From October 24-25, 2018, I traveled to London to participate in a conference on Latin America conducted by Chatham House. The event was the first significant activity in more than a decade on the region by the organization and represented a milestone in British global re-engagement, stemming from the nation’s withdrawal from the European Union (Brexit). The conference included an eloquent and strongly worded on-the-record address by British Minister of State for the Americas Sir Alan Duncan, condemning the authoritarian regime in Venezuela, as well a very good and far-reaching review of the region and its challenges by visiting Argentine Foreign Minister Jorge Faurie.
In my own remarks, part of a panel that followed the two distinguished keynote addresses, I sought to outline particularly important phenomenon in the political, economic, and security dynamics of the region. The following essay is an extended version of what I said.
Politically, Latin America is entering new territory with the election of the controversial right-wing candidate Jair Bolsonaro to lead Brazil, a nation that represents approximately half the population and economic output of South America. It reinforces the turn to the right seen with the election of Ivan Duque as president of Colombia and Mario Abdo Benitez as president of Paraguay during the first weeks of October 2018, and previously, the replacement of left-of-center governments with right-of-center ones in Argentina and Chile, and the likely defeat of leftist parties in El Salvador and Uruguay in 2019. The election of Andres Manuel Lopez Obrador (AMLO) in Mexico, to be inaugurated on December 1, 2018, in some ways contradicts this trend.
Underlying, but also going beyond, such political patterns, the dynamics of the region are being shaped by four significant, interacting, and sometimes contradictory phenomenon: the expanding engagement with the People’s Republic of China (PRC), the ongoing crisis in Venezuela, the evolution and fragmentation of the criminal economy in the region, and the impact of U.S. President Donald Trump.
China
The PRC’s expanding political and economic engagement with the region continue to inspire both hopes and fears among political and business leaders and within the populations of the region. While the fall in commodity prices that began in 2014 with the deceleration of Chinese economic growth decreased the value of Latin America’s commodity-based exports to the PRC, overall engagement has continued to expand, including not only commerce, but also loans (with $150 billion provided to the region by China’s major policy banks since 2005), and, increasingly, equity investment (with Chinese companies putting an estimated $114 billion into the region through a combination of mergers and acquisitions, new projects, and investment in ongoing ventures).
While PRC-based companies in the region come in a range of sizes and types of affiliation with the Chinese state, and the dynamics of each industry are different, Chinese companies have generally expanded their level of sophistication in operating on the ground in the region, including interacting with local governments and communities, choosing local partners, consultants and subcontractors, and integrating local labor forces, with the effect that they are arguably becoming more effective in operating in the region, even as their presence in the local economy is expanding. Of note, almost half of that growing presence is concentrated in Brazil, with PRC-based companies significantly expanding their presence in sectors such as power generation and transmission, agribusiness, and ports and logistics—several areas once dominated by the now-crippled Brazilian national champion Odebrecht.
While PRC engagement with Latin America, in the short term, has been arguably more economic than military, it is nonetheless strategic, for the continued rise and prosperity of the PRC, and transformational for both the economic structure and political dynamics of the region. While focused principally on securing reliable Chinese access to the region’s commodities, foodstuffs, markets and technology, it is also aggressive, incremental, and distinctly mercantilist in character, using the lure of access to Chinese markets, capital and producers, with offers leveraging coordination between the PRC government and commercial entities, to secure a series of favorable deals that push Chinese entities up the value-added ladder and dominate the strategic sectors which the Chinese target.
The mutually reinforcing activities of PRC-based firms in the construction, finance, infrastructure and logistics sectors are particularly pronounced in this regard, with impressive advances in building and securing control over Latin American ports, often associated free zones, from El Salvador and Panama to Brazil, as well as associated infrastructure providing access to internal markets and sources of commodities (not unlike the approach China is pursuing in Africa). Ironically, China was relatively unsuccessful in applying this approach in Latin America when they first began paying substantial attention to the more developed nations of the Southern Cone with then-President Hu Jintao’s trip to the region in November 2004, but are now enjoying significant success, under the branding of “belt-and-road” with Panama, Guyana, Suriname, Trinidad and Tobago, and even Atlantic-facing Uruguay signing on to the initiative.
Chinese advances have also been bolstered by the increased sophistication and resources of many of the PRC’s outward-facing companies, as well as the end of the “diplomatic truce” between the PRC and the Republic of China (Taiwan or ROC), after which the PRC established relations and expanded its position in Panama, the Dominican Republic and El Salvador. The recognition of the PRC by remaining countries such as Guatemala, Honduras, Belize and Haiti is possible in the foreseeable future.
The Chinese have further exerted their influence through multilateral engagement in the region, including the China-CELAC forum, in which the PRC has elaborated and updated its “roadmap” for advancing engagement with the region.
The PRC has further engaged multilaterally in Latin America, not just with groups of states in the region, but through new trans-regional forums, including the BRICS and the Asia Infrastructure Investment Bank. They have also worked through traditional entities in the region such as the Inter-American Development Bank and the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), arguably influencing the orientation of these organizations in subtle ways money and engagement.
In the “Bolivarian Socialist” bloc, the Chinese continue to support the financial solvency of the widely-condemned populist regime in Venezuela, and have quietly secured a range of projects in Bolivia. While the Chinese are allegedly frustrated with the abysmal economic management of the Maduro regime, they do not appear in a hurry to push for changes that would resolve the crisis in a way that could bring a more pro-U.S., pro-Western regime to power there.
As the PRC’s economic and diplomatic advance plays out in the region, particularly close to U.S. shores in Central America and the Caribbean, Washington has engaged with the region with significant new attention on the issue, including cautionary remarks regarding the potential perils of China as an aggressive partner, made by former U.S. Secretary of State Rex Tillerson, Secretary of Defense James Mattis, Vice President Mike Pence, and by Secretary of State Mike Pompeo during his October 2018 visit to Panama. While a surprise for many in the region, the expression of U.S. concern is consistent with U.S. thinking regarding the global challenge presented by the PRC and Russia, as outlined in President Trump’s 2018 National Security Strategy. This is likely to take on even more coherence in the region with the recent confirmation of U.S. Assistant Secretary of State for Western Hemisphere Affairs Kim Breier.
While Russia is mentioned in the NSS alongside China, and has also been actively engaged in the region, Russia’s resources and the range of economic sectors and principal allies with which it is engaged are relatively limited. Latin American businessmen and academics simply do not dream of access to “vast Russian markets and sources of loans and investments” the way they do with their Chinese counterparts. Moreover, Russia’s position in the region has arguably been impaired by the previously mentioned turn to the right in the region through elections, beginning with the previously mentioned defeat of the Peronists in Argentina in November 2015, and continuing with the March 2018 return to power of center-right businessman Sebastian Piñera in Chile, the elections of Ivan Duque in Colombia, Mario Abdo Benítez in Paraguay and Jair Bolsonaro in Brazil, the likely defeat of the FMLN in February 2019 presidential elections and a likely loss by the left-of-center Frente Amplio in Uruguay in the elections the following October.
The Russians arguably do, however, have special knowledge of the region and its politics going back to their extensive activities there during the Cold War, and have potentially important opportunities to expand their engagement with partners such as AMLO in Mexico, and their partnership with Nicaragua as Daniel Ortega and his wife cling to power through repression.
Venezuela
Venezuela’s collapsing populist socialist regime has arguably helped to advance conservative center-right political causes across the region, with a common appeal for voters to reject their more left-oriented opponents to prevent the country from becoming “another Venezuela.” Nevertheless, the Venezuelan crisis also has had a significant adverse effect on its neighbors, through the massive and growing outflow of refugees in light of the lack of food, medicine and other basic necessities in the country. More than two million Venezuelans have left the country in the past three years—most unlikely to ever return.
Neighboring Colombia has been the most affected by Venezuelan migration, with an estimated one million of these Venezuelan refugees currently residing in Colombia, and the prospect of up to four million arriving by 2021. The cost to the Colombian economy through government services, imposed by the migrants, according to its president Ivan Duque, is 0.5 percent of the nation’s GDP. Even more worrisome is the impact of the arrival of thousands of desperate Venezuelans each day, most of them in the vicinity of Cucuta, an area dominated by criminal gangs and exploding drug production, with the associated flood of illicit resources. Beyond Colombia, however, Venezuelan refugees have spread throughout, and transformed the demography of the region, from the nearby islands of Aruba, Bonaire and Curacao, to the Dominican Republic, Panama, Brazil, Ecuador, Peru, and Chile (due to the nations’ relatively strong economy and liberal policies regarding obtaining work visas).
As Venezuela’s economic collapse and political crisis has accelerated with the decline of democracy, the possibility that leadership change will lead to a change of course—including an intervention by the nation’s military to restore the constitutional order—becomes increasingly unlikely. Significant parts of the country’s political and military leadership have been deeply involved in illicit activities, generating fear that a return to more democratic government that could lead to the imprisonment and extradition to the United States of those state actors. The military is also thoroughly infiltrated by Cuban intelligence (the DGI) and attempts to act against the regime have failed, including the August 2018 “drone attack” against President Maduro (which was possibly staged).
U.S. military action, widely speculated on in the press, is similarly unlikely. Nevertheless, a confluence of events may be driving Venezuela finally toward a “tipping point” in which the elites participating in, or benefitting from, the populist regime (and potentially backers such as the Cubans) may decide that it is less risky to depose (or kill) Maduro, than to continue with the status quo. Oil production has collapsed from a peak of 3.1 million barrels per day from the beginning of Hugo Chávez’s presidency to less than 1.2 million barrels per day, with much of that production committed to the repayment of prior debt to the PRC. A combination of a lack of investment in maintaining current (or developing future) production, and the withdrawal of petroleum service companies and drilling rigs, largely due to nonpayment for past services, is likely to push production down even further in the coming months, compounded by the difficulties in obtaining diluents and other inputs needed to refine Venezuela’s particular types of heavy oil.
Further aggravating Venezuela’s difficulties, the government is running out of options for avoiding payment of its obligations, including refinancing, delaying payments, and legal maneuverings to escape actions in international tribunals for debts owed. In recent weeks, creditors such as Conoco Philips (which successfully, if temporarily, secured a court ruling seizing PdVSA refinery assets as part of its legal pursuit of $2 billion owed to it, and forced PdVSA to commit to pay $500 million owed to the company by November 2018). Similarly, the firm Crystallex, owed $1.4 billion through a lawsuit over the expropriation of a mining operation, successfully attached the assets of the U.S.-based PdVSA subsidiary CITGO to the award. Even the Russian company Rusoro, owed $1.28 billion, has cornered the regime into agreeing to pay the first $100 million owed to it. Venezuela has further been forced into paying holders of its 2020 bond (collateralized with CITGO assets), $950 million to avoid losing control of CITGO as a strategically valuable asset. In short, despite the regime’s defaulting on over $6 billion in debt, protracted legal maneuverings to avoid paying other obligations, the regime still has almost no hard currency to import the basic necessities of its people, and the government may finally be running out of options.
On the political side, the international consensus about undemocratic character of the Venezuelan regime and condemnation of its illegal actions and human rights violations is growing. This includes a case presented to the International Court on Human Rights by Argentina, Canada, Chile, Colombia, Paraguay and Peru and condemnation of the Venezuelan regime by Luis Almagro, the Secretary General of the Organization of American States, by the regional Lima Group, and by external actors such as the British government.
While the end of the line for the corrupt authoritarian regime in Venezuela presents hope for its people in the long term, a violent chaotic breakdown of order once the regime completely runs out of money would have a devastating impact on the entire region.
Organized crime
The third major tendency in Latin America and the Caribbean is the evolution of organized crime, dominated by the fragmentation of the entire supply chain, particularly for illicit flows from South America to the United States. This fragmentation creates expanded uncertainty and potential for violence, as well as the diversification of criminal activities beyond drugs. One of the principal example is Mexico, where the 12-year old war against the cartels has led to as many as 245 individual criminal groups operating across the country, including gangs and factions of prior groups.
Such fragmentation has not only contributed to fights for control over “key” routes (the so-called “plazas”) but has also created a situation in which the transit of drugs across Mexico now involves numerous groups controlling different geographic areas or competencies, magnifying the opportunities for conflict.
In addition, the expanded demand for opioids and synthetic drugs such as fentanyl in Mexico’s principal illicit drug market, the United States, has shaken up the relationships between criminal groups, creating further potential for violence.
Mexico’s response to such difficult challenges is likely to be complicated by the changes to the security environment being pursued by the incoming AMLO administration, including removing the federal police from under the interior ministry, possibly abolishing the national intelligence service CISEN and the secret services (Estado Mayor Presidencial), as well as questions regarding the future of Mexico’s new military police brigades, which play an important role in the fight against public insecurity across the country, and the possible weakening or repeal of the December 2017 national security law. The law had established greater legal clarity for the role of the armed forces in the country in support of public security roles in general.
Beyond Mexico, criminal groups dominating illicit flows in the northern triangle region of central America have also fragmented. This includes the takedown of the leadership of traditional large smuggling groups such as the Cachiros and Valle Valles in Honduras and the Lorenzana, Mendoza and Lopez Ortiz crime families in Guatemala. This has led to a greater number of smaller groups, each seeking to establish their own ties to transnational cartels such as Sinaloa or Jalisco Nuevo Generación (CJNG) in Mexico.
In Colombia, the 2018 formal peace agreement between the government and the Revolutionary Armed Forces of Colombia (FARC) has made the already complex criminal environment in the country even more challenging, with dissident factions of the former guerrillas continuing criminal activities, joined by members of its “militia” organization (including those living in Venezuela), as well as members who demobilized, but who have now become disillusioned with the peace accord. Security and criminal challenges also include the expanded ranks of the National Liberation Army (ELN), who continue to balk at following the example of the FARC in a peace process with the government. The evolving criminal landscape in Colombia is further complicated by the splintering of the country’s largest criminal band, the Gulf Clan (thanks in part to the government’s sustained successes against its leadership and organization through Operations Agamemnon I and II), as well as by the previously noted explosion of coca production and the influx of a million Venezuelan refugees.
Farther to the south, although the Peruvian government has made progress against terrorists and criminal groups operating in the country, Peru and neighboring Bolivia, continue to be important sources for cocaine as well as illegal mining, while Paraguay has become a regional hub for marijuana and other illicit flows. The smuggling of cocaine and other goods from Peru and Bolivia to the southeast of Brazil, as well as to Argentine and Uruguayan ports such as Rosario, Buenos Aires, and Montevideo (for transshipment to Europe), and the associated growth in local drug demand, has contributed to a South American criminal economy with associated stresses on the governance on the states of the region.
The Trump Administration
Finally, it is important to recognize that the dynamics of the Latin America and the Caribbean are being transformed by the policies and communication style of the Trump administration. The U.S. Departments of State and Defense have arguably maintained effective engagement with Latin American and Caribbean partners on a range of economic and security issues, including expanded attention to the advances of the PRC in the region. Nonetheless, the “America First” posture adopted by the Administration, to include a re-orientation regarding trade policy, the end of Temporary Protected Status for Central American and Haitian migrants (although blocked by a U.S. federal court ruling), and a more confrontational orientation toward migrants from the region (including sending U.S. troops to the border in response to the caravan traveling from Honduras through Guatemala and Mexico toward the U.S. border in October 2018), have tarnished the image of the U.S. in the region.
Nevertheless, the governments of the region continue to display a willingness to work with the United States. But widespread negative perceptions of the policies and rhetoric of the Trump administration in Latin America have eroded, in ways difficult to measure, the willingness of its governments and people to work with the U.S., just at the time that the region is being courted by the PRC.
The future of Great Britain in Latin America
My engagement with the community of Latin America-focused diplomats and scholars during my time in London left me hopeful that one of the positive byproducts of Brexit could be a rekindling of Great Britain’s interest in the affairs of Latin America and the Caribbean, with a contribution to the region’s well-being through Great Britain’s support for democratic practices, strengthening of institutions, and economically engaging in a transparent and non-predatory fashion. Nonetheless, I sensed among my colleagues in London a level of uncertainty, both regarding how the country should best engage and the realistic relationship of the region to the enduring national interests of the UK.
If Great Britain indeed expands its engagement with the region, and the excellent colloquium held by Chatham House is not simply a one-time event, one of the nation’s challenges on the government side will be to define its strategic posture and agenda toward the region, including how its approach distinguishes it from (and hopefully complements) that of the European Union and the United States. In doing so, the UK will likely have to reconcile the traditional agenda of its Foreign and Commonwealth Office (FCO) on issues such as Argentina, Brazil, conflict in Colombia, and Commonwealth-tied states of the Caribbean with the expanding commercial agenda of its internationally-facing companies. In the process, Great Britain will likely find many interested partners in the region, open to the possibilities and opportunities for free trade agreements, investment, and other expanded relationships.
The nation may further uncover synergies with many of the Indian companies currently operating in the region in sectors such as information technology, pharmaceuticals, and the automotive and machinery sectors. It will likely also find many opportunities for collaboration with the United States on common interests such as strengthening democratic institutions and governance and providing alternatives to the expanding incursions of Chinese companies in the region, given the threat that they present to the rule of law, open markets, and the realization of value added in and development of the region. In short, Great Britain’s possible “return” to Latin America should be welcome both to the region and the U.S., even if the path remains long and uncertain.
Evan Ellis is Latin America research professor with the U.S. Army War College Strategic Studies Institute. The views expressed in this work are strictly his own.
