Argentine president Cristina Fernandez de Kirchner and Venezuelan leader, Nicolas Maduro, have much more in common than failing economies, populist rhetoric, and a penchant for extra-judicial political maneuvers: they are both the first and second (respectively) highest recipients of Chinese lending in Latin America—a region that, between 2005 and 2013 has received more than $100 billion in loan commitments from Beijing. As China’s economy begins to slow, however, both leaders may find another commonality to add to the list: tattered political careers.
To date, China has lent Venezuela more than $50 billion, ostensibly for infrastructure, mining, and energy projects. (Maduro is notoriously vague on where bolivar notes end up.) With OPEC in the midst of an oil war with the United States, China's loan to Venezuela—repayable in oil—is suddenly becoming exceedingly difficult to pay back. This explains—paradoxically—why Maduro was able, during a recent visit to Beijing, to secure $20 billion in “investments” from the Chinese. Quite simply, China has financed too much to risk a Venezuelan implosion, which, with inflation rates at 64%, an economy that contracted by 2.8% in 2014, oil trading under $50 a barrel, and commodity shortages throughout the country, seems increasingly likely. In what appeared to be a last-ditch effort to revive a flagging economy, Venezuela announced this past Tuesday the creation of a new foreign-exchange market called the “Marginal Foreign-Exchange System” (or, Simadi), allowing for a free-floating exchange rate. 24 hours later, the market responded, with Venezuelan dollar-denominated bonds tumbling.
China is doubtless keeping close eye on these developments and is certainly less likely to agree with an increasingly desperate Maduro that “God will provide.”
Second in line for Chinese loans is Argentina, which has received over $14 billion since 2007, the majority of which has gone to transportation and energy projects like China also happens to be Argentina’s second largest trading partner after Brazil, and recently signed 22 economic cooperation deals with the country. Overlooking some tone-deaf tweets from Kirchner last week, relations between the two appear as strong as ever. And yet, Kirchner’s latest trip to Beijing, like Maduro’s, resulted in more “investments” from Beijing—no cash. (Financial figures where not disclosed.)
Argentina’s social and economic turmoil at home mirror the domestic problems in Venezuela. Kirchner has recently been the target of some not-so-subtle allegations regarding her involvement in the murder of Alberto Nisman, the federal prosecutor in charge of investigating the 1994 car bombing of a Buenos Aires Jewish center that killed 85 people. Four days before his death, Nisman had filed a report accusing the Argentine government of covering up Tehran’s role in the bombing in exchange for—you guessed it—economic favors. It is looking increasingly likely that Kirchner will face formal charges for her alleged involvement. Coupled with recent failures to pay back interest holders of Argentina’s defaulted debt, an outright refusal to pay initial creditors, and, again like Venezuela, commodity shortages, Beijing has little reason to feel confidence Buenos Aires.
A recent editorial in The Buenos Aires Herald warned of the negative impacts Kirchner’s pro-Sino policies might have once China’s economy begins to slow. With a Washington relationship characterized last year by U.S. Assistant Secretary of State for Western Hemisphere Affairs Roberta Jacobson as “in a difficult period”, Argentina may soon discover why mocking China is not so funny.