7 - International Loans with Commercial Strings Attached

Summary

Chapter 7 assesses the cost and bene?ts of China’s commercial conditionality by employing extensive qualitative evidence, including more than 200 interviews with Chinese creditors and Latin American debtors, and in some cases, examining the original loan contracts. This chapter also evaluates the extent to which China can foster good governance and sustainable development without policy conditionality. For example, these loan provisions, which typically involve some combination of Chinese foreign content and commodity guarantees, are designed to improve the global competitiveness of Chinese ?rms. However, they may also impose costs on Latin American countries. Preferential treatment for Chinese capital inputs and machinery may undermine Latin America’s industrial competitiveness. At the same time, commodity guarantees embedded in loans-for-oil agreements risk eroding commodity proceeds that could otherwise be channeled toward domestic spending or reinvestment in state energy ?rms. Perhaps most important, China’s tendency to focus on commercial rather than policy terms may encourage governments to spend beyond their means, catalyzing future debt problems.