Five years ago, the head of a major think-tank in the US could credibly say that “there are no geopolitics in Latin America.” But that not-for-attribution remark has become steadily less true ever since. Latin American economic prospects are now shaped by both regional inter-state tensions and broader geopolitical currents, not least the U.S.-China rivalry (see SIGnal, “Green Protectionism,” 25 April 2024). For now at least, investors have to accept that non-market considerations will have deep effects in some major Latin American economies.
The 2015 discovery of significant offshore petroleum reserves in territorial waters claimed by Guiana and Venezuela reignited a disagreement more than a century old. The Esequibo region, which holds around 15 percent of Guiana’s population but makes up more than two-thirds of its territory, has been in dispute since before 1899: the Paris Arbitral Award then designated it part of Guiana, but Venezuela never agreed. Late last year Venezuela held a referendum that designated Esequibo its 24th state. Venezuela’s move could well lead to armed conflict.
Meanwhile, more than 8 million Venezuelans have left the country in the past decade due to dire economic and political conditions. Many have fled to neighboring Colombia, whose citizens resent expenditures on refugees by the Colombian government even though many refugees are Colombians who fled to Venezuela during Colombia’s decades of insurgency and civil conflict.
Ecuador was until quite recently a safe country for residents and visitors alike. But in the last few years, suppression of drug smuggling through Colombia resulted in the opening of a route across northern Ecuador to the Pacific, and from there to the US and Europe. This has plunged the entire country into a violent spiral, and Ecuador is now one of the most dangerous countries in the world — due entirely to exogenous, transnational factors.
As social guardrails have been eroded across the region by the decline of religion and social institutions, the movement of populations into large cities, and by the resulting splintering and estrangement of family structures, the social prohibitions against violence and crime have also eroded.
The weakening of Latin American institutions has sometimes been worsened by democratization. The PRI (Institutional Revolutionary Party) held power in Mexico for 71 years, until 2000. The PRI had an informal deal with drug cartels formed in the 1970s to satisfy increasing illegal drug demand from the US. If the cartels did not let their violence leak into Mexican society, the government would leave them alone. As cynical as it was, the arrangement kept something of a lid on social violence in Mexico.
When Mexico became fully democratic with the election of the PAN (National Action Party) in 2000, the deal collapsed. This was in part because the PRI apparatus that had managed it was gone. Mexico had no independent civil service; most everyone in government was part of the PRI. When the “PRIistas” left, the arrangements and relationships that had controlled violence left with them. Elaborate anti-gang campaigns and the militarization of Mexican policing have had little positive effect. The number of gangs has increased, as has their violence. In Brazil, by contrast, gang consolidation and “professionalization” seem to have contributed to a reduction in violence.
Many of the conflicts in the region are attracting players like China, Russia and Iran — a major arms supplier to Venezuela. These countries have an interest in the oil markets, whether as consumers (China) or fellow producers (Iran and Russia). Chinese technology firms, increasingly frozen out of Western markets and facing strong competition in Asian ones, value Latin America. Chinese consumers depend on Latin America for foodstuffs from soybeans to cherries, fish and beef, the great majority coming from Brazil, Mexico, Chile, Peru and Colombia. As the foreign policies of China, Russia, Iran and others consolidate and harden around a core narrative of anti-Americanism, the United States, obsessed by migration, has been steadily losing political power in the region.
Yet the natural resources of Latin America are becoming more and more vital to the US, in an era of the weaponization of strategic resources like critical minerals (e.g. lithium), of nearshoring, and of decoupling from China and Russia, in particular.
Latin America’s strategic importance is likely to grow, but the US has not sufficiently cultivated the relationships that would allow “win-wins” with countries in the region. The US should change course on this while there is still time.
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