Week of Monday, January 17, 2022 | Issue 1
Benedetta Piva, Stacey Casas, Jhamil Moya, SOUTHCOM Team; Tiberius Hernandez, Halle Morel, PACOM Team
Taiwanese Embassy[1]
Date: January 19, 2022
Location: Honduras
Parties involved: Honduras; Honduran President-elect Xiomara Castro; Taiwan; Taiwan’s Vice President William Lai; China; Other South American countries
The event: Taiwan announced they are sending Vice President William Lai to Honduran President-elect Xiomara Castro’s inauguration on January 27, 2022. Honduras is one of 14 countries that diplomatically recognize Taiwan as a sovereign nation. By sending Vice President Lai, Taiwan hopes to maintain its relations with Honduras since President-elect Castro has stated that she is interested in opening “diplomatic and commercial relations” with China.[2] China does not view Taiwan as a sovereign nation. Panama, El Salvador, the Dominican Republic and Nicaragua all were once diplomatic allies of Taiwan but have since shifted allegiance to China.[3] The move comes in the context of the Taiwan-aligned United States (US) being the largest commercial partner of Honduras.[4] Taiwan increased its economic ties with Honduras by signing a new free-trade agreement to generate business opportunities that will allow greater support to both countries’ business sectors.[5]
Analysis & Implications:
Given China’s rise in the global market economy, Honduras will likely look to China as a potential trading partner. As the President-elect, Castro will likely seek to encourage better diplomatic relations with China in order to increase economic development in Honduras. If President-elect Castro’s new government policies are to reduce socio-economic issues in the country, it is very likely that she will seek foreign direct investment (FDI) opportunities with China.
Private Honduran businesses will likely not accept the Chinese commercial alternative, nor sign a formal agreement with China, if it implies cutting relations with Taiwan because it is very likely that this will affect the relationship with the US, which would be highly significant given the economic ties between the US and Honduras. The US will very likely give its full support to Honduras to maintain trade links between Honduras and Taiwan. There are several very likely economic implications for Honduras, such as an increase in prices of basic goods, in addition to US sanctions, if they abandon the Honduran-Taiwanese free trade agreement.
China will likely perceive Taiwan’s diplomatic action towards Honduras as a threat that challenges China’s ability to gain sovereignty over Taiwan. Diplomatic competition in the region is likely to increase as China and Taiwan will likely compete for countries’ allegiance, while Taiwan also will likely seek to maintain its current allies. Taiwan’s remaining regional allies such as Guatemala or Paraguay will likely be targeted by China through its Belt and Road Initiative (BRI), which promises infrastructure investments to shift their diplomatic ties away from Taiwan and towards China.
Date: January 20, 2022
Location: Ecuador
Parties involved: Ecuador; China; Ecuadorian President Guillermo Lasso; Chinese President Xi Jinping; The International Monetary Fund (IMF); The World Bank (WB); US
The event: Ecuadorian President Guillermo Lasso announced he will meet Chinese President Xi Jinping on February 3, 2022, reopening talks with China. During the meeting, they will discuss restructuring Ecuador's $5 billion USD debt to China and the possibility of signing a Memorandum of Understanding (MoU) to begin negotiations on a bilateral trade agreement.[6] In 2019, Ecuador received a $10.2 billion USD bailout from the International Monetary Fund (IMF) and the World Bank (WB) with the US also agreeing to pay off part of Ecuador’s debt to China in the amount of $2.8 billion USD.[7]
Analysis & Implications:
Ecuadorian President Lasso’s commitment to restructuring the debt payments to China is likely indicative of a perceived necessity to reduce the economic burden of the payments as they are currently planned. In the unlikely scenario that China and Ecuador are unable to come to an agreement regarding the debt payments, it is very likely that any other economic reforms championed by President Lasso will falter due to the strain placed on the economy by the payment plan as it currently exists. In this scenario, Ecuador would either have to elect to halt payment and increase debt with China, or need to turn to another international lender as another source of revenue in order to keep the domestic economy intact.
Ecuador restructuring its $5 billion USD debt to China will likely affect the country’s ability to receive future funding from international organizations, such as the IMF or the WB. Having stepped in to aid Ecuador out of its debt to China once, these two institutions will likely be hesitant to step in monetarily again, as they may view Ecuador as unable to repay the loans. This will almost certainly encourage Ecuador to remain in good standing with China as it will still be bound by any bilateral trade agreement it negotiates.
Should Ecuador be successful in restructuring the payment process to China in a way that is advantageous for Ecuador, other Central and South American nations will very likely be more willing to approach China as a lender. The perceived benevolence of such a concession by China will likely make it a more attractive partner, and has a roughly even chance of increasing its influence in the region by lending to more nations. Such a lending activity is also very likely to foster relationships that will expand the scope of China’s Belt and Road Initiative in Central and South America, further enhancing its influence in the area.
Date: January 21, 2022
Location: Brazil
Parties involved: Brazil; The Asian Infrastructure Investment Bank (AIIB); Latin America; Asia; Brazil State-level development bank Banco de Desenvolvimento de Minas Gerais (BDMG)
The event: The Asian Infrastructure Investment Bank (AIIB) has approved lending funds to Brazilian development bank Banco de Desenvolvimento de Minas Gerais (BDMG) for $100 million USD for the BDMG Renewables and Asia Connectivity Facility.[8] Additionally, foreign investment in Brazil has more than doubled in 2021, making it the seventh destination for foreign capital worldwide.[9]
Analysis & Implications:
With Brazil seeing a significant rise in foreign investment, approved funds by AIIB will very likely make Brazil more of a destination location for multinational corporations seeking to expand their influence in Latin America. Increasing foreign investment will almost certainly benefit Brazil's economy. Additionally, by linking Brazil and Asia through investment flows, additional trade agreements between the two regions will very likely increase in the future, extending their mutual economic ties. If this occurs, economic and political tensions between Brazil and the US will likely increase, likely hindering trade between the two countries.
The economic growth of BDMG will very likely have a positive impact by lowering energy production costs through investments in sustainable infrastructure and clean energy. The financial agreement between Brazil and the AIIB is almost certainly one of the most important in the long term if the objective of both parties is to develop new trade agreements with Asia, as it will set a precedent of both parties being willing to engage and cooperate.
The large-scale nature of this lending agreement will almost certainly be publicized by Brazilian media outlets in the coming weeks, meaning that the wider public will likely be more aware of the level of aid being given by Asian entities to Brazil. In the long run, this perception by the citizenry will likely impact national politics as there is a roughly even chance that some citizens will prefer to have candidates for national office that can facilitate closer ties with Asia in order to ensure more resources are made available for Brazil. This shift in national politics will likely affect the national election in October 2022.
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[1] "The Taiwanese embassy." by ironypoisoning licensed under CC BY-SA 2.0
[2] Taiwan to shore up Honduras ties, VP to attend inauguration, Reuters, January 2022, https://www.reuters.com/business/media-telecom/taiwan-shore-up-honduras-ties-vp-attend-inauguration-2022-01-19/
[3] Ibid
[4] Honduras - Country Commercial Guide, United States Department of Commerce, December 2021, https://www.trade.gov/country-commercial-guides/honduras-market-overview
[5] Honduras y Taiwán suscriben acuerdos para generar nuevas oportunidades comerciales, Secretaría de Desarrollo Económico de Honduras, March 2019, https://sde.gob.hn/2019/03/27/honduras-y-taiwan-suscriben-acuerdos-para-generar-nuevas-oportunidades-comerciales/ (translated by Jhamil Moya)
[6] Ecuador’s President Announces Upcoming Visit China for Debt Negotiations, Organization for World Peace, January 2022, https://theowp.org/ecuadors-president-announces-upcoming-visit-china-for-debt-negotiations/
[7] US rescue of Ecuador from Chinese debt is a trap, Asia Times, January 2021, https://asiatimes.com/2021/01/us-rescue-of-ecuador-from-chinese-debt-is-a-trap/
[8] AIIB Approves First Project in Brazil, AIIB, January 2022, https://www.aiib.org/en/news-events/news/2022/AIIB-Approves-First-Project-in-Brazil.html
[9] Foreign investment in Brazil more than doubled in 2021; The country rises to the seventh place – the economy, Lodi Valley News, January 2022, https://www.lodivalleynews.com/foreign-investment-in-brazil-more-than-doubled-in-2021-the-country-rises-to-the-seventh-place-the-economy/