Pass by a Shell or Chevron gas station and the prices for gasoline…are unbelievably low. There was a time, where paying $20 would almost fill the tank up half way, however now for some cars $20 can get you about 75% of a full tank. In February 2011, prices per barrel of oil rose above $100 USD (Washington Post). It seemed as if prices would remain around the $100 per barrel price; the oil cartels would profit and the petro world would keep turning.
Reality check: prices can only rise so much until they plummet and the market decides to balance itself out. The problem with the oil industry is not just the development of alternate energy sources, but the oil surplus that has been produced in the market has collided with a crippled world economy. Cartels such as OPEC have refused to drop their production quotas despite the oil price crash. Prices per barrel fell below $70, according to The Washington Post.
Most Latin American economies have been switching to oil exploration, extraction and exportation. However, the region, along with the rest of the world, is about to be the titanic hitting its iceberg, with something unseen looming in the water. The dropped oil prices are just one reflection of the weakness of the world economy. Great development within regions such as Latin America has been achieved within the last decades, but the future does not look bright.
“These economies thrived because of their sound, rule-based policy frameworks, rising commodity prices, and favorable global financial conditions,” said IMF director Christine Lagarde at a regional summit in Santiago (ABC News). Lagarde continued, “the road ahead looks increasingly bumpy,” for the region’s economy.
Regional growth is supposed to remain at about 1.3 percent for this year, and raise slightly to 2.2 percent for 2015. Latin America’s economy has generally been heavily dependent on export goods, however demand and commodity value will continue to slow as the market slows.
What the region is posed with now, is shifting its focus from being cultivation and export based to developing infrastructure. The region must now (like it should have been doing a long time ago) begin greatly investing in structural reforms, such as education to ‘lift productivity and create economic diversification’ according to IMF director Lagarde.
“Latin America’s middle class had grown by about 50 percent since 2003, partly because of a reduction in labor income inequality, including through rising minimum wages,” according to Lagarde.
The reign of OPEC may be coming to an end. Oil prices have taken their sharpest plunge in three years according to Bloomberg. Latin America, the region that accounts for the largest crude oil reserves outside of the Middle East, has begun to feel the shock waves of the recent petro crisis.
OPEC, the Organization for Petroleum Exporting Countries, was founded in 1960 with the first five member countries being: Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Today, Ecuador has been another country from Latin America that has become an OPEC member.
Since September, prices have dropped significantly while alternate energy sources have been explored, for example the increased interest in natural gas and pipeline systems. The petroleum cartel, OPEC, an organization of countries with some of the largest oil reserves in the world, is facing off against a new era of alternate energy. The petro dollar has become depreciated.
“In just a matter of months, the price of a barrel of oil has dropped from more than $100 to about $70, and gas is now cheaper than it has been in years,” according to Fox News.
OPEC and the petro industry marked an increase in supply in the face of a falling global demand for oil; this combination creating the devaluation of the petro dollar, says Telegraph.
OPEC met this past week, and besides the fall of the crude oil prices, OPEC members have decided to not minimize current production quotas. The cartel of oil-producing nations, in the past has been able to fix prices based on their ability to increase or decrease their supply of crude oil. OPEC’s decision will inevitably lead the prices to continue to fall as there becomes a surplus of crude oil in the market.
The decision to maintain production, at about 30 million barrels a day, is seen by many as OPEC’s confidence in the resurgence of demand for oil despite the United States great success with increased fracking and shale gas extraction. The decision made by OPEC is seen as a response to hype about new energy take overs.
Although the organization decided to face off against the increasing value of shale gas and other competing energy sources, sticking out the economic downturn at the moment, some OPEC nations may not be able to handle the short-term sacrifice. Countries like Venezuela and Nigeria who have economies almost completely dependent on the production and exportation of crude oil will be much more greatly affected with falling oil revenue prices below $100.
Venezuela’s President Nicolas Maduro, after the OPEC meeting, announced the country will cut public spending, due to the fall of petroleum demand. Surprisingly, the first thing to be reviewed and cut will be the wages and salaries of leadership officials, “starting with the president of the republic.”
Cuts will be made to all the ministries and state owned enterprises. Maduro doesn’t see the fall in gas prices and its effect on the country’s economy as an “evil.” In his opinion, according to El Comercio, he sees it as an opportunity to cut unnecessary spending and reorient the country.
Despite recent problems of questionable dictatorship type actions from the Venezuelan government, Maduro assured that even though there will be cuts,
“’ni un bolívar se va a tocar de las misiones’ o programas sociales y señaló que, por el contrario, se ampliarán las inversiones en materia social.”
In this address to the country saying that social programs will not be touched or cut, but on the contrary, will receive increased investments and attention.
OP-ED: In economics, from day one you are taught the “Principles of Economics.” One of these principles, is that trade is always beneficial. Trade allows diversity into the market, trade leads to international interactions and trade leads to economic growth. But, in analyzing trade the variables behind what is specifically trade are left out. It as if economics assumes that in the trading system all are equal, when in fact they are not.
The material economy of: production, cultivation, processing, packaging, delivery and consumption…the perfect system of a world with free trade is not all that it seems. Although a linear model of production is easier to comprehend, “we live in a finite world, not in one of a linear system,” as said by the speaker of this capitalism-questioning video.
“La vida real no ocurre en una pagina en blanco; interactura con sociedades, culturas, economias, el ambiente…”
The economic system is not one that can be easily drawn on paper, because it is interacting with all sorts of variables such as different societies, cultures, economies and environments. Another thing too, is that at every step there are limits. In writing down an economic system and international trade and production, variables such as people that are in the mix of the “production, cultivation, exportation,” process are forgotten.
In analyzing this video, it is saying that with one of the biggest populations in the world, the United States has cultivated most of its own resources. The answer therefore is for it to turn to other countries for resources to survive off of. However, the system takes advantage of the weak infrastructures of other countries and inevitably exploits them. However it is not just the United States, it is developed countries over those that are struggling to develop, that become ensnared in the facade of a free market. As said, a free market and free trade is not always beneficial for everyone.
Hay que ver que todavía son “países de la cosecha,” es decir que, hay países quien están atrapados en el sistema del libre comercio. Bajo el sistema del libre comercio estés países son como esclavos quien producen cosas necesarias con sus recursos, pero todo no vale la pena, porque reciben menos dinero de los quien al final venden los productos a un precio más alto. Los productores originales no reciben los beneficios reales del mercado libre.
This past week, President Xi Jingping opened the 22nd APEC summit in Beijing, hoping to “inject new vitality into Asia-Pacific development,” according to an APEC news release.
Monumental deals have been discussed as the event has unfolded in the past week. Some of the world’s largest leaders, the United States and China, have hacked out plans to work together on implementing new policies to reduce pollution. With growing unrest in China over smothering air pollution problems and environmentalist groups breathing down Obama’s neck, the world was still surprised at the momentous pact that “almost wasn’t,” according to Politico.
As Xi’s interests expand far beyond the United States, he relentlessly makes an effort to gain a developmental foothold in Latin America.
Wednesday of this past week, Peruvian President Ollanta Humala moved forward with a memorandum signing off further trilateral relations with China and Brasil.
At the summit, trilateral relations between the three countries were discussed, but in specific, the constructing of a transcontinental railway between Peru and Brasil. This railway would be sponsored and funded by Chinese enterprises.
Peru already has a completed transoceanic highway within the country; the development of a new transcontinental railroad is a bit curious. The 3,400 mile transoceanic highway from Peru to Brasil opened up trade and new markets between the two countries, but at great environmental costs as the building of the highway passed through the Peruvian and Brasilian Amazonian region, angering environmentalists and indigenous groups.
The Chinese sponsored railway proposal would serve the purpose of commodity based freight trains, opening the two markets up to each other, but also integrating the Chinese market into the mix.
“It’s similar to what China is doing in Africa,” he said. “Helping to improve the infrastructure of the domestic economies in Latin America increases the potential market for goods and services coming out of China,” according to China Daily.
Almost 21 times the figure from 2000, in the last year, trade between China and Latin America reached $261 billion.
Former Chinese ambassador to Brasil and Argentina, Shen Yun’ao, expressed the relevance and importance of Latin America and its raw natural resources; ore, grain and meat. The construction of the proposed 1,630 km railway train will make the flow of these goods more efficient.
“Brazilian officials have long expressed their wish to see Chinese rail companies get more involved in the nation’s infrastructure program, highlighting the competitiveness and experience of China, home of the world’s largest rail network,” China Daily.
With the introduction of glasnost (openness) and perestroika (restructuring) under the rule of Mikhail Gorbachev, the cohesiveness of the USSR was splintered eventually leading to its demise in 1991. The USSR was then broken down into 14 independent republics and since then “has shifted its post-Soviet democratic ambitions in favor of a centralized
semi-authoritarian state in which the leadership seeks to legitimize its rule through managed national elections, populist appeals by President Putin, and continued economic growth,” according to the CIA World Factbook.
Although about 1.8 times the size of the United States, Russia is a region that only houses roughly a third of the U.S. population (143 million in comparison to a U.S. population of 316 million). The percentage of citizens that live in urban areas is whopping 73.8% as of 2011 according to the CIA WF.
Despite Russian predominance in world news, economically Russian industries are a failure, according to Texas A&M University professor of Russian, Brett Cooke. Following the fall of the USSR, which ended state-ruled enterprises, oligarchs seized these franchises. However, Russian industries never sufficiently adapted to the modern economy. Russia is comprised of a great expansive land mass, but because of its comparatively small population density, diversification of industrial growth has faltered. Today, Russia’s exports and economic wealth are reliant on the production oil related products.
“Russia produces oil, basically nothing else,” said Professor Cooke.
Professor Cooke proceeded to ask; why would Russia be importing agricultural products? Why from Latin America? According to the Observatory of Economic Complexity, Russia’s main imports aren’t even food related; the top imports consisting of goods such as: cars, packaged medicament, vehicle parts and computers.
The level of Russia’s food independence is stable, according to Tass, a Russian news agency. Russia’s main agricultural good is wheat. However, the country is lacking in other crucial food areas.
“…the level of self-sufficiency regarding certain types of dairy products (cheese, butter) was significantly below the required margin. Moreover, the figures of food independence concerning certain meat products, namely beef, were twice as low as the required margin.”
In recent times, Russian food security has been questionable due to Western sanctions implemented in August in response to the Crimea invasion; these sanctions have pushed Russia to realize its alienation. In the wake of these sanctions, Russia has doubled its imports of Argentinian beef (Global Meat News), while seeking out new strategic partners, which has been previously investigated in this blog.
Russia has allotted 1.5 trillion rubles ($42 billion) to invest in domestic agricultural production/development. Despite the investment, local producers are weary of the promise for greater production and efficiency within the country.
“It is extremely difficult to compete with foreign producers due to the investment factor in Russia, loans and infrastructure costs are much higher than in Europe and the U.S.,” said Artyom Belov, CEO of the National Association of Milk Producers, according to The Moscow Times.
This news from the agricultural sector only illustrates part of the problems facing Russia and the great depreciation of the ruble. Russia is seen as a dark illusive power, with an untouchable leader, Putin, at the head of the country whom steals the spot light and fills the tabloids of Western media. However, behind the Putin mask, the physically enormous country is vastly underpopulated and in a “time-freeze.”
Putin/Russia is painted by American media in three ways. Firstly, Russia is a country that reacts in a manner that is interpreted as it trying to maintain/regain influence over former Soviet spaces. Secondly, Russia wants to reemerge as a world power like during the Cold War times! And lastly, Putin reacts to the west in order to fight the spread of basic democratic/capitalistic ideals.
Recently with Putin’s visit to Latin America in July, the nation has shown that it is expanding beyond its former Soviet realm. Putin has sought to rekindle old flames while establishing new relations with countries such as Cuba, Nicaragua, Brasil, Argentina and Chile. During this “Latin American Tour,” Putin and his new presidential confidants discussed partnered development in sectors such as energy, education and trade.
Throughout the past century, countries such as Chile and Argentina received waves of fascists according to Professor Cooke. The first wave of fascist influenced Europeans landed in Argentina in the 1920’s. A reemergence of fascism later appeared with President Juan Peron in 1946.
In Chile, leaders such as Carlos Keller and Jorge Gonzalez Marees transitioned Chilean politics and took a position similar to that of Adolf Hitler in 1932. Later in 1938 the country’s growing fascist movement attempted a coup; it inevitably failed. Starting in 1974 the infamous regime of Augosto Pinochet controlled the country under what were argued to be fascist ideals until 1990.
Virtually all countries in Latin America have faced movements from the spectrum of socialism to communism. Today there has been a steady movement back to populist ideals, ideals of which President Putin is found of.
This shift of relations has been caused by many things. One of the root issues being that the United States and other western nations have acted as if Russia no longer matters, says Professor Cooke. This isolation and ostracization has caused Putin and the country to react.
There is a great contradiction within Russia itself. Why should Putin be the select? Putin with a 65% approval rate in his country, greatly over shadows the reality of his nation. Professor Cooke, who has been to Russia more times than countable, commented not only on the centralization of the population in the cities, but also the isolation of the people themselves.
“The country [due to its governmental policies] has developed a separateness…and its people are out of touch,” said Professor Cooke.
Cooke expressed how there is no checks and balances, the current government under Putin stifles growth and the opinions of those appear to be heavily influenced or intoxicated with western ideology are targeted. The country itself is moving in a fascist direction, Cooke said in a worried manner. It has recently started with bans on alcohol, to curfew times within the cities…all things that appear to be good for the people.
However, these policies have evolved into the banning of certain “alien groups.” The Putin administration has tried to dismantle one of the most prominent human rights groups in Russia known as the Memorial Human Rights group in Russia which has been threatened to be dismantled as it is an “alien agency.”
The statistics report that Putin is at a 65% approval rating, but this neglects the opinions of those who remain unheard. Article 80 of the Constitution of the Russian Federation states that,
“The President of the Russian Federation shall determine the guidelines of the internal and foreign policies of the State.”
Therefore, if Putin decides to ban western books from the country, arrest and condemn those who speak out against him or advocate for ideas that aren’t aligned with his political propaganda, he can rightfully create whatever policy he wants under the Russian constitution to silence these people.
Cooke compares the situation within the country to that of basic historical fascist leaders. Under Hitler the Autobahn was created and under Mussolini trains ran on time.
However, Cooke continues, “fascism is sloppy and mediocre.” It appears great at first until the efficiency of the system breaks down. Russia, like the situation of Germany before the rise of Hitler is feeling isolated and underestimated; inflation and violence have perpetuated the rise of fascism in the country.
The world sees the movements of Putin, but is ignorant to the realities of the country of which he represents.
“The alienation and sanctions have just started,” Cooke said.
Putin is represented on most propaganda of him riding shirtless on a bear is what inspires the Russian Putin followers and fuels the ideology of the power of the Russian nation. Russia perpetuates arms trade with the Middle East and has growing relations with China. However it is important to note the power switch of China in the globalized world.
China itself does not condone the intervention of one country into another country, case and point Russia’s seizure of Crimea. Power changes have happened in the past two decades with China moving to the top with the largest GDP in the world, however the Chinese dragon itself may not be as aggressive as once perceived.
Russia will continue to create allies and seek relations with new partners such as those in Latin America, but the contradiction between governmental actions and media hype compared to the actual socioeconomic situation of the country are questionable. Maybe Russia is not the great dark power it is presumed to be. As Cooke mentioned, the people self regulate. The Putin regime may be stifling the checks and balances system, but eventually something’s gotta give.
With the hopes that foreign capital will play a large role in the future growth of the Cuban economy, Cuba will kick off November with their 32nd International Fair FIHAV in order to attract foreign investment. In the exhibition, there will be companies from 60 different countries. Minister of Foreign Trade and Foreign Investment, Rodrigo Malmierca, wants to use the exhibition as a “promotional” for the country.
This coming Monday, Cuba will launch its official portfolio of businesses that Cuba offers in key sectors of its economy, according to Venezuelan newspaper, Ultimas Noticias. The projects that will be included within the portfolio range from: agribusiness, construction, pharmaceutical and biotechnological industries, and renewable resources among others. These projects are designed to promote development in all of Cuba’s provinces.
In June a new Foreign Investment Law was implemented to stress that the International Fair and Cuban investment will provide “greater incentives and guarantees for investors,” according to the president organizing the fair in Havana. This legislation replaced the one formerly undertaken by Raul Castro in 1995 which reaffirmed the socialism of the island.
With the current Cuban economy, Ultimas Noticias reports, Cuba would need between 2,000-2,500 million dollars a year to sustain its model and its amendments, to which the government has opened its doors to investment. As earlier reported in this blog, the construction of the Mariel Port in Cuba, which is being constructed with the funding of Russia, will open up the space creating a modern container terminal.
The goal of last year’s international fair was the promotion of the Mariel Port, to which now Cuba has received the investment and funding for. Cuban Minister of Foreign Investment and Commerce invited all interested foreign investors affirming that opportunities of exchange would be “fruitful and useful” for both parties. The minister urged that the opportunities offered in Cuba are some of the largest in its region of the Community of Latin American and Caribbean States (CELAC), already having strongly established corporate representation from Venezuela, China, Russia and Spain, which are the main trading partners of the island.
A grave problem that has yet to be directly faced in this blog is the cost of human rights and natural resources at the hand of development and competing interests that come with increased foreign investment. As Latin America develops and becomes further intertwined into the global market, each government has to make a choice; whether to protect its people and environmental resources, or develop economically regardless of opportunity cost.
The Chinese $50 billion investment in the construction of a Nicaraguan canal, will not only create thousands of jobs, but bring in a higher overall income for one of the poorest countries in Latin America. However, this development project will also simultaneously destroy the country and its people.
The route of the new canal will pass directly through Lake Nicaragua, a lake expanding about 3,191 square miles, making it the largest freshwater lake in all of Central America (19th largest in the world).
As the Nicaraguan government pops nice bottles of champagne in celebration of the monumental decision to build the Nicaragua Canal with Chinese aid, the rest of the population has begun to protest out of discontent. Once popular with citizens, President Daniel Ortega has now been labeled, “vende patria,” or “traitor of the homeland,” according to La Opinion.
The protests have been incited by two main reasons, the people are fed up with government secrecy and dis-communication between government and the people. The second reason is that the people are frustrated with the governments disregard of the societal and environmental effects the canal construction will have on Nicaraguans, According to La Opinion,
“Managua [Nicaraguan Capital] argues that the country’s economy will grow by 15% annually from the second year of construction onwards and it will generate between five to 50 thousand jobs. Nevertheless the government has not provided specific details about the project, such as construction timelines and potential environmental impacts.
…Nicaraguans that live in the Canal’s proposed path will have to move. Case in point, there have been reports that HKND representatives, with Nicaraguan police officers and soldiers acting as guards, have appeared in various homes, taking measures and informing homeowners that their households will be purchased by the company.”
The development of the inter-oceanic canal would dis-join the countries largest fresh water source and displace about 100,000 natives from their homes, said Telegraph. The fantastical land, where cattle roam around the lake, families live off the land, while children play in trees would become a passage way for modern day trade and industrialization.
“This is one of the most fertile regions in Nicaragua, and the government has sold it behind our backs to the Chinese, they’ve sold our heritage, our sovereignty,” says Arnulfo Sequeira, 51, a father of four with 200 acres of land and 100 cattle. There is going to be a massacre because we are not leaving our land, our lives, and we’ll fight for it until death.”
Telegraph reported that in the pueblito of Cruz Verde, 20 men and women gathered on the banks of Lake Nicaragua with machetes. Although the machetes are normally used as harvesting tools, in this instance they were used as a shear representation of angst and the willingness to fight in order to protect their land. These men and women stood on guard denying access to Chinese census from entering into their community where their families have lived for more than 80 years.
The clouded minds of the Nicaraguan government officials and the utter disregard of the country and its people from the Asian giant might lead to one of the greatest tragedies and atrocities of this time. According to a study done by Centro Humbolt, an internationally renowned environmentalist group, they concluded that the canal was,
“…unviable and posed extraordinary environmental risks, especially to the lake. It says there will be insufficient water to maintain the canal by 2039.
Dredging the shallow lake to create a 30metre deep canal will disturb huge amounts of potentially toxic sediment. The canal also risks contaminating the lake, home to fresh water sharks, sawfish, and turtles, with salty sea water, and any oil spill could inflict irreparable damage.”
Unfortunately President Ortega, a former guerrilla leader from the 1979 revolutionary victory in Nicaragua, foolishly believes that the building of the canal is the second phase of the Revolution. The has president, adamantly said that the project will lift Nicaragua out of poverty.
Ortega, originally a leftist president has switched in recent years and first made contact with Wang Jing (Chinese billionaire and investor in the Nicaragua Canal), three years ago. The two came in contact when Ortega’s son and likely successor, Laureano, was at a Communist Party meeting. Jing, who was also at the meeting, asked to speak with him privately, later bring up the canal plan.
Laureano, Oretega’s son and the one who had first contact with Jing is said to have also been in contact with Russian President Vladimir Putin. Unsurprisingly enough, the Russians have a stake in the building of the canal as well, they have also greatly increased warm relations with Nicaragua as Putin went and personally visited the country this past summer in July.
If everything goes smoothly, geopolitically speaking, the construction of the canal would create a larger foothold in Latin America for China.
This blog is a platform for the investigation of the economic situations and governmental transitions within Latin America and how these factors have increased activities with unusual trading partners.