LUIS ALBERTO LACALLE
China Today
April 2019
Six years after President Xi Jinping launched China’s Belt and Road Initiative (BRI), it remains the world’s most ambitious investment plan. The opportunities that the BRI offers in facilitating prosperity through developing trade links and creating jobs are unparalleled. However, for the BRI to achieve its boldest aspirations, recipient countries in Latin America, including Uruguay, must also work domestically and with China to undertake complementary policies that promote long-term, responsible, and sustainable economic growth.
The BRI is a trillion-dollar global economic framework that connects China and more than 100 partner countries with one third of the global GDP and nearly two-thirds of the world’s population. There are five broad objectives of the BRI: co-ordinate policy, facilitate connectivity, promote unrestricted trade, integrate financial markets, and build networks of multilateral and bilateral relations through people-to-people connections. Unlike traditional development models that use conditionalities and emphasize institutional reforms, the BRI is an investment-driven approach that focuses on infrastructure, trade, and job creation, financed by money creation and low interest rates. Since the BRI’s announcement, China has invested about US$210 billion. The World Bank noted that the massive investment under the BRI can “transform the economic environment in which economies in the region operate.”
Initial geographical priority areas of the BRI followed the historic Silk Road overland from China to Europe and a new Maritime Silk Road but, as of 2018, have evolved to include the Arctic and Latin America. China has offered to invest US$250 billion in Latin America over the next decade. This potentially increases access to capital for much needed infrastructure projects during a time of receding interest from the United States, which has historically been the largest intervenor in the region. Proposed projects under the BRI include a new port in Peru and an underwater fibre optic cable between China and Chile, which facilitates connectivity and increases prosperity for both countries.
Leaders of Latin American countries welcomed the BRI as a continuation of previous strong relations. Since 2005, China has extended about US$150 billion in state-to-state financing to the region. This includes money invested in infrastructure projects, such as roads in Costa Rice, railways in Argentina, and a port in Trinidad and Tobago. In 2015, Bolivia’s ambassador to China stated that the BRI is “extremely important to Bolivia’s future development.” In subsequent public statements, Peru, Ecuador, Argentina, Panama, Trinidad and Tobago, Antigua and Barbuda, and Uruguay, affirmed this position for their own countries. Latin American countries hope that they will benefit from greater infrastructure investment.
Last year during the 30thanniversary of China-Uruguay relations, Uruguay became the first Mercosur country to sign an agreement under the BRI, following a history of close relations between the two countries. China is Uruguay’s most important trading partner as China purchases 27% of Uruguay’s exports, which principally includes agricultural products such as timber, beef, mutton and wool. Uruguayan ports serve as strategic fishing and shipping points for Chinese companies. Montevideo has the best harbour in the Southern Atlantic and due to a “free port” law the goods that enter here can be re-embarked for other destinations such as Paraguay, Bolivia, Argentina and Brazil: Half of the freight received here is then delivered in such a way. Nueva Palmira, Uruguay’s other port in the mouth of the Paraná and Uruguay rivers, has become the preferred harbour for exports and imports for Paraguay and Bolivia. On the streets of Montevideo, the Chinese made Lifan 620 cars are ubiquitous among taxi drivers. Students participate in cultural exchanges in both countries and, last year in Uruguay, a Confucius Institute was opened. The importance of this relationship is reflected in the high-level state visits between the officials of both countries, including my visit as President of Uruguay in 1993, and President Xi’s visit last year after the 2018 G20 Summit in Argentina. Presently, both countries have a shared vision to collaborate on several priority issues: climate change, economic governance, UN's 2030 Agenda for Sustainable Development, peacekeeping and South-South cooperation. The BRI will help to develop ties between these countries.
There are mutually beneficial reasons for Uruguay to participate in China’s BRI. Fernando Lugris, Uruguay’s Ambassador to China, highlighted two. First, Uruguay’s advanced agricultural sector would benefit from greater market access to China to sell its goods. Second, as a “gateway to Latin America” and a logistics hub for businesses, Chinese enterprises can leverage Uruguay’s position to enter the larger South American market. However, both countries have acknowledged a need to expand co-operation in agriculture, clean energy, communications, mining, manufacturing, and finance in the country to realize the highest returns on investment.
In fact, Uruguay is in a unique position to maximize the benefits of BRI’s investments. Uruguay has long regionally ranked extremely high in GDP per capita. The country is the world’s second most visited destination by refrigerated cargo vessels, and has considerable expertise in this field as Montevideo is a global fishing hub. In the field of innovation, Uruguay is a world leader in information and communications technologies, as well as in animal medicine and genetic technologies. Globally, it is one of the top seven most digitized countries. It also has one of the highest scores on international indices for democratic values in the Americas. These factors mean that Uruguay is an attractive and stable country for investors.
Despite the opportunities raised by BRI, there are several considerations that Uruguay and Latin American countries should bear in mind going forward.
First, stalled projects such as Malaysia’s East Coast Rail Line and Venezuela’s Tinaco-Anaco Railway is a reminder that like any investment, the social-economic successes of individual BRI projects are not guaranteed. Countries must be willing to make the necessary investments to complement China’s investment. For Uruguay, this might mean introducing modernization programs that encourage commercial competitiveness, such as reducing regulatory barriers that are exceedingly complex or taxing for China’s small and medium enterprises.
Second, reports of heavy debt burdens imposed on countries brought on by overambitious borrowing through the BRI program is a reminder of the need for fiscal conservatism and economic diversification. Sri Lanka’s inability to repay debts owed to Chinese firms for the costs incurred during the construction of the strategic port of Hambantota resulted in China receiving a 99-year lease. Latin America, with a long history of interference from the United States under the justification of the Monroe Doctrine, should be wary of overborrowing with consequences of overreliance. Instead, Latin American countries, including Uruguay, should find alternate financiers or complement foreign direct investment with national state investment in infrastructure projects.
Third, given Latin America’s vulnerability to climate change, countries should be wary of environmental consequences that BRI projects might pose. Historically, extractive industries and commodities have been a cornerstone in Sino-Latin American commercial relations. However, with all parties increasingly committed to tackle climate change, as seen in Uruguay and China’s ratification of the Paris Agreement, there may be common ground by exploring environmentally sustainable investment options, especially in Uruguay’s large agriculture sector.
While none of these three issues are significant challenges, these lessons help to ensure Latin American countries achieve its greatest successes under the BRI. As China regains a growing international importance, it is important for countries to develop a strong understanding of the country and identify opportunities for collaboration.
Since the beginning of the InterAction Council, a group of former world leaders of which I am a member, we have prioritized economic revitalization. This has included identifying policies to increase assistance to countries that would benefit from greater investment. We believe that there is no contradiction between growth and equity. China, the host of the Council’s most recent plenary session, shares this view through the BRI. We very much value President Xi’s opinion on free trade as the best way of building prosperity for all countries and of better logistics as the main way of making it real. Through collaborations between China and BRI’s partner countries, we admire President Xi’s vision, to build “a community of shared future for mankind.” Through the BRI, Latin America has an opportunity to foster deeper ties to this community.
Luis Alberto Lacalle de Herrera was President of Uruguay from 1990 to 1995.