US investment drive to tackle China in Latin America – Community News
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US investment drive to tackle China in Latin America

The US hopes to regain ground lost to China in Latin America with an ambitious new initiative to fund infrastructure.

Foreign investment in Latin America has long been dominated by the US and Europe, but over the past 15 years, Chinese policy banks have funneled more than $137 billion in investment to governments and state-owned enterprises in the region, according to a database compiled by the Inter-American Dialogue. in Washington.

At the same time, China has become the largest trading partner of Brazil, Chile and Peru and is close to achieving that status in Argentina. During the pandemic, a wave of Chinese donations of medical equipment and supplies, followed by early vaccine sales, sparked talks about Beijing’s “mask diplomacy”.

US President Joe Biden’s deputy national security adviser said Washington was not asking the region to choose between the US and China. “We are there to compete because we think we have a better product,” Daleep Singh told the Financial Times after touring Colombia, Panama and Ecuador to explain the initiative.

The “product” Singh is promoting is Build Back Better World, an effort to use development finance from US agencies such as the ExIm Bank, the US Agency for International Development and the US International Development Finance Corporation (DFC) to unlock much larger amounts of money. . from the private sector, in coordination with other G7 countries.

A woman in Medellín, Colombia receives the CoronaVac vaccine, developed by China's Sinovac
A woman in Medellín, Colombia receives the CoronaVac vaccine, developed by China’s Sinovac © Joaquin Sarmiento/AFP via Getty Images

Target areas included renewable energy, digital technology, medical devices and loans to smaller businesses led by women, Singh said. “We decided to do our first listening tour to Latin America. . . given its proximity to the United States and our core interest there.” Other regions will follow.

Panama’s foreign minister Erika Mouynes said the US initiative was a welcome and positive development as the region worked to emerge from the downturn caused by the coronavirus. “We would like to have more investment from someone,” she told the FT.

Under Panama’s current government, “the US is frankly the first to propose an initiative” [and] hopefully we will see some key components actually become a reality.” Panama had proposed investments in clean water and broadband access in rural areas, as well as funding for small and medium-sized businesses led by women, but specific amounts were not discussed, she added.

Margaret Myers, a China-Latin American expert at the Inter-American Dialogue, wondered how much of an impact the American initiative would have. “If this is supposed to be a response to… [China’s] Belt and Road Initiative, BRI is not just about infrastructure,” she said. “It is also targeting a lot of other areas, such as boosting trade, widespread public diplomacy. . . and financial connectivity.”

Early Chinese investment and trade in Latin America focused on traditional areas such as commodities, but more recent deals have focused on higher-value sectors such as smartphones, 5G infrastructure, surveillance technology, cloud computing, renewable energy and electricity transmission, Myers said. “It is very difficult to compete with China at the moment. . . China is already so well established in many of these highly competitive sectors.”

Two deals from Chinese companies at the end of 2019 highlighted the trend. China Yangtze Power paid $3.6 billion for Peru’s largest electric utility, while State Grid of China bought Chile’s third-largest electricity distributor, Chilquinta Energia, for $3 billion.

Christopher Sabatini, senior fellow for Latin America at Chatham House, said Build Back Better World was a welcome change from the Trump-era policy of “worrying about China and not offering alternatives.”

But he wondered how much new money would be available. “There has been so much cut in the US bilateral development budget,” he said. “Where will the money come from? . . . It is not clear how this will affect the private sector, especially when Latin America’s growth potential stagnates or declines.”

The combined health and economic impact of the coronavirus pandemic in Latin America was one of the worst in the world. The region’s economies shrank by 7 percent last year. Although they have recovered this year, growth will slow sharply in 2022, according to IMF projections.

Singh declined to specify how much new funding would be available, saying only that the Biden administration’s ambition was to “mobilize hundreds of billions of dollars globally for this effort.” One of the ideas considered was to increase the US government’s ability to make equity investments in projects.

“There is no Build Back Better for Latin America and the Caribbean without the funding and expertise to execute these infrastructure projects,” said an official at an international financial institution. “The problem is that the US government is not financing. The DFC can be a wonderful tool. . . but right now it doesn’t have the money and experience to really make an impact on these kinds of projects.”

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