Washington Doubles Down on Hyper-Hypocrisy After Accusing China of Using Debt to “Trap” Latin American Countries

Washington has intensified its Latin American charm offensive (onus on the word “offensive”) by warning of the dangers posed by China’s increasing use of “debt trap” diplomacy in the region.

It’s clear who the message was intended for, given it was conveyed via a Spanish-only interview of the Commander of US Southern Command, General Laura Richardson, published by the Spanish edition of Voice of America. In the interview Richardson says that China is taking advantage of the growing economic vulnerability of many Latin American countries in order to offer them, among other things, high-interest loans that the countries will later struggle to service.

This, she says, is one of the strategies by which China is trying to expand its power and reach in the region. By helping to finance the construction of ports, telecommunications facilities and other infrastructure projects, China is saddling countries with huge amounts of unpayable debt. Battered by the ongoing economic slowdown and high global inflation, many governments in South America see these projects as a means of shoring up their finances. But in reality, says Richardson (translated below by yours truly), they are mortgaging their future:

“We call it a ‘debt trap’ that doesn’t help these countries in the long run. So we try to work with them and advise them on the pitfalls that could occur.”

Rank Hypocrisy

There may a kernel of truth to what Richardson says: China has indeed dispensed huge amounts in loans (over $840 billion, according to AidData) to developing and emerging economies, including in Latin America, as part of its global infrastructure development program, the Belt and Road Initiative (BRI). A few of those economies, including most recently Sri Lanka, are now defaulting on that debt and we’re yet to see how Beijing will respond if their number reaches a tipping point. There are also justifiable concerns regarding the lack of transparency of some of the Chinese government’s loan agreements.

Nonetheless, Richardson’s warning reeks of rank hypocrisy. After all, no country has done more to trap the economies of Latin America (and beyond) under an insurmountable mountain of toxic debt than the US. Since the 1980s over exuberant lending on the part of the largely US-controlled World Bank, regional development banks, US and European commercial banks and investors has repeatedly fuelled speculative booms that have quickly turned to bust. Once that happens, the IMF swoops in with a prescription for crippling austerity medicine.

Until the late 1970s, the IMF had played a relatively harmless role in Latin America as a lender of last resort concerned primarily with maintaining international currency exchange stability. But that changed in the 1980s as the IMF began intervening more and more in domestic economic policy making, as Alexander Main, the director of International Policy at the Center for Economic and Policy Research, documented in his 2020 essay, “Out of the Ashes of Economic War“:

As country after country in the Global South became submerged in debt crises provoked by a combination of easy lending of petrodollars, global recessions, and a sharp increase in U.S. Federal Reserve interest rates, the IMF swept in with bailout programs with unprecedented and painful conditions attached. In order to receive funding, Latin American and Caribbean governments were required to abide by an IMF-driven neoliberal agenda that included labor and financial market deregulation, massive public sector cuts, and the elimination of tariffs and other protectionist measures. While workers throughout the region took to the streets, a significant portion of domestic elites supported these measures, in part because they weakened the power of organized labor and allowed companies to buy up state assets at heavily discounted prices.

The Fund’s dogged insistence that crisis-hit countries double down on austerity has exacerbated poverty and inequality across Latin America. By advocating for the free movement of capital as well as a smaller role for the State, accomplished through privatisation and limiting the ability of governments to run fiscal deficits, the Fund has not only exacerbated boom-bust cycles; it has hampered governments’ ability to respond to them. Even the IMF itself acknowledged as much in its 2016 report “Neoliberalism: Oversold?”:

“Increased capital account openness consistently figures as a risk factor in [boom-bust] cycles. In addition to raising the odds of a crash, financial openness has distributional effects, appreciably raising inequality… Moreover, the effects of openness on inequality are much higher when a crash ensues.”

A Case in Point: Tequila Crisis

This is precisely what happened to Mexico the last time it suffered a major crash, in 1994, when a sudden reversal of hot capital flows triggered the Tequila Crisis. Over the space of just a few months, the free-floating peso lost almost 50% of its value against the dollar, wiping out the savings of much of the country’s middle class and raising fears that collapsing asset values would push Mexican banks over the edge.

The Crisis threatened to engulf not only most of Mexico’s banks but also a number of Wall Street titans, including Citi and Goldman Sachs. Thanks to the hurried intervention of the U.S. Treasury Department (led by former Goldman co-Chairman Robert Rubin), the IMF and the Bank for International Settlements, Wall Street’s finest were saved, Mexico’s banks and other assets were bailed out and sold off at bargain basement prices, largely to US and European lenders, while the Mexican people were lumbered with untold billions of dollars of compounding debt they still service to this very day. In fact, Mexico still owes 1.4 trillion pesos, more than double the amount it did in 1999 (552 billion pesos).

The IMF may have fessed up to some of its errors, if indeed they can be described as errors, but it doesn’t seem to have changed them. In 2019, the fund signed a loan agreement with Ecuador, coincidentally just after the Moreno government had agreed to eject Julian Assange from its London embassy, straight into the outstretched arms of the Metropolitan Police. As reported at the time by Open Democracy, in an article featured on NC, the bill contained a number of provisions that aimed “to weaken and essentially render Ecuador’s capital controls ineffective.” The provisions allowed local elites to yank their money out of the country cost-free; they made tax avoidance and speculation easier; and they included regressive taxation measures that placed the lion’s share of the fiscal pain on Ecuador’s most vulnerable.

In other words, same old, same old, just as is playing out right now in Sri Lanka, where the Fund’s usual prescription of structural reforms, austerity measures, and a “firesale” of strategic assets is being offered in exchange for a bailout. Much is being made in the Western press of China’s role in Sri Lanka’s default in May yet in actual fact China accounts for just 10% of Sri Lanka’s foreign debt while market borrowings, mostly from institutional investors such as BlackRock and British Ashmore, account for 47%.

Abusing the Exorbitant Privilege

The US has also used its power as the issuer of the world’s dominant reserve currency — what is commonly known as “exorbitant privilege” — to narrow the economic policy choices available to governments in Latin America, as Vijay Prashad outlined in a 2018 interview with the Real News Network:

If the international agencies, if the banks, if the ratings agencies want to punish a country for breaking from the neoliberal consensus, it’s quite easy for them to do so. I mean, we’ve seen this happen quite strictly with Venezuela, where the ratings agencies, the banks, the International Monetary Fund, if they start to sniff and make a noise saying that we don’t like what you’re doing, then finance dries up. Then it becomes hard to use the dollar for trade. And you might even run into a sanctions regime.

That has already happened to three countries in the region: Cuba, Venezuela and Nicaragua. As Main notes, the sanctions, which in Cuba’s case date all the way back to 1962, are ostensibly meant to “advance human rights and liberal democracy and to weaken — and ultimately topple — the governments of a so-called Latin American ‘troika of tyranny,’ in former national security advisor John Bolton’s words. However, in all three instances, sanctions have ended up violating the human rights of ordinary citizens while failing — so far — to produce the political change advocated by the U.S. administration.”

In recent years, Washington’s abuse of its exorbitant privilege has gone into hyperdrive. As Michael Hudson noted in “America Shoots Its Own Dollar Empire in Economic Attack Against Russia,” it has backfired spectacularly:

The recent escalation of U.S. sanctions blocking Europe, Asia and other countries from trade and investment with Russia, Iran and China has imposed enormous opportunity costs – the cost of lost opportunities – on U.S. allies. And the recent confiscation of the gold and foreign reserves of Venezuela, Afghanistan and now Russia, along the targeted grabbing of bank accounts of wealthy foreigners (hoping to win their hearts and minds, along with recovery of their sequestered accounts), has ended the idea that dollar holdings or those in its sterling and euro NATO satellites are a safe investment haven when world economic conditions become shaky.

Shifting Sands

Meanwhile, in Latin America times are changing. As I’ve documented in a series of articles over the past year (such as here, here and here), the political, economic and geopolitical sands are shifting in Latin America and the Caribbean — and not in Washington’s favor. Five of the six largest economies in the region (Mexico, Argentina, Chile, Colombia and Peru) now have left-of-center governments in power, while in the largest, Brazil, former President Luiz Inácio Lula da Silva holds a comfortable lead in polls over his rival, the incumbent Jair Bolsonaro, just four months before presidential elections are scheduled to be held.

At the same time, China continues to increase its influence in the region. Between 2000 and 2020 China’s trade with the region grew 26-fold, from $12 billion to $315 billion. As Reuters reported a few weeks ago, if you take Mexico, the US’s second largest trading partner, out of the equation, China has already overtaken the US as Latin America’s largest trading partner. Excluding Mexico, total trade flows — i.e., imports and exports — between China and Latin America reached $247 billion last year, far in excess of the US’ $173 billion. By contrast, US trade with Mexico has increased from $496 billion in 2015 to $607 billion last year, while China’s has grown from $75 billion to $110 billion.

It is not just about trade. Chinese investment is also surging into the region thick and fast, though the pandemic has slowed the flow somewhat. Latin America is already the second largest recipient of Chinese direct investment after Asia. Twenty of the 148 countries that have joined China’s Belt and Road Initiative are in Latin America and the Caribbean. As Inna Afinogenova, a Russian journalist based in Spain who until recently was deputy editor of Russia Today’s Spanish website, reported for the Spanish news daily Publico, Chinese investment is coming into the region in all shapes and forms:

In Panama, the construction of a high-speed train line is under consideration as well as a fourth bridge over the Panama Canal. In Ecuador, two bridges and seven hydroelectric plants are being built. In Peru, there is the interoceanic railway project with Brazil and Bolivia. There are also plans to build a port in Chancay, on the Pacific, which would be the first Latin American port managed entirely by Chinese capital and would also be an important hub for trade in the South Pacific.

In the so-called “lithium triangle” of Bolivia, Chile and Argentina, several Chinese companies are involved in the extraction of lithium, which is key for new battery technologies. In Bolivia, for example, four Chinese companies are operating in the Uyuni salt flats.

China signed a $23 billion investment agreement with Argentina, one of China’s main partners in the region, in February. A few years ago there was even talk about building a Chinese-owned space station in Patagonia, a project whose purpose was, in theory, to  enable astronomical observation and satellite tracking but the Argentine media have interpreted it as if it were practically a Chinese invasion, largely because the project received a green light at the time of “Kirchnerism”. In short, it was fiercely opposed for its possible military use, although both Chinese and Argentine officials insist it was meant purely for peaceful purposes.

China is also making big moves in the digital sphere. With the goal of helping developing countries close their digital divide, it has developed an entire program of digitalization and investments in Latin America’s tech sector. Anyone who goes to Latin America, to countries as diverse as Mexico or Venezuela, immediately notices the strong presence of Huawei. This Chinese company has invested hundreds of millions of dollars in telecommunications throughout the region.

Ham-Fisted Interventions

This has happened for a whole host of reasons. As I’ve noted before, China’s rise in the region coincided almost perfectly with the Global War on Terror. As Washington shifted its attention and resources away from its immediate neighborhood to the Middle East, where it frittered away trillions of dollars spreading mayhem and death and breeding new terrorists, China began snapping up Latin American resources, in particular petroleum, strategic minerals like lithium and food.

Governments across the region, from Brazil to Venezuela, to Ecuador and Argentina, took a leftward turn and began working together across various fora. The commodity supercycle was born. Since then China has become the most important trading partner for Brazil, Chile, Argentina, Peru, Venezuela, Cuba and even Panama, a country whose former president Manuel Noriega was ousted by a US military operation in 1989.

China’s business model is pretty simple: it uses its financial clout to forge closer economic and political ties with other countries. Unlike the US, it does not tend to meddle in internal politics in the region, or at least hasn’t until now. That may change if more and more countries begin to default on Chinese loans, as has already happened in Ecuador. But for the moment the Chinese are happy to let the money do the talking — and so too are many Latin American governments.

US officials have only belatedly begun to respond to this changing reality in its so-called “backyard” (or “frontyard”, as the current occupant of the White House calls it), but most of their ham-fisted interventions have only served to make matters worse. In August 2021, Richardson’s predecessor at the helm of US Southern Command, Admiral Craig Faller, accused China of taking advantage of widespread corruption in Latin America to further its own interests, in the process insulting both the peoples and governments of Latin America.

The Biden Administration then managed to further alienate many Latin American governments by excluding from the guest list of the recent Summit of Americas in Los Angeles the governments of Cuba, Nicaragua and Venezuela. This prompted a number of other heads of state from the region to boycott the event, including President of Mexico Andrés Manuel López Obrador. To make matters worse, the US tried to fill one of the empty seats at the event by inviting Pedro Sanchez, the prime minister of Spain, a country on the other side of the Atlantic Ocean that, together with Portugal, France, the Netherlands and Britain, once colonised just about every inch of Latin America and the Caribbean.

Now, the US is trying to ward off Latin American countries from doing too much business with China. But it all seems too little, too late, especially with Argentina, the recipient of the IMF’s largest ever loan, worth $56 billion, now talking about joining the BRICS. As Alexander Moldovan, a researcher on social movements and security in Latin America at York University, told Turkish state broadcaster TRT, China’s political approach, which generally respects national sovereignty (as long as you’re not Tibetan or Taiwanese), is popular among both right-wing populists like Bolsonaro and left-wing leaders like Cuba’s Miguel Diaz-Canel.

Even the president of Mexico, the US’ closest economic partner in the region, is trying to steer a more independent course for his country. Put simply, leaders in the region have grown weary of the “the history of gun-boat diplomacy” that overshadows US and European influence in the region, says Moldovan. They no longer want to be ruled by any one country, particularly by force.

Unfortunately, Washington does not seem to have got the memo. In her interview with VoA, Richardson underscores the need for the US to work militarily with its partners and allies in the region to counteract the growing influence of China and Russia: “We have to work with the armies and defense forces of our partners and allies, making them stronger and helping them overcome these intersecting challenges and threats.”

Print Friendly, PDF & Email


  1. Dr. Phips

    As the last quote by Richardson clearly shows, the only way the USA knows of solving any kind of problem is by using force. Pretty pathetic.

    1. JBird4049

      For the elites of the United States it wasn’t pathetic; for 180 years from Mexico to the rest of the Americas southwards using brute force including training the local dictator’s goons, invasions, coups, assassinations, bribery, and just plain theft (look up the marines stealing Haiti’s gold reserves from its national bank). Also, the deliberate destruction of local industries especially in Puerto Rico. All this was immensely profitable.

    2. anon y'mouse

      i look at that entirely as a threat of some kind.

      call me paranoid, but they aren’t talking about China or Russia invading. what other possible threats could be looming? this is the equivalent of saying “that’s a nice ___ you’ve got there. wouldn’t it be unpleasant if something happened to it?”

      how can we stir trouble through proxies in the region? usually, it’s through the drug trade and “guerillas”, isn’t it.

    3. Peter

      If you read about different parts of the world you will notice a similar sentence – comments by the Southern Command, the Northern Africa Command, the middle east command, the southern Africa command, and the far east command. ( there are others ) Sounds like a worldwide military EMPIRE ? That big buddy China does not, to my knowledge have any foreign military presence and bases around the world we have over 700. What words again come to mind – Military Empire. Cut the military budget in half and solve most if not all of the world’s problems including the Climate Crisis which will kill us all if we do not wake up. Our military budget is larger than the next 9 countries added together – overkill??

      1. Terence Dodge

        China is just starting their build out, please be patient. They have have a presences in the Horn of Africa, baby steps first. They are in negotiations with Equatorial Guinea for a dock, this has several Pentagon “desks” in state of consternation. China ( PRC ) needs satellite tracking stations in “many” locations ( see recent Cambodia dock and naval rentals ), and do not forget Sri Lanka port expansion “projects”.

  2. digi_owl

    USA as a culture seem to be all about hypocrisy.

    From the petty things like public drinking, and how to “dodge” it, all the way to how it does international politics.

  3. Michael Hudson

    China normally stretches out the payment when a country can’t pay. It doesn’t enforce payment. And it’s looking for equity investments that actually generate revenue, not just currency loans to governments (usually to finance capital flight in advance of a non-right-wing president being elected) as under US/IMF policy.
    The crisis will come this summer: Who will the Global South pay: US$ bondholders, China, or will they put paying more for food and energy first.
    Russia and China will provide energy and food exports on credit — but NOT simply to enable US$ debt to be paid

    1. Nick Corbishley Post author

      Thanks Michael. You raise a really good point: what is the debt actually being used for? As you say, most of the investments China is financing actually create value rather than facilitating capital flight. In most cases, this means generating revenue. But it can also mean creating social or cultural value. For example, a few months ago El Salvador inaugurated a new national library, which was built largely with Chinese money and Chinese know-how. It truly is a sight to behold and was the largest cultural investment in El Salvador of the past 100 years. The country is also building a new national stadium, again largely financed with Chinese money, on the grounds of a former military school.

      1. Thuto

        Hussein Askary of the Schiller Institute does a thorough job debunking this “debt trap” myth, including tracing the history of the term to its roots as a soundbite by Indian anti-China groups who weren’t happy with increasing Chinese investment in Sri Lanka, and then its reappearance in a so-called study by “experts” at the Belfer Centre for Science and International Affairs at Harvard. The study was commissioned by the US state department and passed on to the mainstream press to parrot the term “debt trap diplomacy” (which incidentally was the title of the study) ad nauseam. Askary points to two things in his takedown:

        1. Debt owed to China is far lower than usually thought, about 10% of sovereign debt in Pakistan and Sri Lanka (compared to 40% – 60% for western debt) as an example.

        2. Chinese debt is qualitatively different from western debt as it’s invested in modernization of a country’s infrastructure, which sets it on a path towards greater productivity. Western debt on the other hand is used to finance fiscal deficits and the like, and evaporates without ever improving a country’s chances of increasing economic output.

        The “debt trap” myth is a smear campaign gleefully spread by the media poodles of the US state department around the world to deflect attention from western debt issued on punitive terms (and involving players that run the gamut from shady bond market operators all the way to vulture funds and everything in between).

      2. Joseppi

        China is focused on sovereign self-interest, while at the same time China values highly the stability in the international economy, so it promotes policies that are mutually beneficial in international financial relations, because of the fact that it has become very prosperous under the present system.
        The West fails to understand this growing multilateral world, and can only think to posture militarily appearing like a dumb bully.

  4. GramSci

    Thanks for keeping us posted on developments in Latin America. I wonder if any readers, have a
    longer-form source documenting an IMF mechanism Michael Hudson has mentioned in passing in several places, namely IMF bonds being bought primarily by Latin American oligarchs, essentially buying US protection of their mutual hegemony. This mechanism would be a red flag we’re China to adopt it.

  5. Wukchumni

    When I was doing physical foreign exchange back in the day in one of the only forex places other than a bank (you want to see hopeless? go to any old bank and try and do a foreign currency exchange in the 1980’s in LA, they knew nothing and were scared shitless of all the different colored currencies, which was oh so very good for the company I worked for) and we were under explicit orders not to do any business in the various Latin American currencies as each & every one of them was a financial basketcase with hyperinflation rampant. Let some other joker deal with Argentina Astrals or Peruvian Intis or whatnot, it was a no go zone.

  6. The Rev Kev

    Appreciate the update about South America and in such fine detail. I am here to say that all the non-western world will bear watching over the next few months as the stresses to the western nations by the NATO-Russian war start to cause all sorts of break downs in the current political setup. So maybe those countries in South America and Africa may decide that with the Russia-China block that they will get basic, vital commodities and a chance to develop their countries whereas tying their fortunes with the collective west merely guarantees eventual impoverishment and military dictatorships.

  7. Mikel

    “We have to work with the armies and defense forces of our partners and allies, making them stronger and helping them overcome these intersecting challenges and threats.”“We have to work with the armies and defense forces of our partners and allies, making them stronger and helping them overcome these intersecting challenges and threats.”

    The partners they are referring to are fellow international oligarchs.

Comments are closed.