By Rebecca Ray and Margaret Myers
Chinese development lending to Latin America and the Caribbean (LAC) has begun to rebound, according to the latest update of the Chinese Loans to Latin America and the Caribbean Database, maintained by the Boston University Global Development Policy Center and the Inter-American Dialogue.
In 2022, the China Development Bank (CDB) and the Export-Import Bank of China (Eximbank) extended new commitments of $813 million. As noted in our just-released report, this amounts to a far cry from the early years of the relationship, when CDB and Eximbank rivaled the World Bank in the amount of financial support to the region. However, it represents a return to activity after new financing fell to zero in 2000.
The new loans also represent a shift in sectors. The large-scale lending of previous years was driven by billion-dollar commitments to LAC’s state-owned oil companies like Brazil’s Petrobras, Ecuador’s Petroecuador and Venezuela’s PDVSA. New commitments in 2022 are smaller in scale and more focused on policy objectives. The three loans signed in 2022 included a $500 million CDB term facility for the Banco do Brasil to support social programs such as affordable housing and microfinance, as well as two Eximbank loans for coastal road rehabilitation in Barbados ($121 million) and Guyana ($192 million).
Loans currently under discussion for possible finance in 2023 include a potential return to larger projects, but with a pivot away from fossil fuels and toward industry and renewable energy. Bolivia is anticipating disbursement on a $422 million loan this year for two zinc refineries, while Argentina and Honduras are in discussion for possible renewable energy finance: the expansion of Argentina’s Cauchari solar farm and Honduras’ Patuca hydropower complex.
Both of these energy projects were originally built with Chinese finance (Eximbank lent Argentina $332 million in 2017 for Cauchari while the Industrial and Commercial Bank of China lent $297 million in 2013 for Patuca). In March 2022, Honduras established diplomatic ties with China, presumably to secure Chinese financing for the Patuca expansion.
Continued debt renegotiation will also likely play an important role in the future of the China-LAC financial relationship. China’s buy-in was key to Suriname’s ability to secure International Monetary Fund (IMF) support to resolve a debt and balance of payments crisis that unfolded in 2020. Suriname’s debt to ExImBank alone represents 17% of the nation’s GDP, according to 2022 IMF estimates. Ecuador also made significant progress in renegotiating Chinese debt in 2022, restructuring over $1.5 billion in debt payments over the next three years and revising the terms of its oil-based debt payments.
Overall, the pivot toward renewed lending, albeit in smaller and more targeted project support, shows that the LAC-China relationship is moving through an inflection point. As the relationship matures, the types of projects supported and agreements pursued are likely to continue shifting in the years to come.
Rebecca Ray is a Senior Academic Researcher with the Boston University Global Development Policy Center. Follow her on Twitter: @BUBeckyRay.
Margaret Myers is a fellow at the Woodrow Wilson Center and directs the Asia and Latin America Program at the Inter-American Dialogue. Follow her on Twitter: @MyersMargaret.