IMF favorable about RMB SDR inclusion

New economic partnership

The relationship between Latin America and China is entering a new phase where China is increasing its funding for infrastructure development in the region even as it consumes fewer of the area's natural resources.

"Even though China's commodities trade with Latin America has peaked at least for the time being, China's development banks continue to provide financing for infrastructure projects. This has helped to replace private-sector funding," Kevin Gallagher, a professor of global development policy at Boston University's Pardee School for Global Studies said in an interview.

Latin America's economic struggles were among the topics discussed last week as Lima hosted the 2015 annual meetings of the boards of governors of the World Bank Group and the International Monetary Fund from October 6-10.The last time the annual meetings were held in Latin America was 1967 in Rio de Janeiro.

"I think the World Bank did want to send a signal to the region that they are interested," said Gallagher. "World Bank lending (in Latin America) has gone down."

Gallagher said Latin America is experiencing an economic downturn now that the economic model between China and the region has changed. "China doesn't need as much copper, oil and other commodities as it did for a 10-year period," he said.

Gallagher said Latin America is expected to produce very little economic growth this year. "It will come in at around 0.3 to 0.5 percent. That compares to growth rates of about 4 percent from 2003 until 2013."

China's demand for iron ore and other natural resources helped fuel much of the growth. China has shifted its economic priorities from building up cities and factories to bolstering its consumers and this had led to a decline in commodity prices that greatly benefitted Latin America, said Gallagher.

"China will remain a key source of commodity exports for China for at least the next 20 years," said Gallagher. "There just won't be as much growth as there was in the past."

Last week the US and 11 other countries reached agreement on the Trans-Pacific Partnership (TPP) pact which is designed to encourage trade between the US and Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. The countries account for about 40 percent of the world's economy.

Chile, Mexico and Peru are in Latin America. "All are allies of both China and the US so I don't think it was a signal that they are turning away from China," said Gallagher.