Friends of opportunity
China, rather than Russia, is the new partner that matters
November 27, 2008 - The Economist print edition

FOR those who think a new cold war has broken out, this week seemed to provide some evidence. The Peter the Great, a nuclear-powered cruiser, and two other Russian warships, arrived in the Caribbean to exercise with the Venezuelan navy. Onshore, Russia's president, Dmitry Medvedev, met Venezuela's Hugo Chávez as part of a Latin American tour. In Peru, he attended the APEC summit, a get-together of leaders from 21 Asian and Pacific countries. Like Mr Medvedev, China's Hu Jintao (pictured at left, with Peru's president, Alan García) also used the Lima meeting as a pretext for a Latin American tour, which in his case took in Costa Rica and Cuba. Last year another visitor from far-flung parts, Iran's Mahmoud Ahmadinejad, turned up in Latin America.

To some in the United States, this flurry of outside interest in a region that they considered their "backyard" is threatening. They see it is a sign that under President George Bush America has lost influence in the region. In fact, Latin America's international ties have long been more diverse than caricature allows, but they are becoming even more so as the world changes. For some South American countries, Europe has always been at least as important as a trade and investment partner as the United States. Trade with Japan and the Middle East grew in the 1970s, while the Soviet Union sold arms to Peru as well as sustaining communist Cuba.

It is Mr Chávez's search for allies in his rhetorical and political battle against the "empire", as he likes to call the United States, that pricked the interest of Russia and Iran. For Russia, its Caribbean naval jaunt is a symbolic riposte to America's plan to place missile batteries in Poland and to its dispatch of naval vessels to distribute aid in Georgia after Russia's incursion in August. The same goes for its recent revival of ties with Cuba.

But Mr Medvedev's main purpose in Latin America is business. Mr Chávez has already bought arms worth $4.4 billion from Russia -- including a Kalashnikov factory due to start producing 50,000 rifles a year in 2010. Russia was reported this month to have signed a contract to sell Venezuela portable air-defence missiles. That would alarm Colombian officials, who will fear their onward unofficial sale to the FARC guerrillas. Russian oil, gas and mining companies have signed deals to invest in Venezuela. Mr Chávez would like the Russians to build a nuclear power station.

Mr Medvedev arrived in Caracas from Brasília. Brazil is close to signing an arms deal with France, which has agreed to pass on jet-fighter technology. But it may buy Russian helicopters, and sees scope for collaboration with Russia on civilian nuclear technology and aerospace. Mr Medvedev said in Rio de Janeiro that he hoped trade between the two countries would soon double from last year's $5 billion. Russian companies are interested in extracting Brazilian oil too. After initially embracing Mr Chávez as an ally, Brazil's government has recently sought quietly to neutralise his influence. By inviting Mr Medvedev Brazil's message to Russia is: "if you want to have a significant relationship in South America, have it with us," says Paulo Sotero, a Brazil specialist at the Woodrow Wilson Center, a think-tank in Washington, DC.

The motive for Iran's recent interest in Latin America seems to be a desire to add to its small stock of diplomatic friends around the world, and to score propaganda points against the United States. Mr Chávez has signed no fewer than 200 co-operation agreements with Iran. Venezuelan officials say that Iran has invested more than $7 billion in their country -- in plants to assemble cars, tractors, farm machinery and bicycles, as well as oil -- and that bilateral trade has reached $4.6 billion. But these figures may be exaggerated. Last year Ultimas Noticias, a pro-government newspaper, reported big delays on some Iranian investments and rake-offs by local officials involved in them.

In Mr Chávez's wake, socialist presidents in Bolivia, Ecuador and Nicaragua have also developed ties with Iran. Mr Ahmadinejad promised investments of $1.1 billion in developing Bolivia's gas, and $350m to build a port in Nicaragua. But there is little sign of either investment materialising. Brazil's foreign minister, Celso Amorim, recently visited Tehran and delivered a letter from President Luiz Inácio Lula da Silva inviting Mr Ahmadinejad to visit. Since Iran is the subject of United Nations sanctions, and Brazil has been actively, if fruitlessly, pursuing a permanent seat at the UN, this raised eyebrows in Brazil. Mr Amorim's visit was "inexplicable" and "gratuitous", according to Luiz Felipe Lampreia, a former foreign minister.

The intercontinental ambitions of Iran, Russia and Venezuela have all been puffed up by oil, and so are vulnerable to the steep fall in its price. The lasting change for Latin America is its burgeoning ties with China. At the APEC summit, Mr Bush's last trip abroad, it was Mr Hu who was the centre of attention. Mr García treated him to a parade around Lima's colonial centre before they announced that they had wrapped up a free-trade agreement between their two countries. That matches a similar accord China concluded with Chile in 2005.

China's total two-way trade with Latin America has shot up from just $12.2 billion in 2000 to $102 billion last year. Though Chinese investment -- mainly in mining and oil -- has grown more slowly, it is now picking up. Last month China became a member of the Inter-American Development Bank. But China has also disappointed some Latin Americans. Some Brazilians complain that Brazil sells raw materials to China while buying manufactures from it. Brazil is frustrated that neither China nor Russia has helped its Security Council bid.

All Latin American countries are naturally keen to diversify their economic relations, and some seek wider political ties. But Europe ($250 billion last year) and the United States ($560 billion) remain Latin America's biggest trade partners. And the foreign leader that most Latin American politicians will be keenest to see over the coming year is Barack Obama.