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Latin America, As a Whole, Refuses to Embrace Total Economic War Against Russia

Summary:
Even as the pressure rises to endorse the West’s sanctions against Russia, most countries, including U.S. neighbor Mexico, prefer to sit on the fence.  On March 2, only four out of 33 Latin American and Caribbean countries — Cuba, Nicaragua, El Salvador and Bolivia — abstained in the vote to condemn Russia’s invasion during the emergency meeting of the United Nations General Assembly. The real number would have almost certainly been five if Venezuela’s diplomats hadn’t been barred from attending the vote after Maduro’s cash-strapped government had fallen behind on its subscription fees. On the other side of the divide, a small number of governments in the region have publicly endorsed the West’s paralyzing economic sanctions against Russia. They include Ecuador, Colombia, Chile and

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Even as the pressure rises to endorse the West’s sanctions against Russia, most countries, including U.S. neighbor Mexico, prefer to sit on the fence. 

On March 2, only four out of 33 Latin American and Caribbean countries — Cuba, Nicaragua, El Salvador and Bolivia — abstained in the vote to condemn Russia’s invasion during the emergency meeting of the United Nations General Assembly. The real number would have almost certainly been five if Venezuela’s diplomats hadn’t been barred from attending the vote after Maduro’s cash-strapped government had fallen behind on its subscription fees.

On the other side of the divide, a small number of governments in the region have publicly endorsed the West’s paralyzing economic sanctions against Russia. They include Ecuador, Colombia, Chile and Guatemala. The rest of the countries occupy the vast middle ground between the two polar extremes. Despite condemning Russia’s invasion of Ukraine, they have expressed opposition to the US-NATO-led push to isolate Russia from the global economy.

Most importantly, they include the two heavyweight economies of Latin America, Brazil and Mexico, which together account for roughly 60% of the region’s GDP. To put that in perspective, the two largest economies of the European Union, Germany and France, account for just under 40% of the total GDP of the European Union.

Treading a Cautious Line

Mexico’s President Andrés Manuel Lopéz Obrador trod a very cautious line when the war broke out, refusing even to mention Russia or Ukraine by name in his first public response: “We are not in favor of any war,” he said during his morning press conference. Since then the tone has risen. On February 24, Mexico’s Foreign Secretary Manuel Marcelo Luis Ebrard justified Mexico’s rejection of Russia’s invasion of Ukraine by citing Mexico’s experience of losing roughly half of its territory to a neighboring state:

“Due to our history and tradition, the way we formed as a nation, we must forcefully reject and condemn the invasion of a country like Ukraine by a great power like Russia.”

But while Mexico’s government has intensified the language it uses regarding the Russian invasion of Ukraine, it still refuses to apply sanctions against Russia. “We are not going to take any sort of economic retaliation because we want to maintain good relations with all the governments of the world,” Lopez Obrador told reporters.

Ebrard said six days ago that the only way that Mexico would back economic sanctions is if they were endorsed by a majority of members of the United Nations’ Security Council, which is unlikely given that its permanent members include both Russia and China while its non-permanent members include Mexico itself, Brazil, India and the United Arab Emirates. Also sitting on the Council as temporary members are Ghana, Kenya and Gabon, which all supported the condemnation of Russia but whose position on UN sanctions is not entirely clear.

At home and abroad Mexico’s government has come under a barrage of criticism for not taking part in the international pile on to sanction Russia. Enrique Quintana, a veteran columnist at El Financiero, Mexico’s most widely read financial newspaper with close ties to Bloomberg, warned that AMLO’s Mexico risked being caught in the middle of two advancing armies in the escalating economic war:

On a battlefield, staying in the middle of two armies is not the most advisable choice, but it is what the government of President López Obrador seems to be doing.

It is even less so when commercial and financial relations are so asymmetrical. We are strongly integrated into North America and tremendously distant from Russia commercially and financially. And even less so, when the likelihood is that in the end the Putin government will lose the war economically.*

Today, acting ambiguously, pretending that there is a military conflict between two countries rather than a unilateral, cruel and disproportionate invasion, ultimately means siding with Russia.

Whether this is so or not, the fact that Mexico’s attitude could be perceived in this way by some of our main trading partners is highly risky.

You can talk as much as you want about the good relations we have with the United States, but the reality is that we are opening completely unnecessary fronts that can bring us incalculable costs.

[*NC: this, in my view, is not nearly as obvious as the author suggests. I refer readers to Yves’ recent article, Russia Sanctions Blowback Only Beginning: Globalization in the Crosshairs, Russian Retaliation Coming? Since that was posted, the FT has revealed that the sanctions have so far cost BlackRock $17 billion in losses on its Russian exposure]

Mexico is not the only major Latin American economy that is refusing to apply economic sanctions against Russia. Brazilian President Jair Bolsonaro said his nation “will not take sides” in the conflict days after criticizing the indiscriminate nature of the economic sanctions imposed on Russia.

Like AMLO, Brazil President Jair Bolsonaro said his country was “not going to take sides… We are going to continue to be neutral and help, however possible, to find a solution.”

Economic and Financial Reasons

Many countries also have important economic and financial reasons to oppose the sanctions. Latin America is hugely dependent on Russia for fertilizer components. According to Statista, nitrogenous, potassium and mixed fertilizers together accounted for almost 40% of all Latin American imports from Russia in 2019. Other key imports include semi-finished steel (15%) and petrol (12%).

Higher prices and prolonged shortages of Russian fertilizers could have a severe impact on agriculture in the region, which is already from spiraling input costs. If Russian fertilizers stop arriving in the region, the result will be even higher food prices for the foreseeable future. As Quartz reports, Brazil, whose economy is already mired in a stagflationary recession, is the largest importer of fertilizer in the world:

Its top supplier is Russia—providing Brazil 22% of its imports. In October 2021, Russian fertilizer exports were restricted, following a fear of a shortage. The smaller export supply led to higher prices. In fact, right before the invasion, Brazilian authorities were in Russia trying to negotiate a deal. Now with war and sanctions, Brazil’s buyers may need to look elsewhere.

The type of fertilizer Brazil imports is a mixture of nitrogen, phosphorus, and potassium known as NPK. Farmers rely on the potassium, to prevent diseases in their fields. In Brazil, it’s used to grow soybean, coffee, and other crops. Soybeans are the biggest money-maker for Brazil, the majority going to China, and shortages could reverse recent gains in the relationship’s growth.

Food Shortages Already Critical

Latin America was already in the grip of a major food crisis before Russia’s invasion of Ukraine, largely but not only due to the economic fallout of the Covid-19 pandemic and resulting supply chain crisis. According to an IMF paper published in November 2021, food prices started surging long before the pandemic and have risen more than 18% on average in LA5 countries since January 2020.

“We must say it loud and clear: Latin America and the Caribbean is facing a critical situation in terms of food security,” said Julio Berdegué, FAO’s Regional Representative. There has been an almost 79 percent hike in the number of people living in hunger from 2014 to 2020.”

As I reported in “As Debt, Inflation and Hunger Rises, Latin America’s Fate Lies Once Again in Wall Street’s Hands,” a total of 267 million people — the equivalent of 40% of Latin America’s entire population — experienced moderate or severe food insecurity in 2020, 60 million more than in 2019.* It was the highest rise of any world region.

Another global supply chain shock, such as that caused by the loss of exports of fertilizers from one the world’s biggest producers, would send agricultural costs and by extension food prices spiraling even higher, especially given the current tightness of the global fertilizer market. This partly explains why so many countries in Latin America are loath to publicly support the economic war being waged against Russia.

Declining Strategic and Economic Influence

Another reason why most Latin American countries are not embracing the West’s economic war against Russia is that the U.S. and to a lesser extent the EU have lost significant influence in the region over the past two decades, as I documented in my August 17, 2021 article, The US Is Losing Power and Influence Even In Its Own Back Yard. Mainly it has been lost to China, but also to a much lesser degree to Russia:

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. 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.

China’s trade with the region grew 26-fold between 2000 and 2020, from $12 billion to $315 billion, and is expected to more than double by 2035, to more than $700 billion. In the last 20 years China has moved from an almost negligible position as a source of imports and destination of exports within the region to become its second trade partner, at the expense not just of the US but also Europe and certain Latin American countries such as Brazil whose share of inter-regional trade has fallen. According to the World Economic Forum, “China will approach—and could even surpass—the US as LAC’s top trading partner. In 2000, Chinese participation accounted for less than 2% of LAC’s total trade. In 2035, it could reach 25%.”…

China is [also] reaping the dividends of its vaccine diplomacy, including in Washington’s own backyard. Earlier this month, Beijing announced that Chinese vaccine developers had provided over 230 million vaccine doses to 18 countries in Latin America, including Brazil, Mexico, Argentina, Chile and Peru, mostly through exports. In a virtual press conference with international press agencies, the director general of International Foreign Economic Affairs, Wang Xiaolong, said that China has so far provided 700 million doses to over 80 countries — “more than all other countries combined.”

While China was flooding Latin America with vaccines, Pfizer, one of three US vaccine makers whose product has been granted emergency use authorisation, was essentially shaking down countries in the region, demanding that they put up sovereign assets, such as federal bank reserves, embassy buildings and military bases, as insurance against the cost of any future legal cases involving Pfizer BioNTech’s vaccine…

China is not quite supplanting the US in Latin America just yet — the US is still top dog, particularly in Central America and the Caribbean — but it is eroding its influence. And the political sands in the region are not exactly shifting in the US’ favor right now. Even historically closely aligned countries such as Peru and Mexico are now governed by people and parties that are somewhat less disposed to US influence.

A New World Order?

Russia has also been expanding its influence in Latin America, partly through vaccine diplomacy but also by extending loans to countries such as Venezuela and Argentina. In fact, Argentina was scheduled to receive another loan just before the U.S. and EU imposed sanctions on Russia. Vladimir Rouvinski, Director of Interdisciplinary Research Center at Icesi University, who currently lives in Colombia, recently told Newsweek:

“Russia’s relationship with Latin America varies by country, but diplomatic meetings between leaders, large-scale shipments of Sputnik V vaccines and the growing influence of social media have all helped to strengthen Moscow’s position in the region.”

“The idea the Russian government is selling to Latin Americans is, ‘Look, we are entering a new kind of world.'” Rouvinski told Newsweek. “‘We don’t know what the rules will be, but let’s be partners in the construction of this new world order.'”

Some of these Russian tactics have proven very effective, particularly in countries where American popularity is low.

“With the level of Anti-Americanism that still exists here in Latin America,” Rouvinski said, “this narrative is very attractive for some parts of our society.”

It is not clear what will happen in the coming days and weeks as the US and its allies increase the pressure on Latin American countries to get off the fence and support sanctions against Russia. On Tuesday, Brian Glynn, the managing director for the Americas of the EU’s European External Action Service, said the EU will be working “closely” with the countries of Latin America to “isolate Russia” and show that the world is united in agreement that this war is not just.

Will Washington’s recent courting of the Maduro government — which it has not recognized since anointing Juan Guaido president of Venezuela in 2019 — bear fruit? According to the latest report out of El País, the only thing the Biden’s administration’s attempts to persuade Venezuela to begin selling oil to the U.S. again after eight years of crushing sanction appear to have achieved so far is to annoy the government of Washington’s closest ally in South America, Colombia, which in turn prompted the Biden Administration to clarify that it still does not recognize the legitimacy of the Maduro government.

While the West’s sanctions on Russia are likely to make life even harder for Venezuela’s hyperinflation-ravaged economy, by cutting off Venezuela’s state-owned oil company from its bank accounts in Russia, that does not mean the Maduro government will be willing to cut its ties with Moscow, one of its closest allies, and bend the knee to Washington, which has hardly earnt its trust over the past decade. During his whistle-stop negotiations with his Ukrainian counterparts in Turkey on Thursday, Russia’s Foreign Minister Sergei Lavrov found time to hold talks on the sidelines with Venezuela’s vice president Delcy Rodríguez.

Rodríguez said she was “happy” to be able to talk with Lavrov and stressed that this is “a key moment for all of humanity: Russia has always played an important role in history.”

Even more importantly, the two giants of Latin America, Mexico and Brazil, continue to sit firmly on the fence. It’s also worth noting that three of the BRICS countries — India, China and South Africa — abstained from condemning Russia’s invasion of Ukraine at the UN General Assembly. One obvious reason for this is that they, like many other countries in the world, are justifiably terrified by the precedent the U.S., EU and friends have set by attempting to banish Russia, one of the world’s largest commodity producers and exporters, from the global financial system. If successful, they know they could be next.

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