China’s Latin America Loan Lurches
As Chinese-Latin American government development loans at almost $40 billion in 2010 surpass the traditional Bretton Woods providers with a focus on natural resource and renimbi-dominated facilities, an Inter-American Dialogue report investigating practices and terms finds they are stricter and more expensive than portrayed in popular criticism. The region has taken half of overseas commitments though CDB, the Ex-Im Bank and ICBC, and the 90 percent infrastructure and heavy industry concentration is greater than with Western sources. Venezuela, Ecuador, Argentina and Brazil have been the major recipients with Carcacas’ $35 billion tally to date a contrast with its $5 billion Inter-American Development Bank support. Their size is typically over $1 billion and CDB’s rates are commercial such as in Argentina’s 2010 railway project at 600 basis points over Libor, while Ex-Im’s concessional mandate slightly undercuts its US counterpart. Since 2005 of $75 billion tracked three-quarters have come from the former institution and while policy conditionality is not attached Chinese goods purchase “almost always” features. That element not only ensures Mainland business but reduces default risk, in the think tank’s view. Over half of recent deals have been loans-for-oil but they are done at market prices, and not through guaranteed quantities as a “last resort” when external funding is otherwise unavailable or shunned. On the environment the Equator Principles that voluntarily guide OECD credit agencies and international project financiers do not apply, but Beijing has adopted preliminary guidelines although enforcement is uncertain. The monograph concludes that Latin borrowers pay a premium with equipment and employment “strings” for this new pool. Its “greatest concern” may be reinforcing reliance on primary commodities instead of encouraging a diverse growth path, but the arrangement can be “win-win.”
Venezuelan President Chavez will hope the relationship translates at the ballot box after Miranda state governor Capriles got 65 percent for a resounding victory in the opposition primary versus 30 percent for Zulia head Perez. He is now the Democratic Unity standard-bearer for the October election and is twenty years younger and advocates an economic platform of gradual control removal. The incumbent will continue a spending binge which increased government outlays 50 percent in 2011 while private investment cratered on 30 percent inflation. The sovereign and oil company PDVSA are prepared for another $10 billion in debt issuance until the poll to extend largesse and satisfy dollar demand under artificial exchange rates. The imminent supply has tempered a rally as the best EMBI performer on glimmers of a post-Chavez era. The consumer products giant Polar, energized by the possibility, may sue the regime for inadequate compensation for seized holdings as longtime adversaries generate momentum.
