By Max Nathanson
Over the past several years, China has managed to turn itself into Latin America’s largest creditor, mostly by funding large-scale infrastructure projects. In doing so, Beijing has managed to grow quite close to some of the region’s capitals. Argentine President Mauricio Macri has sought to “deepen” ties with China. In Colombia, President Iván Duque hosted Chinese Transport Minister Li Xiaopeng as an honored guest at his inauguration ceremony over the summer. And the incoming Mexican president, Andrés Manuel López Obrador, is considering joining China’s Belt and Road Initiative, which he has said will open a new chapter in the countries’ relations.
For the Trump administration, though, China’s presence in the United States’ backyard is worrying. Although National Security Advisor John Bolton did not mention China by name in his recent “Troika of Tyranny” speech, his thorough condemnation of two key Chinese allies in the region, Cuba and Venezuela, made the point. In February, then-Secretary of State Rex Tillerson was even more explicit when he said, “Today China is getting a foothold in Latin America. It is using economic statecraft to pull the region into its orbit; the question is at what price.”
One cost has been to the environment and to indigenous communities. Infrastructure development, although necessary, has often been carried out irresponsibly, with enormous social, political, economic, and environmental consequences. Another consequence has been a significant loss of U.S. influence in Latin America. In 2017, for example, Venezuela published its oil prices in yuan for the first time. The move was welcomed by other countries, including Russia, which cheered the pushback against dollar dominance. In addition, three Latin American countries, El Salvador, Panama, and the Dominican Republic, have broken off ties with Taiwan, a longtime U.S. ally, in the last two years.
There is a way for the United States to help address both problems at once. Increased U.S. investment in the softer side of infrastructure, especially in social and environmental safeguards for new projects and in urban planning programs, can help ensure that these countries are able to upgrade their infrastructure and energy systems in a responsible and equitable manner. And if the United States, the U.S. Agency for International Development, the new U.S. International Development Finance Corporation, and multilateral organs such as the World Bank and the Inter-American Development Bank (IDB) are seen as genuinely contributing to Latin American development in a way that puts the long-term interests of the region above (or at least on par with) U.S. commercial interests, Washington’s reputation as a trustworthy partner will grow.
Latin American governments have long lamented their countries’ patchy infrastructure. Increasingly, in recent decades, China has stepped in with a solution: roughly $150 billion loaned to Latin American countries since 2005. About 90 percent of that has gone to boosting the region’s energy, infrastructure, and mining sectors.
The scale of Latin America’s borrowing from China in the past decade is astounding: Venezuela has received $62 billion; Brazil, $42 billion; Argentina, $18 billion; and Ecuador, $17 billion. Those deeply in arrears to China have sometimes had to take on more loans from the superpower to stay afloat. The example of Ecuador is telling. President Rafael Correa’s administration borrowed an additional $3.5 billion between 2011 and 2015 to bridge the budgetary gaps that resulted from Chinese-financed development projects.
Hydropower is a good example. Chinese state firms are the largest financiers and builders of dams in the world, having raised over 330 in 74 countries. In Latin America, the list of countries working with China on dams includes Argentina, Belize, Bolivia, Brazil, Colombia, Costa Rica, Ecuador, Guyana, Honduras, Peru, and Venezuela. These dams, and others financed by regional lenders, have displaced hundreds of thousands and have caused untold environmental harm. In all, over 400 dams have been built, are under construction, or are being planned in the Amazon basin alone, for example, and a team of international researchers writing for Nature argued that “the accumulated negative environmental effects of existing dams and proposed dams, if constructed … [will be] severe, disruptive and characteristically irreversible.”
Another result of all this construction is that the region has become overly reliant on hydropower. In fact, data from the International Hydropower Association show that nearly two-thirds of South American electricity is generated via hydropower projects. But as the hydrologist Philip Fearnside has argued, much of that doesn’t even reach the people who need it most. “The amount of electricity devoted to rural electrification is minuscule compared to other uses,” wrote last fall, continuing that “hydropower is already unreliable and is projected to become much more so in light of climate change and projected shifts in rainfall patterns.”
Large hydropower projects are also consistently poor investments. University of Oxford economists have demonstrated that actual costs of hydropower construction average 96 percent over what initial models predicted. “Even before taking into account negative impacts on human society and the environment, on average the actual construction costs of large dams tend to be too high to yield a positive financial return on investment,” the researchers said.