China Using Loans in Latin America to Push Political, Military Objectives

By Autumn Spredemann
Autumn Spredemann
Autumn Spredemann
Reporter
Autumn is a South America-based reporter covering primarily Latin American issues for The Epoch Times.
December 20, 2021 Updated: January 3, 2022

SANTA CRUZ, Bolivia—Argentina’s socialist government is scrambling to stem its hemorrhaging currency rates, economic recession, and hyperinflation while it continues its negotiations with China over swaps and debt relief.

Argentina had an established track record of defaulting on loans even before the regime in China agreed to grant an additional $19 million to the Argentine government in 2020. China and Latin America relations analyst Fernando Menéndez told The Epoch Times that while Beijing’s loans in the region may look risky from a traditional standpoint, they still come out on top in the end.

“Because if the repayment doesn’t work out, they can just seize assets,” Menendez said.

A large part of Argentina’s economic woes stems from a lack of consistency in macroeconomic policies, according to Institute of the Americas member and University College of London professor Néstor Castañeda.

According to economist Martín Rapetti, the byproduct of these policies is evident in the gross domestic product per capita, which is the same today in Argentina as it was during the Peronist regime in 1974. However, there’s one notable difference now: Income inequality is much higher.

“While China’s fiscal resuscitation of Argentina persists, we see a discernible pattern emerge throughout Latin America, particularly where socialist governments prevail,” Rapetti said.

Expanding Its Reach

A November 2021 U.S. congressional briefing outlines concerns over China’s expanded influence in the region through lending and investments.

The report states that China is deepening its strategic political and military relationships with Latin American nations, noting that cooperation with authoritarian regimes, such as that of Nicolás Maduro of Venezuela, has facilitated noticeable “democratic backsliding” in Ecuador, Bolivia, and Venezuela.

In Venezuela, China’s loans top out at $60 billion, the largest amount it has given to a foreign nation. Yet the country remains mired in one of the deepest economic recessions in history.

In 2021, the U.S. International Development Finance Corp. stepped in and agreed to help Ecuador repay billions of dollars in Chinese loans with the provision of excluding China from its telecommunications network. Ecuador’s debt to China originated from its democratic socialist president, Rafael Correa, whose administration defaulted on its loans in 2008.

Menéndez pointed out that China lending money to economically short-sighted governments, with the potential to acquire assets offered by the beleaguered nations, was a masterful chess maneuver.

“With all of those oil fields in Venezuela and their inability to pay back Chinese loans, you should ask who owns those nowadays,” he said.

Venezuela also has the largest proven oil reserves in the world.

A common denominator between the different governments in Latin America and their relationship with Chinese loans is restricted access to other credit markets for debt relief. When this situation arises in developing countries, it creates a pattern of borrowing that ends in economic dependency, according to the U.N. Economic and Social Council.

Argentina has defaulted nine times on loans to foreign creditors, five of those instances taking place since 1980.

The key difference between China and other foreign lenders is that Beijing is more reluctant to restructure when overextended governments show up with empty pockets.

Winning Friends and Votes

Potential acquisitions and lending aside, the U.S. government is more concerned about the political and military footholds China is gaining through these deals.

One noteworthy example is the establishment of a People’s Liberation Army-run space station in the Patagonia region of southern Argentina in 2015. The construction of similar potential “dual-use” projects in Latin America grants China the ability to increase its future military presence, according to the U.S. Congress.

More than securing assets, Menéndez says that China is winning friends and votes in its favor.

He said that through China’s sizeable loans and investments, Latin American countries will likely favor them in situations requiring votes on policies, such as those with the U.N.

One of these investments is the Belt and Road Initiative (BRI).

Started in 2013 as a series of investment projects of varying scope in developing countries, the initiative is sold as a means to strengthen global relations through the creation of what it calls “trade corridors.” While it looks good on paper, possible risks of the initiative in countries with less stable infrastructure include unsustainable debt, environmental degradation, and an overall lack of transparency with the projects, according to a World Bank assessment.

In 2017, Panama became the first Latin American country to join the BRI, only a few months after it had changed diplomatic allegiance to China from Taiwan.

Eighteen of the 33 countries in Latin America and the Caribbean will likely join the initiative in the next few years. Argentina, Brazil, and Mexico have expanded their economic relations with China, but have yet to fully embrace the BRI.

“China is pushing the idea that co-operating in the area of infrastructure means diminishing logistics costs, and in this way, it is selling the BRI model,” said Claudia Uribe, head of the Latin America and Caribbean division of the International Trade Center. “There are no free rides, but strategic interests.”

According to scientific data from Nature journal,  the other major Latin American debtors to China are Brazil ($28.2 billion), Argentina ($17.1 billion), and Ecuador ($18.4 billion).

Autumn Spredemann
Autumn is a South America-based reporter covering primarily Latin American issues for The Epoch Times.