By Zadie Neufville
KINGSTON, Jamaica, Jan 13 2016 (IPS)

On a very dry November 2013, Jamaica’s Meteorological Service made its first official drought forecast when the newly developed Climate Predictability Tool (CPT) was used to predict a high probability of below average rainfall in the coming three months.

By February, the agency had officially declared a drought in the eastern and central parishes of the island based on the forecasts. July’s predictions indicated that drought conditions would continue until at least September.

Said to be the island’s worst in 30 years, the 2014 drought saw Jamaica’s eastern parishes averaging rainfall of between 2 and 12 per cent, well below normal levels. Agricultural data for the period shows that production fell by more than 30 per cent over 2013 and estimates are that losses due to crop failures and wild fires amounted to one billion dollars.

Jamaica’s agricultural sector accounts for roughly seven per cent of the island’s gross domestic product (GDP) and employs about 20 per cent of its workforce.

The Met Service’s, Glenroy Brown told IPS, “The CPT was the main tool used by our Minister (of Water, Land, Environment & Climate Change) Robert Pickersgill throughout 2015 to advise the nation on the status of drought across the island .”

It was also used but the National Water Commission (NWC) to guide its implementation of island-wide water restrictions.

A technician with Jamaica’s Met Service, Brown designed and implemented the tool in collaboration with Simon Mason, a climate scientist from Columbia University’s International Research Institute (IRI) for Climate and Society with funding from the United States Agency for International Development (USAID).

“The tool provides a Windows package for constructing a seasonal climate drought forecast model, producing forecasts with updated rainfall and sea surface temperature data,” he explained.

The innovation was one of the first steps in building resilience under Jamaica’s national climate policy. It provides drought-monitoring forecasts that allows farmers to plan their planting around dry periods and has been “tailored for producing seasonal climate forecasts from a general circulation model (GCM), or for producing forecasts using fields of sea-surface temperatures,” Brown said.

The tool combines a number of applications including Google Earth and localised GIS maps, to generate one to five day forecasts that are country and location specific. The information is broken down and further simplified by way of colour-coded information and text messages for the not so tech-savvy user.

The tool designed by Brown and Mason also incorporated IRI’s own CPT (designed by Mason) that was already being used by Caribbean countries with small meteorological services and limited resources, to produce their own up-to-date seasonal climate forecasts. The new tool combined data on recent rainfall and rainfall predictions to provide a forecast that focused specifically on drought.

“It was important for us to design a system that addressed Jamaica’s needs upfront, but that would also be suitable for the rest of the region,” Mason noted.

The scientists explained, “Because impact of a drought is based on the duration of the rainfall” and not only the amount of rainfall, looking forward is not enough to predict droughts because of factors related to accumulation and intensification.

“What we’re doing is essentially putting a standard three-month rainfall forecast in context with recent rainfall measurements,” Mason, told USAID’s publication Frontlines last May. He noted that if below-normal rainfall activity was recorded during an unusually dry period, indications were there was a “fairly serious drought” ahead.

Sheldon Scott from Jamaica’s Rural Agricultural Development Authority (RADA) told IPS that farmers who used the SMS information were able to avoid the worse effects of the drought.

“The impacts were visible in relation to farmers who used the information and others who didn’t, because those who did were able to manage the mitigating factors more effectively,” he said.

During the period, more than 500 farmers received text alerts and about 700,000 bulletins were sent to agricultural extension officers.

Among the farmers who signed up for text messaging service, Melonie Risden told Frontlines, “The information we received from the Met office gave us drought forecasts in terms of probabilities. We still decided to plant because we were fortunate to have access to the river and could fill up water drums ahead of time in anticipation of the drought.”

Risden lost the corn she planted on the 13-acre property in Crooked River, Clarendon, one of the parishes hardest hit by the drought with only two per cent of normal rainfall, but was able to save much of the peas, beans and hot peppers.

Six months after Jamaica’s Met Service made its ground-breaking forecast, the CIMH presented the first region-wide drought outlook at the Caribbean Regional Climate Outlook Forum in Kingston. Now 23 other Caribbean and Central American countries are using the tool to encourage climate change resilience and inform decision-making.

“Regionally the tool is now a standard fixture across several countries within the region, including the Dominican Republic, Cuba and Haiti. This regional effort is coordinated by the CIMH,” Brown said.

Back in Jamaica, the tool is being hailed “a game-changer” in the climate fight by Jeffery Spooner head of the Met Service, who described the CPT as “an extremely important tool in Climate Change forecasting and specifically for the agricultural – including fisheries- and water sectors for rainfall projection .”

The CPT is now also used to provide regular monthly bulletins that are published by the Meteorological Service on their web site www.jamaicaclimate.net. RADA has also continued to use the CPT in its extension service, to enhance the ability of farmers’ and other agricultural interests to improve water harvesting, planting and other activities.

Since most of the island’s small farms depend on rainfall, more farmers – including those with large holdings – are using the information to better manage water use and guide their activities, Scott said.

Local and intentional scientists have linked the extreme atmospheric conditions related to the droughts affecting Jamaica and the region to the persistent high-pressure systems that has prevented the formation of tropical cyclones to global warming and climate change.

Across the agricultural sector, Jamaica continues to feel the impacts of drought and the challenges are expected to increase with the climate change. In a 2013 agricultural sector support analysis, the Inter-American Development Bank estimated, low impact on extreme climate events on Jamaica’s agriculture sector by 2025 could reach 3.4 per cent of “baseline GDP” annually.

In fact, the Intergovernmental Panel on Climate Change Synthesis Report (AR5) pointed to tools like the CPT to mitigate the impacts of climate change. Its importance to Jamaica’s and the region’s food security and water sector cannot be overlooked.

In addition to adaptation for the water sector, the CPT is being modified to provide early warning indicators for wind speeds and coral bleaching among among other applications, said the report.

And as showers of blessings cooled the land and brought much relief in the closing months of the year, CPT shows the drought could well be over.

(End)

One of the 31 wind parks operating in Mexico. By 2020 installed wind power capacity should have climbed to 15,000 MW. Credit: Courtesy of Dforcesolar

By Diego Arguedas Ortiz
SAN JOSE, Aug 12 2015 (IPS)

Latin America is facing a two-pronged challenge: double power generation by 2050 while reducing greenhouse gas emissions. The only solution? Green energy.

Studies show that these two goals could be within the reach of Latin America, because this region still has huge untapped potential in terms of renewable energy.

Along with transportation and land-use change, electricity generation is one of the region’s unresolved challenges in the fight against climate change.

With regard to energy production, Latin America is the planet’s greenest region, due to its long-time emphasis on hydroelectricity. But the question now is how to keep increasing the proportion of renewable energies in the face of growing domestic demand. “When you look at it as a whole, the region’s infrastructure continues to be built like in the 20th century, even though the 21st century has a completely different outlook and requirements.” --- Joseluis Samaniego

“When you look at it as a whole, the region’s infrastructure continues to be built like in the 20th century, even though the 21st century has a completely different outlook and requirements,” Joseluis Samaniego, a Mexican expert who is the director of the Sustainable Development and Human Settlements Division of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), told IPS.

Electricity is key to the design of the Intended Nationally Determined Contributions (INDCs) – the commitments that each nation assumes to reduce carbon dioxide and other greenhouse gas emissions.

According to the Inter-American Development Bank study “Rethinking Our Energy Future”, the region will need to increase its installed power capacity two-fold by 2050.
However, it remains dependent on fossil fuels like oil, coal and natural gas which generate greenhouse gas emissions that cause global warming.

This raises the question of what kind of infrastructure Latin America will include in its energy future. According to the IDB study, Latin America’s renewable energy generation capacity – wind, solar, hydropower, geothermal and biomass – is so extensive that only four percent of the total technical potential would be needed to meet the region’s needs by 2050.

But in recent years, the region has invested in dirtier energy sources. Although hydroelectric plants have been the main source of electricity across much of Latin America for decades, the latest figures show that its share is shrinking.

The Itaipú hydropower dam shared by Brazil and Paraguay is the second-largest in the world, after China’s Three Gorges. Credit: Mario Osava/IPS

The Latin American Energy Organisation (OLADE) reported that it represented just 38 percent in 2013, surpassed by natural gas, which now provides 40 percent.

The countries of Latin America will have to revert that process if they want to set forth more ambitious and realistic targets in their INDCs. Only a robust energy policy will make it possible to set adequate goals, experts agree.

So far, only Mexico has formally presented its INDCs, while Chile, Colombia and Peru have shown progress.

All countries must present their national commitments by Oct. 1, to be incorporated in the new binding universal treaty to be approved at the December climate summit in Paris.

“Latin America, like the rest of the world, should focus on developing electric power infrastructure with renewable sources and with the least possible environmental impact, in an attempt to depend less and less on fossil fuels,” Santiago Ortega, a Colombian engineer who specialises in renewable energy sources, told IPS.

Ortega, who is also a professor at the Engineering School in the northwest Colombian region of Antioquia, called for a balance in renewable energy generation between local, less-invasive projects and megaprojects like large dams that make it possible to store up energy, providing a reliable supply.

“Financial resources will always be scarce, and they must be invested in the most intelligent way possible,” said Ortega.

Otherwise, the global energy future will be costly. With a business-as-usual high-carbon economy, about 90 trillion dollars, or an average of six trillion a year, will be invested in infrastructure in the world’s cities, agriculture and energy systems over the next 15 years, according to the New Climate Economy report “Better Growth, Better Climate”.

But the report adds that only around 270 billion dollars a year would be needed to accelerate the global transition to a low-carbon economy, through clean energy, more compact cities, better public transport systems and smarter land use.

Experts like Costa Rican economist Mónica Araya say “the shift that is happening around the world, and we won’t be an exception, is towards energy diversification and decentralisation.”

But electricity is only part of the region’s energy mix, where fossil fuels still reign supreme.

OLADE figures from 2013 indicate that oil represents 49 percent of primary energy in the region, natural gas 26 percent, and coal seven percent.

Only six percent of primary energy comes from hydropower. Biomass, nuclear and other renewable sources complete the picture.

What does Latin America do with 80 percent fossil fuels, if the electricity supply is largely green?

According to Pablo Bertinat, director of the Observatory of Energy and Sustainability at the National Technological University in Argentina, nearly half of that energy goes to the transport sector.

“In transport, infrastructure is key,” Bertinat told IPS. “A large part of the public monies in the region goes into infrastructure works largely aimed at consolidating energy-intensive modes of transportation.”

As an example, Bertinat pointed out that while 75 percent of cargo in Argentina is moved by truck, the proportion is just 20 percent in France or the United States, which put a priority on rivers or railways.

Changes are also needed in cities, and Araya calls for modern, clean collective public transport, with electrification of private fleets of taxis or cargo vehicles.

“We lack imagination,” Araya, who heads the Costa Rican think tank Nivela, told IPS. “Neither the political class nor the business community have woken up to the need to invest in clean, modern public transit and cargo transport.”

These efforts in the energy industry will also require proposals from other fields. The main regional sources of greenhouse gases are land use and forestry (47 percent), followed by the energy industry (22 percent), agriculture (20 percent), and garbage (three percent).

Edited by Estrella Gutiérrez/Translated by Stephanie Wildes

A traffic jam in Jaciara, Brazil, caused by repairs to the BR-364 road. Credit: Mario Osava/IPS

By Diana Cariboni
MONTEVIDEO, Oct 2 2014 (IPS)

“We could be the last Latin American and Caribbean generation living together with hunger.”

The assertion, made by Raúl Benítez, a regional officer for the Food and Agriculture Organisation of the United Nations (FAO), shows one side of the coin: only 4.6 percent of the region’s population is undernourished, according to the latest figures.

By 2030, however, most of the countries in the region will face a serious risk situation due to climate change.

With almost 600 million inhabitants, Latin America and the Caribbean has a third of the world’s fresh water and more than a quarter of its medium to high potential farmland, points out a book published this year by the Inter-American Development Bank in partnership with Global Harvest Initiative, a private-sector think-tank.

It is the largest net food-exporting region, while it uses just a fraction of its agricultural potential for both consuming and exporting.

But almost a quarter of the region’s rural people still live on less than two dollars a day, and the region is prone to disasters (earthquakes, hurricanes, floods and droughts), some of them exacerbated by climate change.

Global warming poses serious challenges to the international community’s goal of eradicating poverty and hunger. Changes in rainfall patterns, soils and temperatures are already stressing agricultural systems.

Currently, more than 800 million people worldwide are at risk of hunger. Through its devastating impact on crops and livelihoods, climate change is predicted to increase that number by as much as 20 percent by 2050, according to a recent United Nations report.

Changes in temperature and rainfall patterns could lead to food price rises of between three percent and 84 percent by 2050, thereby feeding a vicious cycle of poverty and inequality.

Oxfam reports that in the more extreme scenarios, heat and water stress could reduce crop yields by 25 percent between 2030 and 2049.

Climate change is likely to impact mostly small and family farmers, who produce more than half the food in the region and have inadequate resources with which to deal with unpredictable weather.

Despite this looming threat, strategies for sustainability are far from clear. Regional drivers of growth are export-oriented commodities, and while some sectors have advanced in added value, technology and innovation, natural resources exploitation is still the key of the whole regional boom.

By 2011, raw materials and commodities accounted for 60 percent of regional exports, compared to 40 percent in 2000. At the same time, this growth of commodities exports led to a replacement of domestic manufactures by imported goods, affecting manufacturing industries in the region.

In rural areas, conflicting models of small farming and extensive monocultures based on genetically modified seeds compete for the land in a David versus Goliath fight.

In Paraguay, the fourth largest exporter of soybeans in the world, 1.6 percent of owners hold 80 percent of the agricultural land. In Guatemala, eight percent of producers own 82 percent of farmlands, while 80 percent of productive land in Colombia is in the hands of 14 percent of landowners, according to Oxfam.

Agriculture and related deforestation are major sources of greenhouse gasses (GHG) in Latin America, though other sources are growing rapidly. Brazil, for example, is joining the club of big polluters, with the burning of fossil fuels accounting for the majority of its GHG emissions in the last five years.

As the extractive industries grow, they demand more highways, railroads and ports, putting pressure on governments to avoid the so-called logistics blackout.

Energy demand is increasing too, not only from industries, but also from millions of people lifted out of poverty, and thus with larger consumption needs. The region’s energy demand for the period 2010-2017 increases at an annual rate of five percent.

The region is poised to cross a new fossil fuel frontier, when Argentina, Brazil and Mexico overcome their own political, financial and technical challenges to exploit substantial reserves of unconventional hydrocarbons, like the Argentinian Vaca Muerta geological formation or the pre-salt layer located in the Brazilian continental shelf.

It is difficult to argue that a region so rich in natural resources has no right to thrive on the demand and supply of commodities, particularly when the resulting fiscal revenues have allowed impoverished countries like Bolivia to drastically reduce extreme poverty numbers (from 38 percent in 2005 to 20 percent in 2013).

However, experts warn this path is unsustainable and climate change impacts, felt across the region, can undermine any social gain.

In Guatemala, the worst drought in 40 years is putting 1.2 million people at risk of suffering hunger in the next months. Those who suffer the worst impacts of unsustainable development models will ironically be those who contribute the least to global warming.

A recent U.N. document summarising actions for the follow-up to the programme of action adopted at the 1994 International Conference on Population and Development (ICPD) found that only about a “third of the world’s population could be considered as having consumption profiles that contribute to emissions.”

Fewer than one billion of them have a significant impact, while “a smaller minority is responsible for an overwhelming share of the damage,” the report added.

Still, it will be the poorest people who will bear the brunt, and Latin America, dubbed ‘the next global breadbasket’, is in desperate need of strong local and global action towards the goal of achieving sustainable development in the next decade.

Edited by Kanya D’Almeida

Inequality, poor infrastructure and declining trade are some of the problems that Latin America needs to overcome if the region truly wishes to achieve a “golden age”, according to Peru’s President Ollanta Humala.

“We haven’t found the gold yet,” said Humala, a keynote speaker at the 6th International Economic Forum on Latin America and the Caribbean held this week in Paris. “We need to build a more modern and efficient state that offers services to everyone … We cannot overlook poor or vulnerable populations.”“Erasing inequality is absolutely fundamental because equality itself is a very important human right … At the same time, it’s a key to economic and social development. No country can reach high levels of development with huge levels of inequality” – Danilo Astori, Vice President of Uruguay

The conference, titled ‘Beyond the Golden Decade? Logistics and infrastructure, pillars of regional integration and global trade opportunities’, brought together policy-makers, economists, private-sector representatives and other experts from across Latin America, exploring measures to achieve inclusive growth and structural transformation in the region. Specific Caribbean issues seemed absent from the agenda, however.

The main mantra, repeated by many participants, was that inequality is a huge barrier to Latin America fulfilling its development potential.

“Erasing inequality is absolutely fundamental because equality itself is a very important human right,” the Vice President of Uruguay, Danilo Astori, told IPS. “At the same time, it’s a key to economic and social development. No country can reach high levels of development with huge levels of inequality.”

Income gaps between groups, whether based on ethnicity or gender, are not just “moral issues, they’re also macro issues”, said Julie Katzman, Executive Vice President of the Inter-American Development Bank, a co-organiser of the conference along with the Organisation for Economic Cooperation and Development (OECD) and France’s Ministry for the Economy and Finance.

Katzman said that 70 percent of those excluded from the financial system are women and that there was an 86 billion dollar financing gap for women-owners of small and medium-sized enterprises.

She told IPS that if this gap were closed by 2020, gross domestic product in Latin America would be 12 percent higher by 2030.

“The private sector has a big role to play,” she added. “When you combine financial inclusion and better infrastructure, then you can begin to address the issues being discussed.”

Danilo Astori, Vice President of Uruguay. Credit: Alecia McKenzie/IPS

She and other participants emphasised the need for better infrastructure as an “instrument of development”, the main subject of the conference. Roberto Zurli Machado, Director of Infrastructure and Basic Petrochemicals for Banco Nacional de Desenvolvimento Economico e Social (BNDES), said that the region had to modernise to bring its infrastructure to the desired level.

According to the OECD, logistic costs in the region account for between 18 and 35 percent of the value of products, compared with around 8 percent in OECD countries. Meanwhile, the quality of the road system in Latin America is below the level for middle-income countries, the organisation says.

Studies also indicate that improvements in logistics could increase labour productivity in the region by about 35 percent.

“All this affects the competitiveness of exports and the potential for integration,” said Angel Gurría, Secretary-General of the Paris-based OECD.

Peru’s President Ollanta Humala (left) meets France’s Economics Minister Arnaud Montebourg (centre) with OECD Secretary-General Angel Gurria (right). Credit: Alecia McKenzie/IPS

He said that developing an integrated logistics policy and improving the efficiency of customs procedures, through technology, could bring significant benefits in a short time span.

Such measures would also have an impact on inequality, Gurría said. “We need to raise awareness and to strengthen cooperation,” he told IPS, reiterating that “Latin America is not the poorest region but the most unequal.”

The conference, which brings together some 400 experts annually, is one way to address the region’s challenges, Gurría added. This year’s discussions are seen as particularly important because after a decade of relatively strong growth, “Latin America’s economic prospects are becoming more convoluted,” as the OECD puts it.

The region has been affected by the weakness of the euro zone and has experienced “declining trade, moderation of commodity prices and increasing reservation surrounding external monetary and financing conditions,” the organisation says.

It stresses that the rise in the prices of commodity exports “has led Latin American economies to substitute locally manufactured goods with imports, and contributed to a certain decrease in the region’s productive capacities.”

Achieving “improved logistics performance” would help bolster structural change in the region and “represent an opportunity for the insertion of the continent into the global trade,” according to the OECD.

Humala, the president of Peru, said that the region has great potential but faces many challenges, including the impact of climate change [the United Nations climate change conference – COP 20 – is scheduled to be held in Peru in December].

He said that Latin America would truly achieve a “golden age” when it solves its productivity problems and becomes more egalitarian. “The golden era is coming … hard times force us to look at opportunities,” he added.

Satellite image of the Gulf of San Jorge in Argentina's Patagonia region, rich in shale gas and part of the world's second largest reserve after China, according to the U.S. Energy Information Administration. Credit: IPS/Photostock

By Emilio Godoy
MEXICO CITY, Aug 18 2013 (IPS)

Non-governmental organisations are putting pressure on multilateral financial institutions not to finance production of shale gas by hydraulic fracturing or fracking because of the high environmental costs they say are associated with this method.

“I think it’s terrible: fracking is one of the techniques posing the highest risk to availability of drinking water in the country,” Nathalie Seguin, the coordinator of the Freshwater Action Network in Mexico (FANMEX), which works for water sustainability, told IPS. “These plans make no sense and must be thwarted.”

“Sound scientific research in several parts of the world has clearly shown a high risk of leaching from vertical wells into water tables,” she said.

Fracking is the technique used for large-scale extraction of non-conventional fossil fuels trapped in rocks, like shale gas.

To release the natural gas, huge volumes of water containing toxic chemicals are pumped underground at high pressure, fracturing the shale. The process generates large amounts of waste liquids containing dissolved chemicals and other pollutants that require treatment before disposal.

Timothé Feodoroff, with the Agrarian Justice Programme of the Amsterdam-based Transnational Institute (TNI), said “Some international institutions are keen to finance fracking. It’s a real risk” that they will invest in the method.

Feodoroff is a co-author, together with Jennifer Franco and Ana María Rey, of a report published in January titled “Old Story, New Threat: Fracking and the global land grab”, which reveals that “behind the scenes in the worldwide scramble for unconventional gas exploration and extraction are a wide range of public and private transnational, national and institutional actors.”

The actors include technology providers, oil and financial companies, governments, lobbying firms and even academic institutions.

TNI will publish another report in September addressing the financial bubble surrounding shale gas fuelled by banks and private investment firms.

“We found that the money was given by Wall Street firms; there is a lot of speculation around fracking. In the 2007 subprime crisis they did the same. There are a lot of investment banks involved, the speculation isn’t over,” Feodoroff told IPS.

The International Finance Corporation (IFC), the private sector lending arm of the World Bank, assured IPS it had no plans to grant any loans for hydraulic fracturing.

However, the IFC owns 10 percent of the Agiba Petroleum Company, made up of Egypt’s General Petroleum Corporation, Italy’s Eni SpA and Russia’s Lukoil, which carries out fracking in the “Falak” and “Dorra” fields in the Egyptian desert.

The Inter-American Development Bank, which did not reply to IPS’ request for information about its plans to finance fracking, published a report in December by David Mares titled “The New Energy Landscape: Shale Gas in Latin America”, which is not available to the public.

But another report, “Shale Gas in Latin America: Opportunities and Challenges“, by the same expert, analyses the outlook for shale gas in the region.

“The main issues that will determine which Latin American countries become part of the shale gas revolution revolve around the needs of investors, the state of the environmental debate, and the ability of the state to provide security for exploration and production operations,” says the report, published in July by Inter-American Dialogue, a Washington-based think tank.

Mares says that development of shale gas resources will vary from country to country, and that financing may come from local sources, foreign direct investment, investment portfolios, and state investment and loans.

Mexico’s state oil company PEMEX has drilled at least six wells in shale rock in this country since 2011 in the northern states of Nuevo León and Coahuila, and the state Mexican Institute of Petroleum (IMP) is preparing for 18 months of geological exploration in the southeastern state of Veracruz at a cost of 245 million dollars.

IMP plans to drill 20 wells by 2016, with an investment of over two billion dollars, and in the next 50 years plans to have 6,500 wells in commercial operation.

The United States’ Energy Information Administration (EIA) ranks Mexico sixth in the world for technically recoverable gas, behind China, Argentina, Algeria, the United States and Canada, based on examination of 137 deposits in 42 countries. Mexico is in eighth position for technically recoverable oil reserves.

NGOs are considering launching an international campaign against the financing of fracking, and are preparing worldwide actions for Global Frackdown Day, to be held Oct. 19.

Seguin said, “The problem is the heavy pressure from private companies and governments for financing these activities.

“It is in the interests of the multilateral financial institutions to lend money. They support infrastructure mega-projects because it is the easiest way to trap countries into debt and to maintain themselves. This financing runs counter to their own environmental and social standards. Why should we exploit shale gas, when it is a major threat?” she asked.

Six organisations have joined together to create the Mexican Alliance Against Fracking, which has not yet decided whether to call for a moratorium or an outright ban on the method in a forthcoming report on the energetic, economic, social and environmental aspects of shale gas.

Feodoroff said, “It’s possible that big banks influence the multilateral agencies. We are warning about corporate power” over their decisions.

The Dutch Rabobank Group, a sustainability-oriented cooperative financial services company specialising in agricultural products and commodities, announced that it would not lend funds for exploration and production of shale gas, a move that experts hope will be imitated by other private institutions.

In his analysis, Mares says “the development of Latin America’s shale gas potential faces significant challenges, and it is not clear that the region will address them successfully.” He warns that Mexico, Argentina and Brazil may face serious problems over shale gas exploitation.

China is looking to Latin America to experiment with the yuan, or renminbi, to replace the dollar, taking advantage of the growth in Chinese trade and investment in this region. But because the volume is still insignificant, it is not yet clear what impact the currency will have on economies in the region.

The 2008 outbreak of the financial crisis in the United States prompted China to push for the use of its currency in transactions with its leading partners, Brazilian economist Rodrigo Branco explained to IPS.

“This change was mainly due to the need to guarantee steady supplies of commodities, and also because of the instability of the industrialised economies,” which have been hit hardest by the crisis, added Branco, with the Foreign Trade Studies Centre Foundation (FUNCEX).

China, which joined the Inter-American Development Bank (IADB) in 2008, has seen a 16-fold increase in its trade with the countries of Latin America and the Caribbean over the last decade, to a total of 188 billion dollars a year in 2011.

Trade with Brazil alone climbed to 77 billion dollars last year, 37.5 percent up from 2010.

China is now Brazil’s largest investor and trading partner.

“The Asian giant is financing infrastructure in the region to expand its production and thus guarantee its sources of raw materials, while trying to cut the prices of imports,” the director of Brazil’s Foreign Trade Association (AEB), José Augusto de Castro, told IPS.

This influence is seen, for example, in loans to countries like Venezuela, with which it has a strategic relationship, in the words of Venezuelan President Hugo Chávez.

According to an article in the Wall Street Journal, China’s policy banks are seeking to expand their loans to Latin American countries that are suppliers of key food and mineral commodities using the yuan instead of the dollar, as part of a strategy to promote use of the Chinese currency in international trade.

The Export-Import Bank of China (China Exim Bank) is in negotiations with the IADB to set up a fund that would provide one billion dollars worth of yuan to finance infrastructure projects in Latin America and the Caribbean.

The two institutions signed an agreement in September under which the China Exim Bank committed itself to offer up to 200 million dollars to finance trade between China and Latin America. Part of that funding will be in yuan.

China’s decision to strengthen the IADB also shows its priority interest in beefing up infrastructure in Latin America, de Castro said.

Branco said “the most important aspect of this is the change in stance on the part of the Chinese government, which previously did not want to internationalise the yuan because its possible volatility would leave the country hostage to the external economic situation.”

Unknown effects

“The effect on Latin America’s economies of an internationalised yuan is not yet clear. We will have no way to gauge the impact until there is a market in place in which the currency is being freely traded,” the economist added.

Branco pointed out that China has shown interest in this region in three ways: through the direct purchase of minerals and crops from countries with comparative advantages, like Brazil, Argentina and Chile; through mergers or the creation of binational companies; and by means of loans and capital, with credit lines in yuan, to finance imports and infrastructure.

“The increase in trade in yuan has the aim of diversifying risk with respect to the dollar and the euro, given the volatility of the latter two,” Branco said.

“Furthermore, the increased international use of the Chinese currency is designed to complement the implementation of a new currency, which is already being traded in important markets like Hong Kong,” he added.

But de Castro does not believe the new loans in yuan will have an effect on the region’s trade or monetary policies in the short term, because political conditions would have to be different in China in order for the yuan to become an international currency.

“China has a closed system,” he said. “We all know the government adjusts the exchange rate according to its interests. It would have to build up international credibility in order for its currency to become convertible in practice and not just theory.”

Mauricio Claverí, an economist with the Argentine consultancy Abeceb, said that in order to analyse the eventual effects of the introduction of the yuan in regional trade, it is necessary to look at what happened in the Mercosur (Southern Common Market) trade bloc, made up of Argentina, Brazil, Paraguay and Uruguay.

“With respect to trade in local currencies between Argentina and Brazil, only a very small portion, between two and 2.5 percent of trade, is done in local currencies,” he said. “But large firms continue using the dollar.”

Argentina and Brazil were even considering bringing Uruguay and Chile – an associate member – into the initiative, but they refrained from doing so, and “the system never took off, because companies are very attached to the dollar,” the expert told IPS.

But the possible expansion of the yuan in Latin America raises other doubts. For example, what would the Chinese currency be used for?

Branco said the yuan would initially be used in future trade deals with China itself. “The currency could be used as a guarantee for contracts when the euro or the dollar are more volatile, as in recent times,” he said.

But the accumulation of reserves in yuan, he said, would only occur later, after the consolidation of a global financial market in that currency.

De Castro warned that “because the yuan is not a convertible currency, it would have difficulties being traded in the domestic market.”

In the case of Brazil, the Central Bank would have to absorb the yuan and later try to place them on the international market, which implies a financial risk, he said.

A report published this month by Inter-American Dialogue, a Washington-based centre for policy analysis, exchange, and communication on Western Hemisphere affairs, says China extended 37 billion dollars in credit to Latin America in 2010 – more than the loans from the World Bank, IDB, and United States Export-Import Bank combined.

More than 90 percent of that total went to Venezuela, Brazil, Argentina and Ecuador, especially to finance the purchase of commodities and towards Chinese companies that have investments in those countries.

Countries like Venezuela and Ecuador, which have a harder time obtaining multilateral loans, have particularly benefited from this assistance.

In the context of a 20-year strategic plan, China has loaned Venezuela more than 40 billion dollars since 2007, when a China-Venezuela fund was established, for four billion dollars. The fund, which has been renewed several times, finances investment in infrastructure and social programmes, for which precise figures are unavailable.

And in 2010, a 20 billion dollar credit line was negotiated, half of which is in dollars and half in yuan, mainly to buy goods and services from China.

The Chinese oil companies CNPC and CNOOC also made several billion dollars available to Venezuela’s state-run oil giant, PDVSA, for oil industry projects.

China’s investments in Venezuela have ranged from oil production to railways, infrastructure works, construction of housing, and car, motorcycle and mobile phone assembly plants.

* With reporting by Marcela Valente in Buenos Aires and Humberto Márquez in Caracas. (END)