A while ago, I wrote about the influx of Chinese money into Nicaragua to build a transcontinental canal.
However, beyond infrastructure and construction concerns, people are beginning to have other worries:
“The townspeople (in Nicaragua) haven’t seen any signs of canal workers in months. And the work that was done was marginal. A handful of Chinese engineers were spotted late last year making field notations on the east side of the lake; early this year, a dirt road was expanded and light posts were upgraded at a spot on the west side where a port is to be built.
Juharling Mendoza, a 32-year-old local entrepreneur, is so convinced that the project won’t proceed that he’s constructing a two-story house with three guest rooms and an attached convenience store just outside of El Tule. He says bluntly: ‘There isn’t going to be a canal.’” (Bloomberg.com)
People have taken to referring to the canal as a “phantom”, as there has been little to no progress in its construction. Given the current economic crisis in China, this should hardly be surprising.
The Chinese government devalued the Yuan. The People’s Bank of China cut the national interest rate. The world economy is pitching and yawing like a boat in a hurricane. And Latin American countries are going to be hit hardest.
Over the past year Nicaragua was joined by Venezuela, Argentina, and Ecuador, among others, as countries agreeing financial deals with China. Overall, China has pledged some $250 billion in investment and loans to the region over the next ten years. Why are these nations’ governments turning so willingly to another neo-colonial power for economic assistance?
Easy money is intoxicating. Social programs are expensive, particularly in areas with extreme levels of inequality between the rich and poor. The promise of quasi-Socialist policies, leveling the economic and social playing field, wins elections, but is hard to maintain over the long term. When things go bust, governments are left with only a few hard choices: abandon the country to economic depression and social turmoil (never a good plan); abandon popular redistributive policies to secure funding from the IMF (a poor plan for staying in power); accept money from another source that promises few conditions (easy money).
This is why we saw President Maduro sign an agreement with China for $20 billion in January to make up for the shortfall from oil revenues. This money is to be used in housing and other infrastructure areas, something many encouraged the government to invest its petrodollars in over the past decade, to little avail.
China doesn’t require painful structural reforms, aimed at getting a country on a sustainable path, like the IMF. However this investment still comes at a cost. Nations n the receiving end grant the Chinese government, or associated Chinese companies, control of natural resources. Ecuador ceded 90% of its oil shipments to the Asian nation in return for loan monies. Nicaragua is selling them delicate, biodiverse land to build the canal.
And now that China’s economy is faltering? Will promised money still be forthcoming? Will profligate governments accustomed to playing fast and loose with the national coffers be turned away when asking China for debt restructuring? What damage might be done to Venezuela’s or Nicaragua’s or Ecuador’s national integrity and sovereignty if the collateral for the loan is seized? Oil fields and national territory may be annexed by China until, or in lieu of, repayment.
The intoxication of easy money is age old. 1 Tim 6:10 “For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs.”
Let us hope Latin America’s griefs are not too many in the coming months and years.