and the Caribbean) what it needs. Compare that with China’s approach: It offers the region what it wants (in the form of financing and trade).

When Obama entered the White House, he and his team pledged to hit the reset button on Latin America and rethink its trade regime with the region. It hasn’t worked out that way. Thus far, “reset” has essentially meant making the same old offer, but through new faces.

In addition, too much interaction with regional governments has been on such efforts as concentrating on drug interdiction purposes. These countries rightfully don’t see that as much of a growth-enhancing development approach, but rather as a foreign-based, defensive mechanism to protect the US homeland.

Given all that, it is high time for the US government to rethink its economic policy toward Latin America and the Caribbean.

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