REVISTA CHAKIÑAN, 2018, Nº.5, AGOSTO, (18-39)

ISSN 2550-6722

THE POST-NEOLIBERAL SOUTH AMERICAN DEVELOPMENT

EL DESARROLLO POST-NEOLIBERAL DE AMÉRICA DEL SUR

ABSTRACT

RESUMEN

This study addressed the triangular relations between Latin America, Beijing and Washington

in the last 15 years using a process tracing technique on the economic and political models of

the region. It specically focused on the South American development during the post-Washin-

gton Consensus era, as well as the expanding inuence of China over this region. The aim of

this paper was to transmit the idea that the failure of neoliberalism in the 90s together with the

expansionism of China have shaped the contemporary political and economic arena among the

countries of South America. This work could help to understand the historical process of the

construction of develop paradigms on the region and its impact on the society.

Keywords: China, Development, Hegemonic Powers, Latin-America, United States.

Este estudio analizó las relaciones triangulares entre América Latina, Pekín y Washington en

los últimos 15 años por medio de un rastreo del proceso político y económico de los estados

de la región. Se centró especícamente en el desarrollo de América del Sur durante la era

post-neoliberal, y la creciente inuencia de China sobre esta región. El objetivo de este trabajo

fue promulgar la idea de que los medios por los cuales se ha formado la arena política y eco-

nómica contemporánea de los países latinoamericanos han sido, el fracaso de las doctrinas del

Consenso de Washington en los años noventa en conjunto el expansionismo chino. El aporte

del presente trabajo va dirigido a la comprensión del proceso histórico de la construcción de

paradigmas de desarrollo en la región y su impacto en la sociedad.

Palabras Clave: China, Desarrollo, Poderes Hegemónicos, América Latina, Estados Unidos.

Santiago Carranco Paredes

scarrancoparedes@gmail.com

Universidad Internacional del Ecuador

Flacso, Ecuador

Fecha recepción: 20/02/2018

Fecha aceptación: 30/03/2018

REVISTA CHAKIÑAN, 2018, Nº.5, AGOSTO, (18-39)

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INTRODUCTION

The new millennium embodied a breakpoint

in Latin American politics. After 20 years of

adjustment, which was the subtle term used

for referring to the neoliberal guidelines

imposed by international nancial institu-

tions (Williamson 1990:7), a wave of leftist

leaders that promoted anti-neoliberal ideo-

logies gained popularity among the public.

The socialist trend started in 1998 with the

triumph of Hugo Chavez in Venezuela, fo-

llowed by the victory of the Workers Party in

Brazil led by Ignacio Lula da Silva in 2002.

Then, a series of populist left-wing leaders

gained power as in the case of Rafael Correa

in Ecuador in 2007, Evo Morales in Bolivia

in 2006 and the former guerrilla man Jose

Mújica in Uruguay in 2010.

Some of this left-winged leader have alig-

ned with the ideas of the ‘21st Century So-

cialism’, promulgated by Heinz Dieterich in

1996 and then restructured at the Sao Paulo

forum by the socialist South American lea-

ders. Rafael Correa (2014) set that it is not

considered a model, but a series of princi-

ples that allows sovereign governments to

generate economic and political models that

are suitable for their own domestic reality.

The four main principles of this doctrine are:

• Prevalence of human capital over nan-

cial capital

• Major use of direct democracy

• Special protection for minority groups

• Self-determination and nationalization

(Dieterich 2003:121-129)

Such series of principles have shaped the

economic and political models in some sta-

tes, for instance El Buen Vivir in Ecuador,

a model that provides constitutional rights

to the Earth and the environment, as well as

the Bolivariano model of Venezuela shaped

by Hugo Chavez, and the Sumac Kumaña in

Bolivia. Such models were aimed to convert

Latin America into a region integrated under

socialist patterns.

In general terms, during the rst decade

of this millennium, those projects have de-

monstrated a positive progress in economic

terms. The GDP of the region has grown

around 4.5% each year and the unemploy-

ment rates have fallen from 11.2% in 2002 to

6.4% in 2011. Furthermore, Latin America

has lifted more than 64 million people from

poverty and 60 million from the absolute po-

verty line; and, except for Venezuela, the re-

gion has maintained constantly low ination

levels (Cepal 2015). Some authors such as

Do Alto (2008), Svampa (2008) and Paniz-

za (2009) have suggested that the autonomy

in the Post-Washington Consensus policies

have been the key factor that led to South

American states to achieve such political and

economic stability. However, there are fur-

ther aspects such as Chinese expansionism

that has evidently inuenced the progress of

the region during the last 15 years.

The South American governments have en-

joyed an economic bonanza in the last deca-

de, primarily produced by two factors. First,

a boom of the commodities market cau-

sed by Chinese demand for raw materials;

and second, the increment of capital ows

towards the region, from countries like Sou-

th Korea, Canada, Australia, and expressly

from China. Therefore, it is conceivable that

the stability of the mentioned leftist gover-

nments along with the success of their po-

licies may perhaps be associated in a direct

way with the expanding inuence from the

Asian power over the region. Authors as

Manriquez & Alvarez (2014), Wu & De Wei

(2014) and Philips (2011), have paid special

attention to the increasing expansion of Chi-

nese inuence over South America.

Nowadays, China is the leading world expor-

ter and the 2nd major economy in the world

(Francoise 2013:25-26). In terms of bilateral

trading with Latin America, the commerce

gures climbed sharply during the rst deca-

de of the millennium; the Sino–Latin Ame-

rican trade skyrocketed from US$10 billion

in 2000 to a pre-crisis peak of over US$143

billion in 2008. China became either the rst

or second largest trading partner for most

Latin American countries. Meanwhile, La-

tin America has become China’s fth-largest

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METHODOLOGY

This scientic paper is the result of a research

that aimed to investigate the connexion that

exist between the failures of the Neoliberal

guidelines in the South American countries

during the 90s and the Chinese expansio-

nism over the world. The connexion will be

reected on the change of the development

paradigms that has shaped the contemporary

political-economy arena of the region. At

the end of this work paper, the reader will

acquire an understanding about the way in

which the upsurge of the Chinese power has

inuenced the policy-making of the South

American states over the last 15 years. The

argument will be developed over 3 parts.

The rst one will be dedicated to discus-

sing about the on-going power shifts in the

international-political arena. This part will

include a narrative about the failure of the

Washington Consensus guidelines, as well

as a clarication about the details of the

contemporary power struggle between the

main contemporary hegemonic powers, in

order to recuperate this data, the study used

a documentation of primary and secondary

sources. The aim of this section is to set the

actual scenery of the interrelations between

Beijing, Washington and South America.

The second part aims to dene the connec-

tion between the Chinese expansion and the

rise of leftist governments in South Ameri-

ca. This section will include a study about

the uprising of the left over the region, par-

ticularly after the failure of the Washington

Consensus. It also will include an illustra-

tion of the macroeconomic indicators of the

performance of the region over the last 15

years, with the intention of evaluating whe-

ther the domestic policies created in some

countries of South America after the Was-

hington Consensus have created real deve-

lopment in the region or if it was merely a

ctitious growth.

trading partner (León-Manriquez & Hearn

2011:11-12).

As well, for some South American adminis-

trations, including the ones in Ecuador, Ve-

nezuela and the Argentinean before Macri,

the Chinese government has turned into the

new alternative for nancial assistance, in

some way setting aside the inuence of the

traditional international nancial institutions

as the International Monetary Found (IMF).

Agreeing to Chinese borrowing terms do not

include any type of policy reforms or scal

adjustment.

Instead, the Asian state mostly requires the

recognition of the One-China policy and the

signing of long-term commercial contracts,

headed to supply China a daily xed quan-

tity of commodities; in most of the cases,

oil, minerals and natural gas (Wu & De Wei

2014:790). In this way, China does not only

ensure a long-term supply of commodities,

but also gains recognition of its national line

of thought. In the same manner, South Ame-

rican governments, benet from market di-

versication, as well as nancial assistance

without any requirements of policy adjust-

ment.

The expanding inuence of China over de-

veloping regions has brought debates about

the geopolitical implications of China’s rise.

One standpoint perceives China as a threat

to the United States’ position as the sole su-

perpower. This challenge to US hegemony

could be a cause of instability and poten-

tial conict in the future. However, further

views have emphasised the peaceful rise of

China, and the benets of its expansionism.

One example of it was mentioned before: It

is how the commodity boom over the last 15

years, along with the nancial aid and spe-

cialised investment made by China has brou-

ght an economic expansion for developing

economies, particularly to South America.

In this way, the Chinese economy could be

complementary to those of other developing

countries that stand to gain from China’s

growth (Rhys 2010:810-812).

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RESULTS AND DISCUSSION:

The Decalogue for Development

Finally, the third section will provide 3 par-

ticular case study using a process tracing

technique, in which by analysing the neoli-

beral guidelines that led Argentina, Bolivia

and Ecuador to a nancial or an economic

crisis, along with a study about expansion in

economic and diplomatic bilateral relations

with China, I aim to oer a narrowed and ac-

curate perspective of the way in which these

factors have been an essential foundation for

the construction of the current economic and

public policies of those countries, as well as

the real impacts these policies have had du-

ring this period of time.

During the 60s and the 70s, Latin American

states acquired substantial sums of foreign

debt, particularly with the IMF for adjusting

the disproportion on its balance of payments.

Such imbalances were mainly caused by the

ineciency of import substitution policies

that those states maintained after World War

II.

An example of such practices was using fo-

reign loans to protect the state enterprises,

compensating its inecacy and making them

able to compete at domestic level. In this

way, the South American states were using

the nancial loans provided by the IMF not

only to correct macroeconomic imbalances,

but also to nance the public industry de-

cit. By 1980, most Latin America economies

became immersed in economic stagation,

mainly triggered by the collapse of the raw

materials markets and the US Dollar appre-

ciation (Rangel & Soto Reyes 2012:42).

In 1982 the Mexican state, which was unable

to borrow, ran out of nancial reserves and

this situation ultimately led to default on its

foreign debt. The Mexican default triggered

a series of complications for all Latin Ameri-

can states. The US authorities alleged that to

avoid a contagious ination, it was necessary

to restrict the quantity of money circulating

in the economy. Thus, the North-American

state increased their interest rates producing

a rise in the price of their currency. The La-

tin American states, which were indebted in

US Dollars, attained a foreign debt capable

to reach record levels. Consequently, much

of states in the region fell into a situation that

made them unable repay their foreign debt.

To avoid a massive default, the internatio-

nal institutional creditors came into the res-

cue. However, they also viewed a perfect

opportunity to extend the neoliberal system

to South America (Rangel & Soto Reyes

2012:40-45). After the failure of the Cepa-

list model of import substitution, the Latin

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American states were required an open, sta-

ble and liberalized economic model.

At least this was the prescription that neo-

liberal economists of the time suggested,

including Williamson (1990) and Richard

(1990). This is how the neoliberal guidelines

were crystallized with the formulation of the

Washington Consensus. A Decalogue of po-

licy reforms which fundamentally proposed

that economic reforms should be based on

the logic of the markets, besides from being

characterized by openness and macroecono-

mic principles. The Washington Consensus

could, therefore, be summarized by ten main

guidelines:

• Fiscal Discipline

• Redirection of public expenditure towards

education, healthcare and infrastructure

• Tax reforms to extend the tax base

• Interest rate liberalization

• A competitive exchange rates

• Trade liberalization

• Liberalization of foreign investment in-

ows

• Privatization

• Deregulation to commerce

• Property Rights (Williamson 1990)

The eects of the Washington Consensus

over Latin America raised, and still raises,

several arguments concerned with debates

about the triumph or failure of liberalism

and the way in which globalization is percei-

ved. However, it is undeniable that the libe-

ral guidelines were unsatisfactory for Latin

America since they did not accomplish their

main objective.

As a matter of fact, after a decade of its im-

plementation, states such as Argentina, Bo-

livia, Brazil, Ecuador, Paraguay, Venezuela

and Uruguay were hit by a series of econo-

mic, nancial and political issues that could

most certainly be linked to the unsatisfactory

reaction of the public towards the neolibe-

ral policies implemented during the 90s. In

addition, the implementation and the main-

tenance of the neoliberal policies caused the

South American countries to acquire an even

larger amount of foreign debt.

Such a situation produced a vicious cycle, in

which the states needed money to maintain

the neoliberal policies, but then again, the

International Financial Institutions only pro-

vided them conditionally loans, upon the im-

plementation of further neoliberal policies.

Such a situation made it impossible for the

South American states to redirect the money

of their loans to matters that would enhance

their development like education, infrastruc-

ture and technology. Instead it was used to

pay the cost of policy implementations, and

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the repayment of their debts with higher in-

terest rates. Consequently, these states were

not able to industrialize their production and

were condemned to be indebted raw material

exporters (Rangel & Soto Reyes 2012:46-

57).

The Chinese expansion and the US hege-

monic decline

While Latin America entered a decade of

economic stagnation in the 80s, China on

the other hand was starting a period of rapid

economic growth. Since the 80s, the Chine-

se economy not only has grown at almost

10 per cent per annum, which resulted in a

sevenfold increase in the income per capi-

ta. But it has also become the second-largest

economy in the world. Furthermore, its suc-

cessful reintegration to the global economy

had situated the Asian power as the world’s

largest exporter ahead of Germany and Ja-

pan. In addition, Chinese companies such as

Sinopec and China National Petroleum have

become key players in the commodities mar-

ket, particularly in the extraction and energy

industries. Since 2000, the Asian power has

been expanding its inuence in the world

beyond commerce. China started having a

major impact on the political, nancial and

diplomatic aairs.

Manriquez & Alvarez (2014), demostrated

how Latin America is still a highly econo-

mic-dependent region, and also they out-

lined the ideological, political and mostly

economic ssures of the relations between

United States and Latin America. They went

on to explain how China is taking advan-

tage of this situation in order to gain more

inuence over the Latin Amercian region.

Even though the general perspective of the

US-Latin American relations shows a solid

compromise, the reality is revealed when the

studies are geographically separated. As it

could be seen in table 2, the total trade be-

tween the two parties rose from US$ 339

billion in 2000, to US$ 586 billion in 2012.

In addition, Latin America has gained rele-

vance in US foreign trade gures. In 1990,

the region accounted for 13.3% of US ex-

ports and 12.9% of US imports. By 2009,

the respective shares increased to 22.1% and

18.1% respectively (Cepal 2015). However,

58% of US trade with Latin America took

place with Mexico, and the commercial ow

of the nineteen other states accounted for

just US$ 340 billion. Furthermore, while the

United States is still the major commercial

partner of almost all the countries in Cen-

tral America and in the Caribbean, China

has displaced the United States as the major

commercial partner in many South American

states (Manriquez & Alvarez 2014:8-14).

There are several factors that are contribu-

ting to the capacity of China to overstep the

United States’ economic and political in-

uence in the region. For Manriquez & Al-

varez (2014:11-12) the list includes rst, the

geographical conditions, in which the Uni-

ted States is still able to inuence states with

geographical contiguity, but is inecient

to maintain its control over all the states in

the region. Second, the US neglect for Latin

America due to its focus on the Middle East.

And third, a lack of trust in the orthodox

neoliberal guidelines.

On the other hand, China has emerged in La-

tin America as the new nancial alternative.

China has disbursed since 2010, more than

US$110 billion in high-level investment to

Latin America and nowadays has become

the 3rd highest investor in this region. Fur-

thermore, China has become a donor-mem-

ber for the Inter-American Development

Bank (IDB), providing China a seat on the

Board of Governors, allowing China the ca-

pacity to inuence decision-making in terms

of nancial policies and investment of the

26 Latin American countries part of the IDB

(Wu & De Wei 2014).

The nancial power of China is becoming

its most ecient weapon to expand its in-

uence. Nowadays, China has accumulated

US$3.4 trillion of ocial foreign exchan-

ge reserves. Furthermore, it is the second

biggest creditor of the US foreign debt

(US$1164 billons [7.5% of the total United

States foreign debt]). Although the United

States still maintains privileges due the po-

sition of the US dollar as the key currency of

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the world, the massive accumulation of Chi-

nese nancial assets has situated the United

States in a very sensitive position, as the Chi-

nese expansion of nancial inuence over

the United States is aecting its hegemonic

political capabilities. Thus, the United States

is watching carefully how China continues

to expand its inuence over the South Ame-

rican region, and considering how best to act

to not aect its own nancial stability.

The former Australian Prime Minister, Ke-

vin Rudd (2015), now president of the Asia

Society Policy Institute, declared that:

If China does become the world’s

largest economy, it will be the

rst time in 200 years that in the

world we will have as the largest

economy a non-English speaking

country, a non-Western country,

and a non-liberal democratic coun-

try…It will aect so many things

at so many levels. It will go to

the absolute core. It’s happening

quietly. It is happening persistent-

ly. It is happening in some senses

under the radar’. (Rudd 2015:1)

Such description perfectly captures how

China has expanded its inuence over de-

veloping regions, particularly in North Afri-

ca and Latin America. Being a great power

has never been solely about the possession

of large amounts of crude material power. It

has been closely related to notions of legiti-

macy and authority, in this way, the Chinese

power has been combined with a long-term

sense of where it would like to be and that, as

a state, it must date maintained a signicant

degree of strength and coherence (Hurrell

2006). Since 2001, the presence of China in

South America has intensied, and this it is

not a coincidence.

The aliation of China to the World Trade

Organization (WTO) changed commercial

rules all over the globe. The leftist gover-

nments saw an opportunity to expand their

markets to Southeast Asian states and parti-

cularly to China, which had already started

to increase its commerce over the region du-

ring the late 90s. The commercial guidelines

of all the South American states have started

to include openness to Chinese markets as

key goals in their foreign and commercial

policies (Oliva 2010:113).

Attempting to generate a dierent scheme

of cooperation comprising the non-Western

Southern regions of the globe, China has

chosen a softer pattern of inuence, which

has given the impression to be solely concer-

ned with commercial matters at rst glance,

but later pursuing political and diplomatic

acknowledgment. For instance, China has

changed its policy and now can expand its

commercial ow and direct its investment

towards developing countries that still main-

tains good relations with Taiwan, such as

Honduras, Guatemala and Paraguay. This

has been done deliberately with the aim of

opening further diplomatic channels later

down the line, such as happened in 2004

and 2007, with the Dominican Republic and

Costa Rica respectively, both Caribbean sta-

tes which have maintained a historical sche-

me of cooperation with Taiwan but switched

rapidly their diplomatic recognition of the

People’s Republic of China when they per-

ceived that doing so would be benecial

(Manriquez & Álvarez 2014:22) (Wu & De

Wei 2014:795-797).

China is also pursuing a recognition as a

market economy state, regardless of its mer-

cantilist practices, which include an articial

depreciated currency exchange rate, dum-

ping, copyright infringements, various cases

of child labour and extreme working condi-

tions. In South America, states as Argentina,

Peru, Venezuela Brazil and Chile, without

regard of the counter eects that such condi-

tions have on their own commercial sectors,

have granted China the condition of a market

economy state, since Chinese ocials have

imposed this condition to continue a com-

mercial and nancial scheme of cooperation

(Urdinez 2014).

The Sino diplomacy and its inuence for

the upsurge of the leftist policies in the

South

Wu & De Wei (2014:789-799), have recog-

nized two main areas of Chinese foreign po-

licy inuence over Latin American states.

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The rst is concerned with nances and the

economy. It includes oil negotiations, com-

mercial reliance, borrowing and investment.

The second area is about diplomatic recog-

nition and political expansionism, including

the global recognition of the ‘One China’

Policy.

One of the bases of the success of the Chine-

se expansion in South America had been re-

lated to the platforms that China used since

2000 for engaging with these nations in eco-

nomic aairs, leaving the pursuit of diplo-

matic recognition as a secondary priority. By

doing so, China has been welcomed by the

South American states as an option to diver-

sify its markets and for obtaining nancial

aid and investments. China has focused on

creating solid relations based on economic

and nancial matters rst and, after securing

these, branching out into the diplomatic and

ideological arena. It is evident that China has

learned the lesson of the failure of the neo-

liberal scheme managed during the 80s and

the 90s. (Wu & De Wei 2014:800)

The leftist projects in Latin America de-

monstrated decent outcomes, which could

be validated by both the popular acceptan-

ce of the leftist leaders during their admi-

nistrations as well as the good results given

by macroeconomic indicators, which shown

a consistent expansion on the GDP growth

rates per year and a decrease in ination and

unemployment rates; in comparison to the

numbers during the Washington Consensus

reforms in the 90s. However, since 2014, the

popularity of the leaders has started to decli-

ne, because of two important factors. First,

criticism about the increasing levels of ac-

cumulation in both public and foreign debt,

particularly with China. And second, the rec-

kless allocation of public funds, especially

in the Andean region administrations, inclu-

ding Bolivia, Ecuador, Argentina but, most

expressly, Venezuela.

Saul Quincy (2011) determined that these

are common problems with socialist models,

which denote the unsustainability of such

projects for two reasons. Firstly, because

leftist leaders have only focused on winning

socialist goals, preventing any alternative

for the model that they have proposed and

therefore showing the populist and self-in-

terested characteristics of such models. And

secondly, due to the lack of empathy of the

professionals and middle classes towards the

social policies, probably because they have

been educated under neoliberal bases. In Ve-

nezuela for instance, the professional class is

so ideologically capitalist that even doctors

must be imported from Cuba to work in the

public sector as, so few Venezuelan doctors

are willing to treat the poor if their personal

income is aected. (Quincy 2011)

The Argentinean Case

In Argentina, six of the ten neoliberal poli-

cies were applied for the economic restruc-

turing of the state including a xed nominal

exchange rate, trade liberalization, an inten-

sive privatization scheme, and deregulation

of the labour conditions, allowing outsour-

cing and non-contractual ways of employ-

ment. Silva (2015), studied the reformation

into two sub-periods.

The rst period of boom, started in 1991 and

extended up until the third quarter of 1998

and the second one of crisis, which begins

in the fourth quarter of 1998 and lasts up to

the end of 2001. It is true that during the rst

period the neoliberal policies had an accep-

table performance, not only by facilitating

the expansion of the Argentinean markets,

but also by pressuring companies to become

more productive.

However, the ipside of this process was the

accumulation of nancial and scal imba-

lances caused by the cost of implementing

and maintaining these neoliberal policies,

especially the cost of maintaining the pari-

ty of the Argentina Peso to the US Dollar.

In addition, there was a deterioration in sta-

te power due to the austerity measures im-

posed, which was clearly expressed in the

breakup of the alliances in parliament, and a

general loss of legitimacy among their elec-

toral base, producing apart from the econo-

mic unproductivity, a profound political ins-

tability.

The Argentinean crisis best known as the Co-

rralito was triggered in 2001 when the IMF

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refused to release US$1.3 billion, alleging

the failure of the Argentinean government to

reach a previously agreed-upon budget de-

cit target, while it also demanded further

budget cuts. This episode not only caused a

national demonization of the neoliberal ins-

titutions but also the spreading of a sense of

discomfort to the whole population, espe-

cially to the most aected working classes.

The situation led to a prolonged crisis, which

ended in nancial bankruptcy and a severe

decline on real economy. Argentina ended in

a situation where the bank accounts of the

people were frozen for weeks, and 50% of

the population ocially became poor while

another 25% was below the absolute line of

poverty (Silva 2015).

The Argentinian nancial is one example

of a vast range of events that demonstrated

not only the unpopularity of the neoliberal

policy among Latin Americans, but also the

means in which the reckless implementation

of these policies was never able to adjust to

the South American reality, resulting in a

asco that cost all the countries of the region

various decades of unproductivity and large

sums of nancial obligations.

Although there is still a divergence of opi-

nions about the outcomes of the Washing-

ton Consensus in South America, a general

perception among the authors, regardless of

whether they are supporters or opponents of

neoliberal dogmas and including the pers-

pectives of Cavallo (2004), Silva (2015)

and Rangel & Soto Reyes (2012), is that

the Washington Consensus left a sense of

economic openness in Latin America and

helped to rationalize the concept of globali-

zation for Latin Americans. Nevertheless, it

also left an unpopular notion about neolibe-

ral institutions and the scheme in which they

were regulated.

The new-born Sino-Argentinean relations

during the Kirchner administration were a

good example to demonstrate the inuence

that Chinese diplomacy has over the econo-

mic and political decisions taken during this

period. In 2003, after several interim presi-

dents, the left-wing leader, Nestor Kirchner

became Argentinean president. The Kirch-

ner administration pursued an autonomous

economic policy that was contrary to the

guidelines imposed by the IMF in the 90s.

The main objective of the Argentinean go-

vernment became the repayment of the debt,

with the intention to disassociate the country

from neoliberal prescriptions imposed by the

multilaterals. Since its rst day in the admi-

nistration, Kirchner implemented a series of

social programs to reconsolidate the Argen-

tinean people’s trust in the government and

such measures boosted his popularity among

the public and provided political stability to

Argentina (Panizza 2009:245). In 2006, Ar-

gentina achieved its national goal by paying

its debt with a single payment of US$ 9.2

billion (Navarro 2015). It could be said that

somehow, the autonomous policies reco-

vered the Argentinean economy and made

the state able to repay its debt obligations.

However, there is an essential factor which

facilitated the Argentinean recovery, and

such factor indeed is China.

Since 2003 the strategic foreign policy goals

of Argentina started to include guidelines

which encouraged openness and enhance-

ment of diplomatic and commercial relations

towards the Asiatic power. In fact, China

was considered one of the seven great pivo-

tal points of Argentinean commercial policy

which aimed to create permanent, balanced

and mutual bilateral ties. In 2004, Kirchner

visited Beijing and Shanghai accompanied

by his ministers and his wife, Cristina Fer-

nandez, who in 2007 would be elected as

President of Argentina. This was the rst of

many future encounters between Argenti-

nean and Chinese leaders. Because of such

visits, a series of bilateral agreements were

signed, mostly to promote mutual invest-

ment and to encourage the creation of Si-

no-Argentine companies.

For China, the recognition as a market eco-

nomy by the government of Argentina was

a key issue. However, the Argentinean sta-

te was applying 79 anti-dumping measures

per year to Chinese products to protect its

industry and workers. Nonetheless, China

was oering a considerable increase in in-

vestment towards Argentina’s productive

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sectors and infrastructure, besides it provi-

ded Argentina the status of tourist destina-

tion and, most important, accepted to provi-

de the nancial aid that Argentina needed to

full its national prime objective, which was

to pay back the debt. What’s more, Hu Jin-

tao had already gained the recognition from

Brazilian’s president, Luiz Ignacio Lula da

Silva, which would have conditioned the

bargaining power of Argentinean ocials

who knew that granting China the condition

of ‘market economy’ could produce dange-

rous eects on their national industry. Yet,

before Jintao left South America, the nego-

tiations concluded with the signing of a ‘me-

morandum of mutual understanding’ which

recognized China as a market economy state

(Urdinez 2014:70-73). This exposed the vul-

nerable sectors of the Argentinean economy

and demonstrated the capabilities of the Chi-

nese ocials who, by including nancial

and commercial matters into the bargain, can

inuence a country’s diplomacy and ideolo-

gy.

In addition, since 2005, Chinese injections of

capital started to be introduced into Argenti-

na’s economy through direct investment and

lending. The same year, China purchased

Argentinean debt bonds, which were mainly

issued with the purpose of meeting its nan-

cial obligations with the IMF. So, because

of this, further Chinese investment was used

for improving the public infrastructure such

as highways and railways. In return, Argen-

tina agreed to take a common stance against

US and European agriculture subsidies in

the WTO (Urdinez 2014).

Since 2006, there has been a series of bila-

teral agreements signed by both parties with

the aim of boosting cooperation in areas that

include natural gas, tobacco and pharmaceu-

tical commercialization, as well as tourism,

educational services, and biotechnology

transfers, and the consolidation of the Chi-

na-MERCOSUR agreement. Furthermore,

in 2009, a fund of US$ 11 billion in Pesos and

Renminbi was created between the Argenti-

nean Central Bank and the People’s Bank of

China to set commercial transactions in both

national currencies. Hence, both countries

have cooperated in taking small steps to set

aside dependency on the US dollar for inter-

national transactions (Oliva 2010:104-105).

By the analyses of the present Sino-Argenti-

nean relations, it is possible to observe that

the interrelations of both countries go be-

yond the economic and commercial matters.

Nowadays, it is clear to observe a demar-

cated scheme of cooperation between these

nations that include diplomatic, political and

ideological bonds. China was a crucial pla-

yer in the Argentinean recovery and nowa-

days plays a fundamental role as commercial

partner and investor for the maintenance of

its policies. On the other hand, Argentina has

become largely dependent on China, which

has demonstrated the power to inuence Ar-

gentinean executive decisions.

Bolivia, Morales and China

After 20 years of neoliberal guidelines, the

Bolivian state was immersed into a profound

economic and social crisis. The Washington

Consensus policies brought to this country,

an increment in poverty rates while wealth

was accumulated by a few sectors and taken

outside the country. Furthermore, the gap

between rich and poor widened, the infor-

mal economy numbers skyrocketed, and the

high levels of unemployment caused people

to work for less than US $ 1 per day (Rowan

2003:2-3).

Such precarious conditions resulted into a

natural response in which Bolivian taxpa-

yers redirected their frustration to oppose

any neoliberal policy. For Do Alto (2008)

and Panizza (2009), the failure of the Was-

hington Consensus guidelines triggered the

popularity of the left anti-elitist leader, Evo

Morales, which appeared with a demagogi-

cally-social discourse that not only attacked

aggressively the neoliberalist line of thou-

ght, but also induced a feeling of nationalism

within the Bolivian collective mind. Since

Bolivian policies took a shift against neoli-

beralism (Rowan 2003:2).

A brief valuation of social and economic in-

dicators of Morales` administration shown

that the GDP has been constantly growing

around 4.1% and 6.1% each year. In addi-

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tion, the minimum wage escalated from US$

57 in 2003 to US$ 238 in 2015, furthermore,

the infant mortality rate was reduced by 60%

and most importantly, 3 million people have

been lifted out of poverty and 1.7 million

from extreme poverty (Cepal 2015). Al-

though the Bolivian economy is still fragile

and dependant, the left policies of the multi-

cultural state have demonstrated remarkably

better outcomes than the results produced

by the policies applied during the neoliberal

period; however, again China, was an impor-

tant player that aimed for such development.

There are two important factors in the

Evo-Bolivian model. The rst one stands for

the nationalisation of public goods, such as

water and electricity, as well as the ones con-

cerned with extraction of hydrocarbons and

mining, which are constitutional recognized

as strategic resources. Do Alto (2008:177-

183) studied the eects of the nationaliza-

tion of companies in Bolivia, so he remar-

ked that in addition to the new Constitution,

there are two key legal reforms that helped

the Bolivian government to succeed in the

nationalization process without using the -

gure of expropriation.

The rst was the supreme decree N. 29701

and the second the Hydrocarbons’ law. The

rst established that 82% of the prot of

big companies in the extractive industries

should go to the state and 50% of the prot

for the minor ones. The second one dictates

that all the hydrocarbon resources belong to

the state. As a result, the Bolivian govern-

ment has been able to benet directly from

the boom in the commodities market of the

last decades. The Bolivian government has

already gained control of 19% of the Boli-

vian GDP, and the national objectives expect

that they can get control of 30% of its GDP.

The second factor is related to an increase of

exports, mainly attributed to the diversica-

tion of its markets, predominantly towards

China.

In the last decades, the Chinese industrial

production has diversied from its tradi-

tional industries such as toys and textiles

production to further segments such as ma-

chinery and chemical production. The rapid

development of China’s productivity base

has increased its demand of raw materials.

Since 2001, China has become the greatest

importer of minerals and metallic commodi-

ties such as tin, zinc, steel, lead and copper.

Which produced that the global raw mate-

rial supply was insucient to go together

with the world’s growing demand for such

products. Consequently, the prices started to

rise rapidly and created a boom in the com-

modities market (Poveda 2010:153-154).

The boom in the new Sino industries caused

Bolivia to ourish during the last decades.

The Bolivian economy is limited to the su-

pply of natural resources, and as an exporter

of only a few commodities, it is highly sen-

sitive to any matters that occur in the glo-

bal markets. Consequently, the multicultural

state beneted greatly from the commodity

boom caused by the Chinese demand.

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Compared to the 90s, in the XXI century,

Bolivian exports have increased from US$

1307 million in 1996, to US$ 4245 million

in 2006 (INE 2007). Such increment is the

result of a market diversication, as can be

seen in the Figure 3. Export growth to Asia

and China was especially remarkable with

an increase from 0.32% of Bolivian exports

share in 1996 to 9.87% in 2006. Thus, Asia

has become Bolivia’s second most impor-

tant trade partner in the region. On the other

hand, it is possible to observe that the trade

share of the US and the EU has plummeted.

This situation could be a result of Evo Mora-

les’s resolution to refuse to sign a free trade

agreement with the US as well as the natio-

nalization of European and North-American

companies.

Chinese investment has also played a key

role in Bolivian economic expansion. The-

re are two recent projects of cooperation

between China and Bolivia that prove this.

The rst is an agreement for a joint venture

between the Chinese company Shengli and

the Bolivian Ministry of Hydrocarbons, in

which Shengli will invest almost $2 billion

in the assessment, extraction and processing

of petroleum and natural gas in the north of

the La Paz region.

And the second is a cooperation project in

which both governments will invest in the

elaboration of a geological map of Bolivia.

For these projects China will invest $60 mi-

llion in the elaboration of 70% of Bolivia’s

geological map. Consequently, Bolivia will

be able to vastly improve their hydrocarbon

and mining industries, while China would

then have a preference in the extraction bu-

siness (Poveda 2010:160-165).

Populism in the bonanza

China played an important part in the main-

tenance of the populist practices of some ad-

ministrations. The direct investment, nan-

cial aid, and the increasing commercial ow

have brought extraordinary revenues for the

Latin American governments. Such incomes

have been redirected in some states to popu-

list practices to boost the popularity of the

leaders.

For example, in 2007, Costa Rica followed

the road of the Dominican Republic that in

2004 cut relations with Taiwan, due to an en-

couraging oer from The People’s Republic

of China that could boost their popularity

among the public. China oered that, in ex-

change of the recognition of the ‘One-China

policy’ Costa Rica and the Dominican Repu-

blic will receive US$ 100 million and US$

122 million respectively for the construction

of national stadiums. Both countries found

that this oer was more benecial than Tai-

wan’s oer, that included US$70 million in

aid for Costa Rica and 6.8 US$ million in

assistance for the Dominican Republic (Wu

& De Wei 2014:789).

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A further case of social polices includes

countries as Ecuador, Bolivia and Venezuela

which have been able to expand the public

sector, and to reduce unemployment rates by

using Chinese foreign investment to create

unproductive public entities to provide jobs.

For example, when Hugo Chavez got elec-

ted, Venezuela had 16 ministries. By 2013,

the number of ministries doubled to 32 and

employed 19.6% of the Venezuelan labour

force; while in Colombia, which maintained

a pro-market system, there were 16 minis-

tries which employed 3.5% of the Colom-

bian labour force (Torres 2015).

Venezuela has received US$ 42.5 billion in

loans from the Chinese Development Bank

for improving public infrastructure. None-

theless, in lending terms, the infrastructure

includes the construction, renovation and

expansion of public buildings which were

used to house new public entities with the

aim of producing articial jobs (Wu & De

Wei 2014:92).

The expansion of the Venezuelan public sec-

tor which meant an extensive increase in the

public spending has only been possible as it

was nanced by the extraordinary revenues

that Venezuela has received during the last

decades as product of the high prices of oil

during this period. Venezuela’s oil revenues,

according to the Opec (2015), accounts for

about 95% of export earnings and the oil and

gas sector represents around 25 % of the Ve-

nezuelan GDP.

In 2014, when the commodity boom ended,

and the prices of fossil fuels dropped, Vene-

zuela’s president, Nicolas Maduro, imple-

mented an emergency readjustment program

to cut public spending, reducing its number

of ministries to 28. The Venezuelan oil barre-

ls went from a price of around US$ 100 per

barrel, to US$ 55 per barrel in 2015, causing

an economic recession and a decit in the

balance of payments and resulting in uncon-

trollable ination of 52.7%, and an expan-

sion in the numbers of Venezuelans who live

in poverty and extreme poverty conditions

(32.5% and 9.8% correspondingly). Conse-

quently, Nicolas Maduro travelled last April

to China to renegotiate its existing debt by

adding a US$ 5 billion loan to save its eco-

nomy (Ellsworth 2015).

The Case of Ecuador: from the Neoliberal

Financial Crisis to Revolution of Correa

Sobered by the debt crisis from the 80s,

Ecuador started a series of restructuring pro-

grams during the 90s, in accordance with

international nancial institutions to imple-

ment the neoliberal guidelines of the Was-

hington Consensus. Nazmi (2001:727) has

claimed that the reckless implementation of

such reforms caused dangerous macroecono-

mic imbalances to the Ecuadorian economy,

leading to a profound crisis which resulted

in the loss of its national currency.

There are 3 fundamental policies which led

the Ecuadorian state to its economic collap-

se. First, a reckless scheme of privatization

that did not match the national reality of the

state. Second, the articial imposition of a

pegged exchange rate that produced a lack

of liquidity and speculation resulting from

dangerous liberal prescriptions. And third,

the lack of autonomy of the state administra-

tion to produce regulatory policies to prohi-

bit irresponsible practices from a weakened

and corrupt private banking sector.

In 1992 the American-born Sixto Duran

Ballen was elected as the 37th president of

Ecuador. Duran Ballen, who was conside-

red a pro-neoliberal republican, implemen-

ted an innovation model in Ecuador. Such

a model included provisions to reduce the

Ecuadorian public decit through austerity

measures and a privatization scheme of the

national companies. In 1993, the Ecuadorian

congress approved the plan through two le-

gislations. First, the Budgetary Law of the

Public Sector, and second, the ‘Privatization

and Modernization Law’.

Both regulations were aimed to downsize

the government spending, privatize public

companies and enhance international com-

petition. The rst regulation delivered rapid

results. The state reduced its public-sector

expenditure from 31.4% of total GDP in

1987 to 24% in 1994, producing a surplus

of 0.6% of the GDP in the Ecuadorian balan-

ce of payments at the end of that year. Such

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an outstanding short-term result generated a

compensation coming from the IMF, which

reduced the interest rates for the Ecuadorean

loans by up to 5% (Nazmi 2001:728-729).

In 1995, because of the budget cuts that cau-

sed a reduction of labour places in the pu-

blic sector, the unemployment rates started

to increase rapidly. Furthermore, the privati-

zation scheme was still lacking results. The

Ecuadorian state had achieved privatization

of only 11 enterprises while Argentina and

Bolivia, which were following the same po-

licy guidelines, had accomplished privatisa-

tion of 131 and 57 companies respectively

(Nazmi 2001:730). The Ecuadorian eco-

nomy, therefore, was not able to expand as

was expected. Furthermore, the private sec-

tor lacked the eciency to produce enough

employment to compensate for jobs lost in

the public sector during the adjustment pe-

riod.

To attract foreign investment, the Ecuado-

rian government followed neoliberal pres-

criptions that were applied by the rest of the

administrations in the region which dictated

the liberalization of capital movements to

provide further nancial security to foreign

investors. Owing to this, the Ecuadorian ad-

ministration decided to reform its nancial

legislation. The reforms included the possi-

bility of the creation of US$ Dollar accounts

in local banks, the establishment of oshore

accounts, and a pegged exchange rate for the

national currency.

For several scholars including Nazmi (2001),

this was the beginning of what would beco-

me the nancial crisis of 1999. After a while,

the results delivered by the new legislation

diverged from what the government was ex-

pecting. In the rst place the freedom of ca-

pital movements along with the constitutio-

nal reforms repealing the state ownership of

strategic resources as oil and energy, instead

of bringing real and long-term investors, at-

tracted short-term capital investments, better

known as swallow capitals.

The major part of the oil revenues was trans-

ferred outside of the state, due the absence of

capital movement regulations (Berriosa Ma-

rakb & Morgensternc 2011:675-681). The

neoliberal guidelines were clearly providing

a list of benets to the private entities, whi-

le the rates of poverty and unemployment

were critical in the state, demonstrating that

the foreign investment prescriptions mean

neither economic growth nor social develo-

pment.

The collateral eects of the new nancial le-

gislation were inevitable. Since it permitted

the banking sector to generate oshore and

US$ Dollar accounts, the Ecuadorian nan-

cial institutions of that time restructured their

balance sheets to reposition their portfolios

away from Sucres and into US$ Dollars. In

this process, the banks, which were poor-

ly regulated, expanded their balance sheets

recklessly. Imprudent practices included a

relaxed credit risk analysis and resulted in

a credit rise of 48% per year during 1994 to

1996.

Such unhedged exposure to dollar liabili-

ties conditioned the Ecuadorian monetary

policy, which prevented the Central Bank

from devaluating its currency. Such a situa-

tion not only undermined the Ecuadorian

exporting sectors, but also created a moral

hazard for the banks, which continued with

their careless operations, which triggered a

rapid expansion in the Ecuadorian internal

debt gures, as well as a massive increase

in its percentage of debt in foreign curren-

cies which by 1998 were about US$ 987.03

million, from which 91% was in foreign cu-

rrencies (Banco Central del Ecuador 2003).

Nazmi (2001:733-734) argued that such ar-

ticially pegged exchange rate turned all the

previous economic diculties into a full-e-

dged nancial crisis which was made worse

by external factors such as a belic conict

with Peru as well as a series of governamen-

tal corruption scandals. These caused the fai-

lure of the programs that aimed to stabilize

the Sucre exchange rate.

As a consequence, the Central Bank was for-

ced to increase the real interest rates from

1.9% in 1992 to 36.2% in 1999 to encourage

investors to keep their holdings in Sucres.

Because of such desperate policies in con-

junction with public speculation, investors

started to send their money overseas causing

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a lack of liquidity in the nancial sector and

resulting in the insolvency of seven banks

including Filanbanco.

The government monetized their bank losses

causing the collapse of the exchange rate an-

chor. In 1999, the Sucre depreciated around

200% and ination was about 90%. Facing

social disintegration and economic catas-

trophe, the government took the decision to

freeze all bank accounts for one year and in

2000 announced the intention to dollarize

the economy (Nazmi 2001:733-734).

During a ten-year period (1996-2006), Ecua-

dorians observed seven dierent leaders oc-

cupying the position of president. However,

none of the leaders can provide any type of

improvement to the Ecuadorian economy or

to the standards of living of their citizens.

Nonetheless, in 2007, Ecuadorians elected

Rafael Correa as their head of state. Correa

was a populist university lecturer, with an

academic background in economics who

did not have links to the traditional politi-

cal parties. This fact caused his popularity to

spread rapidly among the electorate, which

was tired of the traditional representatives

(Jaramillo-Jassir 2012:151-152). In 2007,

once elected, the new administration started

its revolutionary process which substituted

the neoliberal regime policies established

in Ecuador since the 80s with policies fo-

llowing a model of endogenous growth pri-

marily favouring the working class.

To legitimate their actions in the political

and in the legal eld, a referendum, mainly

intended to produce a new constitution that

included all these reforms, was proposed.

The result was approved by an overwhel-

ming majority of 80% of the electorate.

Furthermore, the new constitution project

which proposed a more egalitarian system,

was accepted the following year by 65% of

the electorate (Becker 2011:49-51).

Following the constitutional prescriptions

based on the Sumac Kawsay, an ancient

indigenous belief that proposes an austere,

socialist and ‘good’ way of living, the Ecua-

dorian administration repatriated and mo-

bilized the international monetary reserves

which were previously deposited in foreign

banks, towards public nancial entities and

national banks. The use of national savings

has been condemned as scally irresponsi-

ble, but the new constitution established that

scal policy cannot be divergent from gene-

rating incentives for productive investment.

Between 2007 and 2011, public investment

as a percentage of GDP grew at an average

rate of 11.7%. Correspondingly, social in-

vestment reached 26% of public spending in

2011 (Banco Central del Ecuador 2014). It

has, therefore, been possible for the admi-

nistration to provide absolute coverage for

enrolment in primary, middle schools and

high schools and to eliminate costs for medi-

cal consultation. In addition, the left-winged

agenda proposed a network of social inclu-

sion, the continuation of subsidies in basic

services, and as well a series of programs to

enhance the reduction of poverty and wage

inequality (Ramírez Gallegos 2011:11-12).

Ecuador was not receiving the maximum

utility from such industry; a situation attri-

butable to the fact that 53.7% of oil produc-

tion of that time belonged to private compa-

nies. Furthermore, as was mentioned before,

the type of contract that the state maintained

with the corporations was not protable at

all due to the major income was coming

from renting the land rather than from pro-

duction. This is the reason why, in 2010, the

project of nationalization and renegotiation

of contracts started, following the constitu-

tional guidelines which dictate that strategic

resources belong to Ecuadorians.

By 2012, the private production of oil was

reduced to 25.6%., the activities of compa-

nies like Texaco-Chevron and OXY were

passed to the national oil company of Ecua-

dor, Petro Ecuador. This re-nationalization

of strategic resources allowed the Ecua-

dorian state to maximize benets from the

commodity boom of the last decade (Berrio-

sa Marakb & Morgensternc 2011:675-681).

These series of reforms and the repossession

of strategic resources has provided Correa’s

administration with a considerable increase

in public revenues. As a matter of fact, Ecua-

dorian exportation revenue soared from US$

14,556.2 million in 2007 to US$ 26,067.1

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ISSN 2550-6722

million in 2014 of which the oil revenue

share represents 47% of total exportations

and 66% of the raw materials exportations.

Hence the nationalization scheme has been

a crucial factor for the maintenance of the

social policies that Correa’s administration

has implemented.

On the other hand, the new constitution of

Ecuador prohibited any type of outsourcing

and hourly-paid activities. Forcing priva-

te companies to provide full-time contracts

with fully remunerated salaries as well as

social healthcare and a 15% share of prots

to workers. By 2006, 800,000 workers were

part of outsourcing companies. This repre-

sented 17% of the labour force. Thus, thou-

sands of workers were introduced into the

formal sector, which grew from 38% from

2009 to 45% in 2010 (Banco Central del

Ecuador 2014).

The working class, as was expected, de-

monstrated satisfaction with these measu-

res. However, the private sector experienced

considerable downsizing. It was alleged that

it was unmanageable to maintain the same

number of workers with this new package of

benets. This was reected in the unemplo-

yment gures that grew from 7.9% in 2009

to 9.1% in 2010 (Banco Central del Ecuador

2014), (Uquillas 2007:37). To ght against

the rise of unemployment, the government

generated jobs by creating new state enti-

ties. Since 2007, six national ministries in

addition to a considerable number of regio-

nal secretaries and regulatory entities, were

created.

This generated 110,000 new jobs between

2008 and 2014. Furthermore, in the last se-

ven years, the minimum wage has grown

100%, from US$ 170 in 2007 to US$ 340

in 2014. In the following graphs, it is pos-

sible to notice that not only has the unem-

ployment rate fallen, employment in formal

sectors has grown too. This could show that

more workers are nowadays able to receive

better work conditions, fully-paid salaries

and social benets. However, most employ-

ment generated in Ecuador has been the pro-

duct of the creation of public sector entities.

In 2013, 20.68% of all formal employment

were bureaucrats who do not necessary ge-

nerate revenue for the state. In fact, it repre-

sents an enormous scal cost for the state to

maintain such jobs.

The key role of China on the Ecuadorian

Buen Vivir

The Buen Vivir could be perceived as a so-

cialist model, which pursues to improve the

standards of living of the Ecuadorians by re-

ducing poverty and redistributing the wealth

by creating pro-environmental and sustai-

nable policies (SENPLADES 2009). The

results of the Buen Vivir model, until 2014,

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had been remarkable.

Based on socioeconomic macro indicators,

Ecuador not only expanded its economy by

maintaining a consistent GDP annual grow-

th, which grew from 3.5% to 7.9%, but has

also lifted 10% of its total population from

poverty and, as was mentioned before, redu-

ced its unemployment rates.

Furthermore, the socialist policies have im-

proved the rate of secondary school enrol-

ment up to 87% in 2013 from 46% in 2007

and reduced infant mortality rate. Ecuador

also has seen an expansion of its industrial

sectors and in general terms, living con-

ditions of the Ecuadorians have been im-

proved (Cepal 2015). This brief overview

demonstrates how socialist policies have in-

deed demonstrated real development in the

Ecuadorian state. Nevertheless, the ecacy

of such endogenous plan development, as it

has been described in the Ecuadorian natio-

nal policy plan, has gone along with a series

of exogenous factors, including the general

expansion in the global commodity markets

and alternatives for nancial assistance that

China has provided to the Ecuadorian gover-

nment.

Until 2013, Ecuador had signed 4 agree-

ments with the Chinese government. The

contracts prescribed and anticipated the sale

of a xed number of oil barrels, so that the

Ecuadorian government could receive -

nancial assistance from the China Develop-

ment Bank at oating interest of around 7%.

Consequently, the Ecuadorian foreign debt

rose from US$ 7392 million in 2009 to US$

16913 million in 2014, from which 37.6%

is owed to China, (Banco Central del Ecua-

dor 2014). Furthermore, at the beginning of

2015, the Ecuadorian economy was shrin-

king because of the fall of oil prices. This

situation encouraged Rafael Correa to visit

China to negotiate further lines of credit

with Chinese ocials.

After Correa attended the ministerial mee-

ting of the Forum of China and the Com-

munity of Latin American and Caribbean

States (CELAC), Correa reunited on various

occasions with his counterpart Xi Jinping,

resulting in the signing of a series of con-

tracts which included new lines of Chinese

credits that reached US$ 7500 million, from

which 26.6% has been designated merely to

compensate scal imbalances produced by

the downfall of the oil prices, while the rest

will be used to nance the construction of

what will be the biggest renery in Ecuador.

Villavicencio (2013), who has analysed the

nature of Chinese oil contracts, exposed the

downsides of the Chinese cooperation sche-

me. He demonstrated that although the ori-

ginal aim of the Asian power was to secure

energy supplies to meet burgeoning demand,

nowadays, Chinese companies can freely

trade a signicant amount of Ecuador’s cru-

de oil exports. In 2013 only 46.5% of Chine-

se-controlled Ecuadorian oil exports went to

China, with the balance resold to other coun-

tries, primarily the United States.

He concluded in 2013 that Ecuador will be a

victim of a debt trap again compromising the

sovereignty policies of the country. By 2015,

such predictions seemed to have been ma-

king sense. With the continuing decline of

oil prices, Ecuadorian ocials have found

themselves in a tricky position. If they want

to perpetuate the ‘Good Living’ model, they

REVISTA CHAKIÑAN, 2018, Nº.5, AGOSTO, (18-39)

ISSN 2550-6722

have to increase the taxation base, apply

austerity measures or acquire more debt. All

alternatives are expected to generate critical

outcomes.

The rise in taxes and the measures taken du-

ring 2015 have generated a series of protests

and rioting in the main cities of Ecuador.

Such a situation not only has destabilized

the political order, but also slowed produc-

tivity. Furthermore, the low prices of oil,

which translates in a reduction of revenue

for the state, will aect its ability to make

repayment of debts, generating a situation in

which a share of the future loans that Ecua-

dor acquire will have to be used for the re-

payment of interest and scal imbalances, as

has happened in the rst period of 2015.

Hence the contraction of the prices of com-

modities in the global markets has expo-

sed the pitfalls of socialist models in Latin

America, which have evidently demonstra-

ted to be maintainable only due to a market

boom, rather than to real expansion within

the productivity sectors. Furthermore, rec-

kless social expenditure has been upheld by

carelessly expanding foreign debt and com-

promising the allocation of strategic resour-

ces for various years, currently around 80%

of Ecuador’s exported oil is handled by Chi-

nese rms, limiting the state ability to secure

the best market price for its crude (Villavi-

cencio 2013 ).

The Yasuni case is a clear demonstration of

Chinese power. It demonstrates that they

have great inuence on Ecuadorian poli-

cy-making, especially in energy and com-

mercial matters. China has leveraged its in-

uential power not only by generating large

sums of debt, but also by controlling the fu-

ture oil production of Ecuador. Chinese oil

companies have displaced Western compa-

nies from Ecuadorian territory and have gai-

ned enough resources to inuence govern-

mental decisions in favour of their interests.

On the other hand, Ecuadorian ocials have

entered a situation of dependency in which

the sovereignty of its policies is reliant upon

ensuring the interests of a hegemonic power

are fullled.

The Ecuadorian constitution prohibits any

type of extraction of natural resources in

protected areas. However, from 2016 over

846 million barrels of oil will be drilled

from the ITT block (Ishpingo, Tambococha

and Tiputini), located in the Yasuní National

Park. The Yasuni, which is in the Ecuado-

rian Amazon region, was designated by the

UNESCO as biosphere reserve in 1989 and

is claimed to hold more than 100 000 of di-

erent species of ora and fauna, besides

being the home of two uncontacted indige-

nous tribes.

The Yasuni contains around 20% of Ecua-

dor’s fossil fuel reserves, which is the rea-

son why many energy companies have been

operating in the peripheral areas of the natio-

nal park since the 1970s. However, the core

areas, including the ITT blocks, have never

been touched. Nonetheless, due to external

pressures and scal decits, this situation

has changed. In 2014, the Ecuadorian Natio-

nal Assembly, declared the area as a “natio-

nal interest”, taking away its condition as a

protected area and therefore allowing extrac-

tion of natural resources in such areas.

On February of 2015, it was revealed that the

Ecuadorian government had for some years

been negotiating a further 1-billion-dollar

loan with China, giving Chinese oil compa-

nies the right to explore and exploit the Ya-

suni-ITT oil reserves. Nowadays, Block 14,

part of the ITT, is operated by Petro Oriental,

which is owned by the China National Petro-

leum Corporation (CNPC) and which owns

55%, and Sinopec, which owns the other

45% (Ortiz 2015).

CONCLUSIONS

This paper has outlined the way in which

China has established a demarcated global

scheme of cooperation that has proven to

be attractive to many non-western states.

During the last decades, the development of

China has been remarkable and its inuen-

ce over developing regions has shown that

it is not merely a commercial and economic

power. The massive accumulation of foreign

exchange reserves, the vast quantity of nan-

REVISTA CHAKIÑAN, 2018, Nº.5, AGOSTO, (18-39)

ISSN 2550-6722

cial assistance provided, the increasing share

of participation in natural resource markets

as well as an extensive agenda of bilateral

cooperation are factors that demonstrate the

capabilities of China’s vast global inuence.

The Chinese economic expansion has brou-

ght to developing economies a series of

opportunities and pitfalls. China’s appetite

for commodities has opened a great door for

commercial sectors of the developing eco-

nomies around the globe. Furthermore, the

lending programs of the Chinese Develop-

ment Bank have demonstrated to be a remar-

kable alternative for the IMF or the World

Bank, without regarding the political model

or the ideological line of thought, China has

become since 2001, a sine qua non-for the

contemporary construction of commercial

and foreign policies of the developing and

developed states around the globe.

For Latin American states, which have not

been capable to accomplishing a real deve-

lopment under the regulations of a Western

economic agenda for 30 years, the Chinese

cooperation scheme, which includes nan-

cial assistance and commercialization of

strategic resources has provided them with

the opportunity to generate more autono-

mous and socialist policies, which have de-

monstrated better outcomes than under the

neoliberal guidelines. However, as was de-

monstrated in Chapters 2 and 3, the sustaina-

bility and success of these models are clearly

reliant on Chinese loans and high prices in

commodity markets.

By 2015, the pitfalls of the Chinese coope-

ration system and problems with the Latin

American socialist models have become evi-

dent. The expansion of the economy in Latin

American states has been a direct result of

a boom in the commodity market. Such ex-

traordinary incomes have allowed the states

to recklessly expand their scal expenditure

and to articially develop their economies

and generate several social policies that have

produced political stability. However, since

2014, the global price of commodities has

fallen causing profound decits in the balan-

ce of payments of the states which maintain

such socialist models. Therefore, they have

acquired large sums of debt, especially with

China, to compensate such imbalances. This

situation has demonstrated the unsustainabi-

lity of such models and the large dependency

that they had on endogenous factors.

REVISTA CHAKIÑAN, 2018, Nº.5, AGOSTO, (18-39)

ISSN 2550-6722

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