U.S.-Latin America: Lack of Vision from Washington Didn’t Start with Trump

By Thomas Andrew O’Keefe*

A group of representatives from Latin America and China stand in a group

The Community of Latin American and Caribbean States (CELAC) hosted representatives from China in late January 2018. / Cancillería del Ecuador / Flickr / Creative Commons

U.S. leadership in the hemisphere has declined significantly over the past two decades – manifested in Washington’s inability to implement a comprehensive environmental and energy strategy for the Americas; conclude a hemispheric trade accord; revitalize the inter-American system; and stem the rising tide of Chinese influence.  In a recently published book, I argue that Washington under Presidents George W. Bush (2001-2009), Barack Obama (2009-2017), and now Donald Trump has lacked vision in Latin America and the Caribbean, and has allowed a narrow security agenda to dominate.  The most noteworthy accomplishment – the assertion of central government control in Colombia – was largely bankrolled by the Colombians themselves who also devised most of the strategy to achieve that goal.

  • President Obama’s rhetoric was the loftiest, and his opening to Cuba in 2014 changed regional perceptions of Washington. But he got off to a slow start, entering office when the United States was engulfed in the worst economic crisis since the Great Depression.  His ability to devise a bold new policy for the Western Hemisphere was further stymied by an intransigent Republican majority in both the Senate and House of Representatives after the 2010 mid-term legislative elections.

Washington’s inability or unwillingness to act is most obvious in four key areas.

  • The Energy and Climate Partnership of the Americas (ECPA) represented an opportunity for leadership on environmental issues. The United States proposed many ECPA initiatives but did not fund them, expecting the private sector or other governments to step up to the plate – which failed to happen in any significant manner.  Failure to ratify the Kyoto Protocol or enact meaningful national climate change legislation also undermined its moral authority on the issue.  Carbon offset programs would have provided an important boost to ECPA.
  • Although the United States played a predominant role in devising the parameters for a Free Trade Area of the Americas, its own positions caused it to fail. It refused to give up the options to re-impose tariffs in response to alleged dumping even if there were alternative means (such as competition policy) to redress the impact of unfair trade practices.  Washington kept discussion of the highly distortive impact of its agricultural subsidies out of the talks.  As a result, the United States was unable to offer meaningful concessions.
  • The Organization of American States (OAS) has also been a victim of U.S. neglect. Washington has pulled back from exerting leadership and, on occasion, has delayed payments of its dues.  The most effective component of the inter-American system relates to the promotion and protection of human rights, but the U.S. Senate has never ratified the American Convention on Human Rights.  The United States also rejects the binding character of decisions from the Inter-American Commission on Human Rights, opening the way for governments with deplorable human rights records to question its work.  Latin American and Caribbean governments have also shown enthusiasm for forming alternative institutions to the OAS, such as the Community of Latin American and Caribbean States (CELAC), which purposefully exclude the United States.
  • China is now the largest trading partner for many South American nations, and it could conceivably replace Washington’s influence and leadership in at least some areas, including models for economic and political reform. The boom in South American commodity exports to China allowed governments to build up their reserves, pay off debts, and liberate themselves from dependence on multilateral lending agencies centered on Washington.  Chinese banks now contribute more money, on an annual basis, to economic development projects in Latin America and the Caribbean than do traditional lenders such as the World Bank and the Inter-American Development Bank.  Moreover, this lending comes free of the conditionalities often attached to capital provided by Washington based multilateral institutions.  China’s role in building ports and telecommunication systems gives it an intelligence advantage, and arms sales have given China military influence as well.

While broad policies and political commitment behind them have been lacking, Washington has run a number of security programs in the region.  This focus, however, has often turned out to be problematic.  The Mérida Initiative, the Central American Regional Security Initiative (CARSI), and the Caribbean Basin Security Initiative (CBSI) did not resolve the myriad root causes of the drug trade and escalating violence in the beneficiary countries.  They were myopically fixated on a narrow, short-term security agenda with precarious and uncertain funding streams.  While Pathways to Prosperity and 100,000 Strong in the Americas exemplify American liberal idealism at its best, the lack of an overarching sense of purpose and political consensus behind them have led to both being woefully underfunded.  A vision for the Americas doesn’t guarantee Washington will have positive influence, but the lack of one will indeed prolong its decline.

March 16, 2018

*Thomas Andrew O’Keefe is the President of Mercosur Consulting Group, Ltd.  This article is based on his new book, Bush II, Obama, and the Decline of U.S. Hegemony in the Western Hemisphere (Routledge, 2018).

China, Latin America, and the New Globalization

By Andrés Serbin*

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Chinese President Xi Jinping received a medal of honor from the Peruvian Congress during his tour of South America last month, which included the Asian-Pacific Economic Cooperation summit in Lima. / Ministerio de Relaciones Exteriores, Peru / Flickr / Creative Commons

In Latin America and elsewhere, the world is undergoing tectonic movements that indicate the birth of a new world order with new rules of play.  For much of the past decade, dynamism in world commerce and finance has been shifting from the Atlantic basin to the Pacific.  While the international economy has shown fragility and the developed economies – particularly the European Union and the United States – have shown slow growth since the crisis of 2008, China and the emerging economies of the Asian-Pacific region have experienced sustained growth.  China, now the second biggest economy in the world, has been the driver of that growth and, according to most projections, is poised to overtake the United States as the biggest.  After several centuries in which power has been concentrated in the West, the emergence of new powers in a multi-polar world will naturally bring about changes in the norms and rules governing the international agenda.

In Latin America and other regions, there is growing awareness of this process – with China and its own version of globalization at its center.  The region has witnessed the paralysis of the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the United States as well as U.S. President-elect Donald Trump’s declaration that he will withdraw the United States from the Trans-Pacific Partnership (TPP) as part of a broader anti-globalization policy.  Trump’s announcement drew two different reactions from participants from TPP country leaders at the Asian-Pacific Economic Cooperation summit in Lima late last month.  One was the express decision to proceed with TPP even without the United States, and the other was a clear receptivity to Chinese President Xi Jinping’s invitation that they join regional economic groups that he is pushing – the Regional Comprehensive Economic Partnership (RCEP) and the Free Trade Area of the Asia-Pacific (FTAAP).

  • Both agreements explicitly exclude the United States and abandon norms customarily pushed in free trade by the West. They emphasize reducing tariffs and give no consideration to labor and environmental regulations and non-tariff measures.
  • They complement China’s “one belt, one road” initiative, a modern-day revitalization of the Silk Road creating trade links between China’s western regions with Russia, Central Asia, and eventually to Europe, developing land and maritime routes along the way. The Shanghai Cooperation Organization (SCO) – an economic and security pact linking China, Russia, four Central Asian nations, and now welcoming India and Pakistan – is explicitly linked to RCEP.

Washington’s pending rejection of TPP eliminates a central part of President Obama’s “pivot” strategy to counter China’s rapidly expanding influence in Southeast Asia and the South China Sea, but it also has implications for Latin America and the Caribbean as China moves in rapidly to fill the void left by U.S. withdrawal.  While President-elect Trump has pledged to “renegotiate” NAFTA – which he called “probably the worst trade deal ever agreed to in the history of the world” – China last month presented to Latin America a detailed document proposing a new era in relations with “comprehensive cooperation” in all areas and reaffirming a “strategic association” with the region.  In sharp contrast with the new U.S. President’s views of Latin America, Beijing calls Latin America and the Caribbean “a land full of vitality and hope,” praises the region’s “major role in safeguarding world peace and development,” and calls it “a rising force in the global landscape.”  While some analysts suggest that globalization is slowing if not ending, these developments more strongly indicate that it is rather taking on a new form within a new world order that clashes with the visions and values of the West.  We appear to be transitioning into a world that is genuinely multi-polar with globalization under new rules.

December 13, 2016

* Andrés Serbin is the president of the Coordinadora Regional de Investigaciones Económicas y Sociales (CRIES), a Latin American think tank.  This article is adapted from an essay in Perfil, based in Buenos Aires.

What Comes After TPP?

By Fulton Armstrong and Eric Hershberg

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President Barack Obama and President Pedro Pablo Kuczynsky at the APEC 2016 summit / Ministerio de Relaciones Exteriores – Peru / Flickr / Creative Commons

The Obama administration’s failure to win U.S. approval for the Trans-Pacific Partnership is a disappointment for Latin American countries on the Pacific Rim – and such a big opportunity for China to expand its influence that President-elect Donald Trump, despite his theatrical pledge to withdraw from it, might eventually consider rescuing the accord. The Asia-Pacific Economic Cooperation (APEC) summit in Lima last weekend was the last chance for Latin American leaders to say goodbye in person to President Obama and to mourn the passing – for at least the short term – of his TPP-centered vision for trans-Pacific trade.  In a meeting with leaders of the 11 other TPP countries, Obama tried hard to convince them of “the United States’ continued strong support for trade” despite growing evidence to the contrary.  Both U.S. President-elect Donald Trump and Hillary Clinton, who was Obama’s Secretary of State for four years, firmly and repeatedly stated opposition to TPP.  The White House continued efforts all the way up to election day (November 8) to persuade the U.S. Senate to approve the deal in a lame-duck session, but the Republican leaders – like Clinton champions of free trade until it became a 2016 campaign issue — slammed the door on it.

With the collapse of TPP, several Asian countries have already signaled a willingness to sign on with China’s own free trade initiative, the Regional Comprehensive Economic Partnership (RCEP) – which Latin America is not yet part of. Malaysian Prime Minister Najib Razak, angry with the United States over trade and other issues, threw his lot with China during a visit to Beijing last month.  (The Philippines, which has also moved aggressively to ally itself with China in recent months, is not in TPP.)  Japanese Prime Minister Shinzo Abe met with Trump last week and said his country “could have great confidence” in the President-elect, but he has nonetheless warned his parliament that RCEP will prevail.

  • Latin Americans are also slowly but surely gravitating toward China as trans-Pacific leader in trade. Just days before the Lima summit, Peruvian Foreign Minister Eduardo Ferreyros announced that, while Lima still hoped TPP would become reality, his government has begun talks with China over accession to RCEP. His Chilean counterpart, Heraldo Muñoz, last Friday also expressed preference for TPP but told the Wall Street Journal that his country was leaning toward joining RCEP. Chinese President Xi Jinping, in Lima for the summit, was also making stops in Ecuador and Chile. (He’s visited Mexico, Argentina, Brazil and Venezuela on previous trips.) In an op-ed in Peru’s El Comercio just before the summit, Xi said, “United by the same dream, there isn’t a more timely moment for the deepening of our multidimensional cooperation.”

The APEC forum may have been trying to counter Trump and others’ criticism of the lopsided impact of global trade by issuing a statement – titled “Quality Growth and Human Development” – emphasizing the benefit of global trade to all citizens in all countries. It was certainly in this spirit that the host of summit, Peruvian President Pedro Pablo Kuczynski, warned that proponents of trade barriers would do well to revisit the history of the 1930s, singling out for unusually sharp criticism the stance taken by the U.S. President-elect.  On its face, Trump’s campaign rhetoric suggests TPP is totally dead; he’s many times called it a “disaster” being “pushed by special interests who want to rape our country.”  Free-traders found a glimmer of hope in an organizational chart reportedly leaked by the Trump transition team last week that listed a former lobbyist from the U.S. Chamber of Commerce, which has strongly supported TPP, as head of his “trade reform” team.   Yet if the new U.S. Administration is going to reengage on TPP, the primary reason would probably be to undercut China’s RCEP initiative.  Much of the U.S. foreign policy establishment of both parties believes fervently that the impact of U.S. disengagement with the Pacific Rim would be harmful to U.S. global and hemispheric leadership.  Should those concerns sway the incoming President, he could opt to set aside his caustic rhetoric on TPP, negotiate face-saving adjustments to the accord, and instead focus his tough talk on China. TPP’s flaws may ultimately appear minor and manageable compared to the competing scenario of Latin American governments seeking commercial prosperity through a Chinese-led Pacific economic bloc. That is certainly the hope of most Pacific Rim governments across Latin America, whose alarm at developments in the U.S. already has them eying alternatives across the pond.

November 22, 2016

Nicaragua: Where’s the Canal?

By Fulton Armstrong

Canal Nicaragua

Coming soon to Nicaragua? Photo Credit: tryangulation / Flickr / Creative Commons

The Nicaraguan government and Chinese investment group leading the Nicaragua Grand Canal project continue to claim enthusiasm for their dream, but enough fundamental problems remain unresolved to suggest that prospects for its eventual construction are dimming – and the principals are maneuvering to avoid picking up the tab for the expenditures made so far.  In a year-end statement last December, President Ortega’s office said the canal project would be one of his government’s top 25 priorities this year and emphasized its benefits to the Nicaraguan people.  Hong Kong-based HKND Group had announced in November that it was “fine-tuning” the canal design to address problems raised in an environmental impact study, which would delay the beginning of major excavations and lock-building until the end of 2016.  Company officials have since said, however, that construction of a fuel terminal and wharf on the Pacific coast –necessary to bring in the massive equipment the project requires – could start as early as this August.  The company still claims that it will complete the canal in 2020 – a prediction that few, if any, outside experts see as feasible.

The project faces massive obstacles, with no solutions in sight.

  • The estimated US$50 billion in financing is nowhere to be seen. Chinese investor Wang Jing, who has already spent US$500 million of his own money on the project, lost some 85 percent of his US$10 billion personal fortune in last year’s Chinese stock market correction.  (Bloomberg named him the worst performing billionaire of 2015.)  Observers believe his losses as well as the problematic environmental impact study have cooled his and other private investors’ support.  An initial public offering of shares has been postponed indefinitely.
  • Project managers have yet to demonstrate the need for the canal and propose solutions to significant engineering challenges, such the need for construction able to withstand earthquakes made likely because of seismic faults along the route. HKND says the canal will handle 3,500 cargo ships a year, including ones bigger than those transiting the Panama Canal, but industry experts say there’s no demand for more than will be accommodated by the expansion of the existing canal – and that the United States has no ports capable of receiving the larger vessels.  Global warming, moreover, could soon open a faster and cheaper route north of Canada.
  • Public protests have diminished during the hiatus in canal-related news and activities, but opponents remain strident and are gaining international support. Detractors’ resolve to fight has been strengthened by the environmental report, by a credible UK firm, determining that the project will “have significant environmental and social impacts,” including dislocation of at least 30,000 Nicaraguans.  Indigenous and Afro-Nicaraguan groups on the Atlantic Coast are upset about disruptions to traditional territories, including cemeteries and holy places.  Amnesty International has condemned the treatment of affected persons as “outrageous” and “reckless.”

The “biggest earth-moving project in history” is still looking like one of the biggest boondoggles in history – yet another in a long series of chimera canals in Nicaragua since early last century.  The government says that popular support for the project remains about 81 percent, but a survey by Cid Gallup, published in the Nicaraguan newspaper Confidencial in January, showed that 34 percent of 1,000-plus respondents consider the canal to be “pure propaganda.”  One quarter believe technical studies have been inadequate and that funding will not materialize.  Those sentiments could be reversed somewhat by the appearance of massive excavation equipment and creation of related construction jobs, but support will still be tempered by concerns about persons whose lives are disrupted by the project – and by perennial and profound suspicions that corruption will take the lion’s share of benefits.  Some opposition leaders believe HKND’s big push to appear optimistic is to build a case for collapse of the project to be Nicaragua’s fault, so that the company can demand that Managua repay the $500 million that Wang has reportedly spent.  The lack of transparency surrounding the project only fuels such speculation. 

April 4, 2016

Trans-Pacific Partnership: A Political Step Forward

By Fulton Armstrong

In more than 10 cities across the U.S. activists will use guerrilla light projection to illuminate monuments and building facades with slogans like “Don't Let Comcast Choke Your Freedom,” “No Slow Lanes, Open & Equal Internet For All,” and “TPP Dismantles Democracy.

In more than 10 cities across the U.S. activists used guerrilla light projection to illuminate monuments and building facades with slogans like “Don’t Let Comcast Choke Your Freedom,” “No Slow Lanes, Open & Equal Internet For All,” and “TPP Dismantles Democracy.” Photo Credit: Backbone Campaign / Flickr / Creative Commons

The chairmen of key U.S. Congressional committees agreed on legislation allowing President Obama to negotiate a Trans-Pacific Partnership (TPP) trade accord, but major political and substantive obstacles to an agreement remain. The leaders of the Senate and House tax-writing committees announced the move, with the key Democratic senator involved claiming that the Obama Administration had addressed his deep concerns about the secrecy of the talks. If passed, their bill would give the President “fast-track” trade authority – power to negotiate an accord that the Senate would eventually vote on but without the power to amend it, which would significantly increase chances of passage. Obama’s advisors have called TPP the “cornerstone” of his Asia policy, and the President said last week that it would help “make sure that we, and not countries like China, are writing the rules for the global economy.” Supporters estimate that TPP would stimulate growth by eliminating tariffs and non-tariff barriers affecting $2 trillion of goods and services (about one-third of global trade) each year among its 12 members.*

Opposition in the U.S. Congress and elsewhere remains intense, however. The Senate Democratic whip, charged with tallying support and opposition, stated that only one-quarter of Senate Democrats support the measure – and those opponents have made clear their concerns about the implications for U.S. workers and consumers. Although tariffs are on the table, most observers say the focus of the negotiations is on “harmonizing” regulations, which big multinational corporations – which have access to the talks that citizens’ groups lack – systematically seek to eliminate. Pharmaceutical companies, for example, are pushing hard for extending patents and trademarks so that cheaper generic medications cannot be sold. Critics say revisions to copyright and trademark provisions would also have implications for public information and the internet. Industry is seeking to roll back environmental protections in place since the early 1970s. The negotiations have been secret, but a leaked chapter of the draft agreement revealed that companies were gaining the right to sue governments if any regulatory action ever caused their profits to fall short of target – a massive burden on budgets.

The lack of transparency, which the leading Senate Democrat claims has been addressed, may have stoked opponents’ concerns. But the differences between U.S. backers and opponents appear significant and unlikely to fade without some serious political horse-trading, which the Obama Administration has been unwilling to do. In his statement last week, Obama admitted that “it’s no secret that past trade deals haven’t always lived up to their promise” – particularly regarding job creation – but neither he nor the Congressional chairmen have provided hard data showing that dismantling a host of regulations to accommodate corporate agendas will help consumers and un- or under-employed U.S. workers. If history is any guide, the Latin American signatories – Mexico, Chile and Peru – may see a favorable impact regarding employment in certain sectors, and others may see it as the only game in trade right now and thus worth trying to join, but Washington’s vision of TPP as primarily an Asia policy – to counter Chinese influence – suggests that they too see the advantages of participation accruing across the Pacific rather than to the north.

* Currently envisioned as members are the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam: Korea last week expressed interest in joining the talks, but the United States told it to wait. Colombia is interested, and Panama and Costa Rica seek membership in the “Pacific Alliance,” which is related to TPP.

April 20, 2015

Nicaragua’s “Great Canal” Draws Opposition

By Fulton Armstrong

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Protestors opposing the Chinese-Nicaraguan canal confront police / Jorge Mejía Peralta / Flickr / Creative Commons

Although questions continue to swirl around whether the Chinese-Nicaraguan canal – which its main investor called the “most important [project] in the history of humanity” – will be built or not, its opponents are taking it all very seriously.  A CID-Gallup poll in January showed that 41 percent of Nicaraguans interviewed strongly support the project, while another 21 percent and 17 percent back it somewhat and a little, respectively.  But another poll by the same firm suggested ambivalence:  asked if they supported the National Assembly vote giving the Chinese firm leading the project, HKND, a concession for the 278-km right of way for up to 100 years, some 39 percent of respondents said no.  Some political voices are growing more sharply opposed as well.  The powerful business group COSEP, for example, has gone from agnosticism about the project to a position of open disapproval.

Groups concerned about the project’s impact on the environment and rural residents have already held protests involving up to several thousand participants, and – despite the government’s promise that the canal will bring prosperity throughout the country – organizing efforts appear unlikely to fade.  Skepticism about HKND and the government’s commitment to protecting the environment, fueled by their off-the-cuff dismissal of concerns, is so deep that even a balanced comprehensive impact study by the British Environmental Resources Management, due next month, may fail to calm nerves.  Environmentalists cite studies warning that dredging Lake Nicaragua from its current depth of nine meters to the 27 meters necessary for cargo ships will stir up many layers of toxic materials, with catastrophic consequences for marine life and surrounding agricultural areas.  Other groups are rallying behind the 29,000 residents who are to be evicted from properties along the canal route.  Demonstrations have turned violent, with protestors injured by tear gas and rubber bullets.  Graffiti and banners demanding “fuera chinos” are common.

In the hemisphere’s second poorest country, the promise of growth spurred by the $40-50 billion project is still a powerful card in the government’s hand.  Many skeptics still wonder, however, if the whole scheme is a ruse to fleece the Chinese investors, who’ll bring in a couple billion dollars before realizing that the project will get bogged down in Nicaraguan political quicksand.  But opposition to the canal goes far beyond the usual Managua political game of fighting over corruption dollars and obstructing each other’s priorities.  President Ortega’s endorsement of the canal contradicts his own statements years ago that he wouldn’t compromise the lake’s eco-system “for all the gold in the world.”  According to The Guardian newspaper, the dredging will move enough silt to bury the entire island of Manhattan up to the 21st floor of the Empire State Building – which no one is prepared to deny will have serious environmental implications.  China’s Three Gorges Dam, completed five years ago, displaced 1.2 million inhabitants – proportionally twice as many Nicaraguans displaced by the canal – but Nicaragua’s ability to resettle them, give them jobs, and suppress their dissent is small compared to China’s.  The project may not be the greatest in the history of mankind as HKND claims, but it may provoke a crisis as great as any in Nicaragua.  For starters, if COSEP’s opposition persists, it threatens to unravel the modus vivendi under which Daniel Ortega has stayed in power, and could portend much deeper tensions.

March 5, 2015

Click here to see our previous article about the canal.

Panama: A Central American Singapore?

By Tom Long*

Singapore (left) and Panama City (right) / William Cho and Jim Nix / Flickr / Creative Commons

Singapore (left) and Panama City (right) / William Cho and Jim Nix / Flickr / Creative Commons

As a transportation hub, logistics center, and regional financial player, Panama has long been painted by investment bankers and Panamanian politicians as a potential “Singapore of Latin America,” but that vision still seems a way off.  In some respects, Panama’s story has been quite impressive.  For a decade, it has boasted GDP growth far beyond the regional average, even surpassing 10 percent in some recent years.  Unlike many of its neighbors, its dollar-based economy relies on services, not exports of commodities or low-value-added light manufacturing.  Since the 1989-1990 U.S. invasion to unseat General Manuel Noriega, the total size of the Panamanian economy has quadrupled in constant dollars.  It is also different from Singapore in important ways.  Singapore’s approach to planning and public housing might be helpful in Panama City, which has suffered traffic, environmental degradation, and inadequate housing for the poor as a consequence of poorly planned growth.

In other important ways, however, the Panama-Singapore comparison is less apt.

  • Singapore is a city, with nearly two million more people than Panama has spread across 100 times the landmass. Urban-rural divides are wide in Panama, with poor delivery of health and education services outside the cities, exacerbating inequality.  A Singapore-style strategy in Panama would leave the countryside behind – and indigenous and Afro-Caribbean populations would benefit much less.
  • Differences between the two countries in governance – for better and worse – are profound. The Panamanian people are much freer under the country’s democracy than they would be under a single-party-dominated system like Singapore’s.  In other ways, though, Panama’s governance leaves much to be desired.  Corruption is a massive problem, and watchdog groups highlight weakness in the rule of law, judicial independence, and press freedom.  Projects to expand the Panama Canal and build a capital city subway are over budget and behind schedule, and have suffered from strikes, contract disputes, and questionable bidding practices.  While it may seem easy to blame the corruption on former President Martinelli, who faces criminal charges, the problem has much deeper roots.
  • The two countries have very different policies toward education. Singapore invested, and continues to invest, heavily in world-class universities.  Panama lacks these, weakening its ability to compete globally in industries where innovation is key.  While Panama’s primary education has improved, its research and development lags.
  • A final difference is where the countries find themselves in their political and economic evolution. Singapore became independent 50 years ago, but it has been only a quarter century since Panama ended its kleptocratic, military rule.  It has been just 15 since the United States officially turned control of the canal over to Panamanian authorities.  The roots of its problems cannot be easily or quickly extirpated.

Panama’s boosters often use the comparison to highlight the areas in which Panama excels – economic growth, unique geography, and infrastructure crucial to global shipping and air transit.  The comparison might be more helpful in highlighting areas where Panama needs to improve.  These include dedicating resources to higher education and R&D, addressing inequality, rooting out corruption, and enhancing political and bureaucratic accountability.  Singaporean scholar Alan Chong argues that Singapore’s attempt to present itself as a model, global city is in part a foreign policy strategy of “virtual enlargement.”  The city-state’s wealth, reputation, and active role in international organizations allow it to “punch above its weight” in Southeast Asia and beyond.  Some chapters of Panama’s recent economic story might be the envy of neighbors with their own canal dreams, but the country will need to focus on governance and accountability if even its logistics-hub strategy is in fact going to deliver shared welfare at home and enhanced influence abroad – let alone become a Latin American equivalent of an Asian Tiger.

March 2, 2015

* Dr. Long is a visiting professor in International Relations at the Centro de Investigación y Docencia Económicas in Mexico City.  He is the author of Latin America Confronts the United States: Asymmetry and Influence, which is forthcoming with Cambridge University Press.

Nicaragua’s Canal: Great Leap (of Faith) Forward?

By CLALS Staff

Mike and Karen / Flickr / Creative Commons Attribution 2.0 Generic (CC BY 2.0)

Mike and Karen / Flickr / Creative Commons Attribution 2.0 Generic (CC BY 2.0)

The Nicaraguan government and a Chinese telecom tycoon took a big step on Monday toward the country’s long-held dream of having its own canal, but their prediction of supertanker traffic starting as soon as 2020 seems a bit far-fetched.  The project will cost $40 billion and, according to government officials, will create 50,000 jobs immediately, 1 million jobs over the life of the project, and will help lift another 400,000 people out of poverty.  President Daniel Ortega’s supporters claim the economy – currently projected to grow at 4.5 percent a year until 2020 without the project – will grow as much as 15 percent a year with it. The Chinese company, HKND, will enjoy a 100-year lease on the canal, with 1 percent of it reverting back to Nicaragua each year.  The proposed route for the canal is 278 kilometers long – about three times longer than the Panama Canal – and will be deep and wide enough to handle ships much larger than the “New Panamax” vessels.  Officials say the canal would “complement” the Panama waterway, which they say will be overcapacity even after its current expansion, and will save shippers some 800 miles on their way to the U.S. east coast.

Opposition from some politicians and environmentalists has been strong.  According to media reports, Nicaragua’s Supreme Council for Private Enterprise (COSEP) and other business organizations are generally positive but skeptical, with one leader calling Monday’s press conference “just an initial flow of information.”  Congressman Eliseo Núñez of the Independent Liberal Party (PLI), however, has been widely quoted as calling Monday’s announcement a “propaganda game” and blamed the media for generating “false hopes for the Nicaraguan people.”  Former Vice President Sergio Ramírez says that handing over national territory for development is a violation of the country’s sovereignty, and other critics claim the project violates 32 provisions of the Constitution.  Concerns about damage to Lake Nicaragua, an important source of fresh water that is already polluted, remain. Chinese investor Wang Jing told the press that avoiding environmentally sensitive areas was a major factor in determining the route, and he has promised that a full environmental impact study will be conducted before construction starts.  Opponents of the project doubt he will make the report public.

Ortega’s statement last year that a Nicaraguan canal “will bring wellbeing, prosperity, and happiness to the Nicaraguan people” may well be right – if the project gets off the ground and so many jobs are created.  However romantic that vision is, construction is still far from certain to begin this December, as claimed, or even within the next year or so.  Wang says that he has lined up “first-class investors,” but none has been identified yet.  In addition, criticism of his business record – opponents say his telecom company is poorly run – has hurt his credibility. And accusations that he’s a stalking horse for the Chinese government, which he says has had “no involvement,” will be difficult to dispel in view of Beijing’s other interests in the region and in shipping.  Equally troubling, as the ongoing expansion in Panama has shown, the shadow that corruption and inefficiency cast over any major project tempers optimism and argues against premature celebration.

Trans-Pacific Partnership: A Framework for U.S.-Latin America Relations?

By Eric Hershberg
Embed from Getty Images
President Obama’s desire to move forward with the Trans-Pacific Partnership (TPP) appears likely to founder amidst Congressional resistance to granting him “fast-track” authority, but it does signal a noteworthy initiative by an administration eager to grow trade relations with some Latin American countries.  Originally formed by Chile, New Zealand, Brunei and Singapore in 2006, TPP is currently negotiating the accession of five new members, including the United States and Peru.  Mexico, Colombia, Costa Rica, Panama, Canada, and Japan are also considering joining.  U.S. Undersecretary for International Trade Francisco Sanchez said last year that agreement on a framework for the United States to join TPP represents “a landmark accomplishment because it contains all of the elements of a modern trade accord.”  It eliminates all tariff and non-tariff trade barriers; takes a regional approach to promote development of production and supply chains; and eases regulatory red tape.  The White House’s senior official responsible for Latin America has also emphasized the importance of the Partnership.

The Administration for the most part has tried to sell the pact as a domestic economic issue – the argument being that more trade and harmonized regulations translate into more jobs – or as integral to a strategic focus on strengthening economic ties to the dynamic economies of Asia, rather than as a policy that has the potential to redefine economic relations with Latin America.  But lobbying on Capitol Hill has so far been ineffective, and Obama’s own Democratic Party has denied him the “fast-track authority” needed for an effective negotiation.  The Administration’s diplomatic strategy has not progressed smoothly either.  During Obama’s recent four-nation swing through Asia, he and Japanese Prime Minister Abe failed to sign an agreement widely seen as crucial for moving ahead with TPP.  Negotiators from all 12 TPP countries met in Vietnam last week, and – despite claims of progress – press reports generally suggest a gloomy prognosis for progress soon.

President Obama has made much of his “pivot” to Asia, and the push for TPP situates Latin America relations in Washington’s wider foreign policy agenda.  The emphasis on the TPP signals that liberalizing trade remains the core principle guiding U.S. thinking about economic relations in the hemisphere, in effect continuing a paradigm that has reigned for decades and that is embodied by proposals such as the now-abandoned Free Trade Area of the Americas.  Unable to secure broad South American buy-in for that U.S.-minted vision for economic cooperation, the administration seems to have settled on trying to work with a “coalition of the willing” comprised of Chile, Colombia, Mexico and Peru.  For governments elsewhere in the region, however, the not-so-particularly-new approach has elicited scant enthusiasm.  One could imagine ambitious proposals from Washington for hemispheric cooperation around energy, climate, infrastructure, technological innovation or even, eventually, labor market integration. But that would require visionary leadership, a commodity that is in strikingly short supply nowadays in the U.S. capital.  Rather than leading the articulation of a novel, shared agenda for a 21st century economic transformation of the Americas, Washington has chosen for now to repackage the last century’s prioritization of trade.

China in Latin America: Is the Dragon Here to Stay?

By Ivanova Reyes & Amy Ruddle

Source: Based on Gallagher et al. (2012).

Source: Based on Gallagher et al. (2012).

As China has become a major importer of Latin American & Caribbean commodities, it has significantly increased its financing and investment in the region.  Data on Chinese investment is not complete, but we estimate that it reached 38 percent of the combined financing from the IDB and World Bank to the region during 2005-11, with Venezuela getting the most.  In 2010 China became the third largest outside investor in the region (behind the United States and the Netherlands), and it provided an estimated $22 billion in 2011 – approximately 13 percent of total investment flows to Latin America and the Caribbean.

This investment is likely to continue to grow.  The Chinese government provides tax breaks, lines of credit and other incentives for companies to invest in key industries overseas, and a great deal of its lending corresponds to “finance for assured supply,” such as a  $10 billion loan from the Chinese Development Bank to Brazil’s Petrobras in 2009 in exchange for 200,000 barrels of oil per day.  Currently, according to Gallagher et al. (2012), 72 percent of the Chinese lending to the region is in the oil and mining industries and in related infrastructure projects.  The remaining funds lent in recent years have gone towards other infrastructural developments (21 percent), and towards trade, finance, and communications (7 percent).  Latin American countries have implemented policies aimed to attract Chinese investment.  They generally impose fewer conditions than those demanded by international financial institutions and require less compliance with environmental standards.

Recent surveys indicate that citizens overall view the growing influence of China in the region as a positive thing.  Indeed, Vanderbilt University’s AmericasBarometer found in 2012 that 20 percent of respondents viewed China as already the most influential country in the region, and an average of 63 percent said it had a positive influence.  However, respondents see China as less trustworthy than the United States.  Across those nations polled, roughly 38 percent viewed China as “very trustworthy” or “somewhat trustworthy,” whereas 45 percent had similarly positive views of the United States.

Although the growing Chinese investment and trade may give Latin America and the Caribbean a great opportunity to generate growth, there are several challenges.  If Chinese participation in the mining and oil industries results in environmental degradation, indigenous rights advocates and community organizations already skeptical of commodity driven growth will increasingly confront Latin American states as well as foreign enterprises. In addition, Chinese concentration in the commodities industries has generated strong structural changes in Latin American economies, further relegating manufacturing to a secondary role and raising the possibility of Dutch disease, in which high commodity prices harm other exports by reducing the country’s competitiveness.  It has become commonplace to observe that South America is building a 21st century economy on a 19th century logic of primary product exports. A third concern is that, since Latin America as a region is the smallest recipient of Chinese investment in the world, China will turn elsewhere if governments start putting conditions on Chinese projects.  Ultimately, these concerns make a strong case for Latin American countries to cultivate stronger ties with the Chinese economy while remembering that China’s strategic interest in extractive industries may collide with each country’s own development strategies.

 

 

References

ECLAC. 2010. “Chapter III: Direct investment by China in Latin America and the Caribbean.” In ForeignDirect Investment in Latin America and the Caribbean. Retrieved November 2013, from http://www.eclac.cl/publicaciones/xml/0/43290/Chapter_III._Direct_investment_by_China_in_Latin_America_and_the_Caribbean.pdf.

Faughnan, Brian M. and Elizabeth J. Zechmeister. 2013. “What do Citizens of the Americas Think of China?” AmericasBarometer: Topical Brief, June 13.

Gallagher, Kevin P., Amos Irwin, and Katherine Koleski. 2012. “The New Banks in Town: Chinese Finance in Latin America.” In 30 Years of Inter-American Dialogue Report: Shaping Policy Debate for Action.

Zechmeister, Elizabeth J., Mitchell A. Seligson, Dinorah Azpuru, and Kang Liu. 2013. “China in Latin America: Public Impressions and Policy Implications.” Presentation of the LAPOP.