Opinion – Latinoamérica21: The new Latin American ‘pink wave’ and relations with China

At recent elections in Colombia ratified a trend that has been manifesting itself in Latin America since 2018: the return or the coming to power of progressive governments. Despite this political change, the economic difficulties that Latin America has been facing since the middle of the last decade are far from being overcome. At trends towards income concentration and increasing poverty, which had been reversed during the “pink wave”, came back reinforced by the effects of the Covid-19 pandemic and the Ukrainian War. In this context, regional integration and China’s role in the region are two key challenges.

A second ‘pink wave’, under the sign of moderation

Since 2018, with the victory of Andrés López Obrador in Mexico, a new “pink wave” has emerged, which is completed with the coming to power of progressive governments in Argentina, Bolivia, Chile, Peru, Ecuador, El Salvador, Colombia and, possibly, Brazil in the near future.

So far, this second cycle shows a difference from the previous experience: without the positive external conditions of the beginning of the century and under the legacy of a disintegrated productive structure, governments do not seem to be undertaking major transformative projects.

In fact, in addition to the reduction of poverty and the distributional improvements of the 2002-2015 cycle, the modalities of surplus generation, mainly the extraction of primary incomes or the intensification of low value-added activities, weak in productive links and in technological innovation, remained practically unchanged. Yes, the appropriation of this surplus was partially modified, through improvements in direct and indirect wage income and, less intensely, its destination, since capital flight has taken a leap since the 2008 crisis.

In an unfavorable external scenario, the governments of this second progressive cycle face the double challenge of doing what they have already done –improving the distribution of income and expanding rights– and, at the same time, doing it differently, not just focusing on appropriation of the surplus, but also in its generation.

So far, under the circumstances, economic moderation has prevailed through prudent monetary and fiscal policies following the spending shock during the pandemic. Changes to the tax system appear on the agenda to make it more progressive. Meanwhile, the aspirations to modify the productive matrix seem to have been shelved, in the framework of a commitment to the intensification of primary extractive activities.

The need for foreign exchange thus conspires against redefining the mechanisms for obtaining these resources. Not only does the intensification of primary-extractive activities have the disadvantage of implying smaller local or regional production networks than other tasks, but it has also been questioned for its environmental impact. In this trend, the presence of China becomes more important, the rising power that invests the most in them.

The challenges of integration and the potential of China

In this perspective opened by progressive governments, the commitment to integration re-emerges. The re-establishment of the coordinating bodies that were left aside during the period of conservative governments appears as a first response. Also the novelty of Mexico as a potential centerpiece. However, the lack of coordination between countries still prevails, an aspect that was evident in the strategies in the face of the pandemic.

The challenge of integration is geopolitically linked to a context in which China and its investment, financing and commercial deployment capacity mark a new scenario. The Belt and Road initiative, launched by Beijing, brings together 21 Latin American countries. However, this possibility comes at a time when China itself has decided not to grant loans to the region since 2020, in the context of its own process of economic slowdown and growing rivalry with the United States.

While the Belt and Road initiative can open up opportunities for infrastructure development in the region, it requires a coordinated strategy where regional complementarities are enhanced. Will there be a common strategy this time?

* This text was originally published on the REDCAEM website
*Translation from Spanish by Giulia Gaspar