Trade and Investment

Argentine presidential candidates question deals with China

Kirchner's prospective successors want to review contracts signed in February

With less than five months to go before Argentina’s presidential elections on October 25, candidates vying to replace outgoing president Cristina Kirchner have joined entrepreneurs and environmentalists in questioning the transparency of agreements she signed with Chinese president Xi Jinping in Beijing in February.

“We are not questioning the partnership with China, but the current government’s lack of transparency,” said Diego Guelar, Secretary for International Relations at the opposition party PRO.

“On the eve of leaving office, the government negotiated the construction of two nuclear power plants and a space observatory, without the proper national debate,” complained Guelar, formerly Argentina’s ambassador to the United States, the European Union, and Brazil. According to Guelar, the PRO has already expressed concerns to the Chinese government that Cristina Kirchner would be “mortgaging the country’s future” by making million-dollar deals in sensitive areas just months before ending her second and final term as president.

Other presidential candidates Sergio Massa (Frente Renovador), Ernesto Sanz (UCR, Radical Civic Union in English), and Jose Manuel de la Sota (PJ, Justicialist Party in English) say they will review the agreements, mainly because they do not know the details.

According to Juan Pablo Lohle, formerly Argentina’s ambassador to Brazil and now a campaign advisor to Jose Manuel de la Sota, the international commitments made by Cristina Kirchner towards the end of her administration “require the necessary political consensus, which today they do not have and, therefore, are subject to parliamentary review” as well as review in court, if necessary.

“With financing and participation by Chinese companies, she has committed to building two nuclear power plants that may cost US$ 11bn,” said Guelar.

“This is a very large bet for a government that has its days numbered. They announced the beginning of construction this year, but the execution of the project depends on environmental impact studies and public consultations, which were not done. And nobody knows what the costs would be if the next president decides to terminate the contract,” said the former ambassador.

The team of Buenos Aires Governor Daniel Scioli, the candidate of the ruling Frente Para La Victoria (FPV, Victory Front in English) , has also had contact with the Chinese embassy, but is not revealing his position on what Cristina Kirchner has negotiated until the primary elections in August.

Food, energy, infrastructure

According to Guelar, nobody is questioning Chinese investments in agriculture or infrastructure. Meanwhile, the government alleges that expansion of Argentina’s nuclear power stations was approved by Congress in 2009 to meet growing energy demand, in a country that since 2003 (and until recently) has been growing at an average rate of 5% per year.

Argentina already has three nuclear power plants: Atucha I and Atucha II (in the state of Buenos Aires, 110 km from the capital) and Embalse (in the state of Córdoba). The fourth plant, according to the President of Nucleoeléctrica Argentina S.A. (NASA), José Luis Antúnez, will begin to be built in the second half of this year, probably next to Atucha I and II.

“The announcement was made before we had any environmental impact study–who is to say that the best place to put another nuclear power plant is exactly where 11 million people live? If there is an accident, how are we going to get people out of here?” asked Guelar.

Another cause for concern is the space observatory that China will build in the state of Neuquen. “We have signed a 50-year agreement to build an observatory that depends on the Chinese armed forces, without any provision guaranteeing that it will not be used for military purposes. Who knows what conflicts will arise in half a century and whose side we will be on,” warned the ex-ambassador. In a document analysing the agreements with China, which include infrastructure projects and hydroelectric plants, the Foundation for the Environment and Natural Resources (FARN) urges consideration of the social and environmental impacts of the  projects.

But the FARN report also questions the ability of Argentine institutions’ to implement what they promise on paper. The document states that the concern is whether Argentina “is institutionally prepared for these agreements and if the legislation is sufficient for regulating all these projects and ventures, not only in terms of the environment but also with regard to transparency and access to information.”

Economist Marcelo Elisondo, director of the consultancy firm Development of International Business (DNI in Portuguese), says that China is used to investing in countries with less legal security, such as Argentina and Venezuela. “The Chinese have greatly increased their presence in Latin America and have put money into countries with little access to international funding because we have what they need: food, minerals, oil, and energy sources,” he said. “I don’t think they face the risk of an Argentinean default because the government knows it depends on China and won’t destroy such a strategic relationship.”

But Elisondo thinks the Argentinean dependency on China may lead the country to make fewer demands when it receives investments. “In Argentina, the Chinese have obtained special conditions like participating in the projects they finance as suppliers and with labor, without going through a bidding process. If it were another country investing here, they would be subjected to a public bid process.”

The special conditions granted to China in exchange for funding are concerning to FARN because they may have indirect social and environmental impacts. According to the document, the agreement framework establishes direct negotiation as a mechanism for conflict resolution, excluding supranational bodies that could possibly interfere and ensure compliance with international standards.

For the economist, preserving Argentina’s environment is the responsibility of Argentineans. “Abroad, the Chinese do not act the way they do in their own country. They obey the rules of the places where they invest. It is up to each country to establish its own standards and to monitor compliance,” said Elisondo. What is most worrisome, according to the economist, “is that the Chinese invest in production of what they need, as if we were an extension of their country, not with the intention of supplying the internal market or selling to third-party markets.”

The Argentina Industrial Union (UIA) expressed similar concerns, “The agreements strengthen a development model in which Argentina maintains its position in international trade by supplying raw agricultural materials and minerals such as lithium,” states the report.

Although the candidates for Argentinean president are questioning the accords, the reality is that Brazil, the country’s largest commercial partner, has just signed 35 agreements with China, which will significantly increase the Chinese presence in Mercosur.

For Argentina, which has been cut off from the international financial market since its 2001 default and has not received foreign direct investment for five years, China’s appearance was a lifesaver. The country has become the second-largest destination for Argentinean exports China has also pumped money into the Argentinean economy through a US$ 11 billion pesos-for-yuan swap and loans to finance infrastructure projects.

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