Latin America News: Venezuela, Chile, Argentina and Other Countries' Economy to Suffer Because of China
Latin America’s economy has been symbiotically linked to China’s consumption of its natural resources for decades, and now that China is slowing down its purchases, Latin America’s economy must brace itself for the upcoming blow.
The entire region is financially marked by the spending power of the People’s Republic of China. The world’s largest communist country purchases nearly 40 percent of Chile’s copper, has spent billions buying soybeans from Argentina and Brazil, and even propped up the Venezuelan government by lending them $50 billion to be repaid in shipments of oil, The New York Times reports.
The era of China’s seemingly insatiable appetite for Latin America’s raw materials, however, is over.
Policy makers gathered for the International Monetary Fund’s conference held in Chile are acknowledging the change.
Andrés Velasco, Chile’s finance minister from 2006 to 2010, identified that the Latin American commodity boom had indeed fueled the region’s most prosperous decade since the 1970s.
“It filled government coffers and helped halve the region’s poverty rate,” he said, going on to describe how even the economically stressed, and inflation-plagued country of Argentina “grew by 5 to 6 percent per year for almost a decade.”
Yet everything is in a bust now. Since China has inserted itself into the global economy by entering the World Trade Organization, it no longer relies as heavily on Latin American raw materials. For example, copper -- which China had helped to push to $4 a pound -- is back down to $3.
Meanwhile, Venezuela, which has been hurt by a collapse in oil prices that have been driven down by altering global demand and increased supplies from the United States and elsewhere, is effectively defaulting on its debt to China.
“Growth in Latin America should move back to pre-commodity boom rates," Alejandro Werner, who leads the Western hemisphere division at the IMF, predicted.
Despite the obvious economic challenges in store for Latin America, IMF Managing Director Christine Lagarde, remains optimistic.
“This is an exciting time for Latin America, which has been stretching and renewing itself economically, politically, and socially in recent years," she said, according to IMF Survey Magazine.
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