Through Chris Devonshire-Ellis
South America is becoming increasingly receptive to Russian trade and economic viability
Argentinian President Alberto Fernandez was in Beijing for the opening ceremony of the Winter Olympics and signed an agreement with China to join the Belt and Road Initiative. Argentina endured economic problems with loans to the IMF guaranteed by several American investors who were unwilling to give economic concessions. The agreement with China will instead open access to Asian financing, Fernandez stating that “this strategic decision will allow the national government to sign different agreements that guarantee the financing of investments and works for more than 23.7 billion US dollars” .
In addition to the Chinese angle, Fernandez also met with Russian President Vladimir Putin just before the Olympics, in Moscow, saying “Argentina should be” a doorway for Russia to enter Latin America in a more decisive”. He also mentioned that his country was seeking to reduce its dependence on the IMF and the United States.
China is making increasing progress in South America, with Argentina, Bolivia, Chile, Ecuador, Guyana, Peru, Uruguay and Venezuela all members of the Belt and Road Initiative. the road”. Brazil, the region’s largest economy, is not – but it has signed an agreement to align its national development plan with that of China – a milestone. In North Central America, Costa Rica, El Salvador and Panama have all joined, as has Cuba.
Regions trade with China and investment from China has increased, with 24% of all Latin American products now exported to Asia, up from 18% in 2017. China also said it plans to invest approximately US$250 billion in South America over the next decade.
Russia’s ties with Central and South America are less deep than China’s, but it has also developed diplomatic and trade relations. It has close ties with Cuba and Venezuela and is eyeing South America for trade and development ties through the Eurasian Economic Union (EAEU) to expand Russia’s trade sphere in the wake of sanctions. existing and threatened businesses. To this end, discussions have taken place regarding the EAEU free trade negotiations with Chile and Ecuadorand it is possible that a future agreement will be signed with all Mercosur trade bloc of which Argentina is an influential member. Brazil, for its part, is a member of the BRICS grouping and, together with China and Russia, a 20% shareholder in the new multilateral development bank BRICS and is considering ruble bond issue.
There are other incentives to increase trade between Russia and South America. Generally speaking, South American currencies are kept low by the constant pressure exerted on them by the US dollar, which means that the United States can access South American goods and investments at cheap exchange rates. Some Latin American economies, such as Nicaragua and Venezuela, are like Russia, heavily sanctioned. These two combinations provide the United States with easy access to invest and buy regional products, while discouraging trade and investment in the opposite direction – the US dollar is too expensive for many South American economies to access. easily. Russia, however, has exactly the same problem: the ruble is undervalued by around 72%. However, this makes the Russian and EAEU (Armenia, Belarus, Kazakhstan, and Kyrgyzstan) markets much more attractive and reasonable for South American traders and investors. The UEEA has a market of around 187 million and falls within the trade space between China and the European Union.
As the United States continues its policy of devaluing the purchase of South America and inflicting pain on what should be close neighboring economies like Argentina, what is happening is a gradual desertion of the American ideal towards China and Russia.
We can expect to hear more in the coming months as trade and investment ties between the South American region, China and Russia intensify.
Briefing Russia is written by Dezan Shira & Associates. The company has 28 offices across Eurasia, including China, Russia, India and ASEAN countries, assisting foreign investors in the Eurasian region. Please contact Maria Kotova at [email protected] for Russian investment advice or assistance with market information, legal, tax and compliance issues throughout Asia.