January 8 2015 image description
by: jmhumire 0 Comments

Dropping Oil Prices Reveal Failed Economic Policies in Latin America

As the global price of oil drops, the effects of this phenomenon are unveiling the failure of Latin America’s populist governments to generate sustainable prosperity while depending on oil-for-loans schemes, mainly with China.

In the last few months, the price of Brent crude oil has declined from a high of over $140 per barrel to under $60 a barrel as of the latest date. The reasons for the decline are manifold, but two stand out for many analysts. First, a technological revolution in energy extraction, known as “fracking” has substantially increased the supply of petroleum and natural gas in the U.S., making it less dependent on foreign sources of oil. Second, Saudi Arabia and other Gulf state producers have increased output in an attempt to drive out marginal producers, whose cost of production are highest. For instance, the on-shore unit cost of production in Saudi Arabia averages $18 while U.S. costs’ average $34 a barrel…. (more…)

July 14 2014 image description
by: jmhumire 0 Comments

A Second Look at the China-Brazil Relationship

There are rumors that China’s President Xi Jinping requested the BRICS (Brazil, Russia, India, China, South Africa) summit this year in Fortaleza, Brazil be held in July so he could attend the World Cup final. According to People’s Daily, Xi was officially invited to join Brazilian President Dilma Rouseff for the championship match. This year also marks the fortieth anniversary of Brazil’s diplomatic relations with the People’s Republic of China. While most reports will be celebratory and focused on the benefits of China’s demand for commodities, they are likely to leave out a growing sentiment that the Sino-Brazilian relationship is becoming a mixed bag for Brazil.

Between 2000 and 2008, a growing Chinese economy helped fuel a boom in Brazil’s commodities, with exports to China rising eightfold. By 2009, China overtook the United States as Brazil’s largest trading partner. That same year, China accounted for 12.5 percent of Brazil’s total exports. During the financial crises of 2008-2009, Brazil’s exports to China increased by 50 percent, which propped up its balance of payments and cemented Brazil’s status as a net creditor.

Two thirds of Brazil’s exports to China consist of soybeans (64 percent of the total in 2010) and iron ore, with crude petroleum accounting for another 10-12 percent. Iron ore mining and exports are highly concentrated in one company, Vale S.A. (the former CVRD), which has benefitted greatly from exports to China. In 2012, the state-owned petroleum company, Petrobras, eclipsed Vale S.A. as the country’s largest commodity exporter shipping 150-200,000 barrels per day to China, in a credit deal worth $10 billion negotiated in 2009. Raw material and agricultural producers have experienced a significant boon…. (more…)