Belt, Road, Buenos Aires

Argentina signs up to China’s signature infrastructure initiative – financial volatility could give Beijing the jitters.

Argentina’s president Alberto Fernández (“Fernández”) announced last month that the country will join China’s Belt and Road Initiative (“BRI”). His administration has fostered closer ties with Beijing and the government will be hoping that BRI participation will help galvanise much needed foreign investment as opportunities open up in a broad range of sectors from infrastructure to energy.

The agreement also reflects China’s continuing efforts to use the BRI to advance its geopolitical and economic interests across Latin America.

A professor of international relations based in Argentina explained, “Argentina’s participation in the BRI is significant. The country will now be the largest economy in Latin America to become part of the initiative. The participation of Buenos Aires will also likely encourage Mexico and Brazil to follow suit.”

“Argentina’s participation in the BRI is significant. The country will now be the largest economy in Latin America to become part of the initiative.”

Professor of international relations, Argentina

For a fiscally constrained administration soon to implement IMF austerity measures as part of its debt repayment plan, the prospect of increased Chinese investment cannot come fast enough. The problem for Beijing is that Argentina is unlikely to be one of the BRI’s more reliable contractual partners. Buenos Aires has a track record of non-payment – especially when it comes to large infrastructure projects – and financial volatility is unlikely to dissipate anytime soon.

Indeed, there is a risk that the deal may not be quite as mutually beneficial as China may like to believe.

A former Bolivian diplomat explained, “In political and policy terms, this is a win for China which can use the agreement to highlight its commitment to the development narrative. In practical terms, BRI has a much smaller footprint in Latin America than Africa or Asia – there are few projects in the region currently and lingering concerns over fiscal discipline and debt repayment could cloud further investment.”

“In political and policy terms, this is a win for China […] in practical terms, BRI has a much smaller footprint in Latin America than Africa or Asia.”

Former diplomat, Bolivia

Of course, the BRI isn’t just about development. It’s also about deepening China’s political influence in the region. Latin America is experiencing a serious socioeconomic crisis, millions of dollars in inflows including substantial loans for infrastructure is an attractive prospect. Beijing knows that few countries in the region, Argentina included, will want to miss out on such an opportunity. The region did not meaningfully feature on the BRI radar until 2017, some twenty countries in the region have subsequently joined.

A Chilean academic stated that, “The BRI has offered very little clarity in terms of what its investment portfolio in the region might look like. But, from a soft power perspective, each country that signs up is an accolade to China in the region.”

China is also using the initiative to challenge the commercial dominance of Washington across the continent. Fernández said that he expects the agreement to provide Argentina with up to USD 24 billion in investments in the “coming years” at a time when American foreign investment is dwindling. His administration expects Beijing to facilitate both direct investment and offer new lines of credit. Projects worth USD 10 billion in energy, transport and housing are being touted.

Argentina is under domestic and international pressure to deliver economic gains and tackle the country’s dire socioeconomic situation. BRI-led development projects could provide international investors with significant opportunities over the coming decade and increased activity could result in positive spill-over effects across the economy. It may also help address serious operational challenges which has plagued Argentina’s business environment for years, not least its haphazard energy supply.

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