Many Latin American economies are currently struggling due in part to falling oil and commodity prices. In spite of the economic difficulties affecting much of Latin America, countries such as China, Russia, and South Korea have continued to increase their investments and overall economic participation in the region. A great majority of the investment and financial assistance is being provided to countries such as Argentina, Brazil, and Venezuela. Most of the investment is targeting infrastructure enhancement, energy projects, and trade development.

Russia’s involvement in Latin America has increased over the past several years. In 2014, Russia’s President Vladimir Putin and his delegation met with leaders from Argentina, Brazil, Cuba and Nicaragua. The purpose of these meetings was to enhance economic cooperation and strengthen alliances with these Latin American countries, mainly in the areas of energy, trade, and defense. During the trip, members from the Russian delegation expressed interest in expanding economic relations and investment in Mercosur. Russia regards Mercosur as a strategic pathway to engaging with not only member countries such as Argentina, Brazil, and Uruguay, but also with associate countries such as Chile, Colombia, and Ecuador. Putin also met with Argentina’s President Cristina Kirchner and signed an agreement on peaceful nuclear development, which allows Rosatom, the Russian state atomic energy corporation, to contribute towards the construction of a new nuclear power unit in Argentina. Before these recent agreements, commercial ties between the two countries had already risen dramatically. According to the Argentine-Russian Chamber of Commerce, bilateral trade between the two nations increased by 30 percent to USD$2.44 billion in 2013. Putin also met with Brazil’s President Dilma Rousseff and signed a set of cooperation agreements in the areas of energy cooperation, gas, science and technology, and defense. The economic alliance between Brazil and Russia has progressively grown to encompass military and political features. Due its large population and growing economy, Brazil is widely considered the leading power in the South Atlantic region. Consequently, it requires defense and military technology (long-range military aircraft with long-distance operational range, advanced missile systems for its navy, etc.) that can be supplied by Russia.

South Korea is another country that has been deepening its own ties with Latin America. As the Inter-American Development Bank recently reported, South Korea’s government has agreed to establish a USD$100 million fund for infrastructure investments in Latin America. Additionally, South Korea will provide up to $1 billion in bilateral financing for developmental projects in the Latin American region. The Asian nation has signed an agreement with the Inter-American Development Bank (IDB) in which it commits to share its experience in economic development as well as to finance programs designed to help export Latin American products to the outside world. South Korea will benefit from Latin America’s abundant mineral and energy resources. Meanwhile, Latin America will also gain from Korea’s knowledge and expertise in information technology and manufacturing processes.

According to the Ministry of Foreign Affairs Republic of Korea, Korea already has Free Trade Agreements (FTAs) in effect with Chile and Peru. Korea is currently finalizing FTAs with Colombia and Mexico, and it is simultaneously conducting preparation talks with regional trade bloc Mercosur, about the possibility of entering into a FTA.

China has also sought to increase its economic arrangements with Latin American countries. Chinese President Xi Jinping has taken steps to build closer ties with many Latin American countries. In January 2015, China hosted the first ministerial meeting of the Forum of China and the Community of Latin American and Caribbean States (CELAC) in Beijing. The principal objectives of the forum were to deepen political mutual trust, expand cooperation, and promote development between China and Latin America.

Deutsche Welle reported that China has provided loans to several Latin American countries. It is estimated that during the last ten years, China’s state-owned banks (primarily the China Development Bank and the China Export-Import Bank) have provided nearly USD$119 billion in loans to Latin America, out of which USD$22 billion were granted in 2014 alone. Chinese banks have increased investments and funding to Latin America making them the largest lender to the region, even surpassing the combined worth provided by the World Bank and the Inter-American Development Bank. Most of these Chinese loans have been allocated to Argentina, Brazil, Ecuador, and Venezuela, all of which are natural resource-rich countries. In addition to providing financial resources to the region, China also plans to double its trade volume with the Latin American region over the next decade. Thus, these economic arrangements are beneficial to all parties involved as they provide Latin American recipient countries access to needed financial capital that carries lower requirements and less binding conditions, while China gains from trading with countries that can provide it with cheap commodities and natural resources required to boost its own economy.

Last year, Chinese President Xi Jinping visited Argentina, and the two countries settled on plans for China to invest USD$7 billion in industries including hydroelectric power, shipbuilding, and railways. A deal to help Argentina build its fourth nuclear plant was also reached. China says it will contribute USD$4.4 billion towards the construction of two hydroelectric dams in Argentina, and an additional USD$2.1 billion into rail transport. Moreover, China will build a space tracking and control station in Argentina. The two countries are also believed to be discussing further deals that include the co-production of military vehicles and military equipment.

The Wall Street Journal reports that Brazil’s Petrobras, the state-controlled oil giant, has signed a USD$3.5 billion financing deal with the China Development Bank. The deal expands Brazil’s relationship with China, its largest trading partner and fellow BRIC country. The financing deal comes a few months after a corruption scandal was made public in which Petrobras executives are alleged to have paid politicians for contracts, using company profits. Dozens of politicians are accused of accepting millions in payments, and some of Brazil’s largest construction companies are accused of paying bribes for contracts.

CNN Money reports that the United States remains the number one trade partner with Latin America. However, China is gaining ground and is now ahead of the U.S. in trade with Brazil, Argentina, Peru and Venezuela. China is able to provide the cash needed to finance domestic infrastructure and energy projects. For instance, Venezuela has received billions from China in exchange for oil. Chinese loans carry substantially fewer contingencies related to policy and practice reforms, making them more appealing to many of these recipient countries.

It will be interesting to see whether Latin American countries can effectively leverage and productively use the funding and capacity building support they are receiving from countries such as China, Russia, and South Korea. After all, some of these recipient countries have poor credit ratings and a history of default. China and South Korea have invested heavily in many of these economies, which certainly contain different types of risks. Nonetheless, in spite of the inherent risks involved, it appears that countries such as China, Russia, and South Korea remain committed to establishing a long-term presence in Latin America. These growing strategic partnerships and alliances not only carry economic implications for all the countries involved, but also represent long-term geopolitical ramifications for the Latin American region in general, as well as the United States.

Sources:

http://www.caciar.com.ar/novedades/usd-2583-millones-de-intercambio-comercial-entre-argentina-y-rusia-durante-el-2013/

http://events.iadb.org/calendar/eventDetail.aspx?lang=en&id=4420

http://www.mofa.go.kr/ENG/policy/fta/status/overview/index.jsp?menu=m_20_80_10

http://news.xinhuanet.com/english/china/2015-01/09/c_133908207.htm

http://www.dw.de/chinese-loans-helping-latin-america-amid-oil-price-slump/a-18284605

http://www.wsj.com/articles/brazils-petrobras-obtains-3-5-billion-financing-from-china-development-bank-1427892756

http://money.cnn.com/2015/03/04/news/economy/china-latin-america-relations-united-states/