South America: Bank of the South opens

In another sign of the diminished influence of international financial institutions (IFIs) in South America, eight countries will open a Bank of the South, a development bank that will make loans for projects throughout the region. Joseph Stiglitz, the Nobel Prize winner for economics and former vice president of the World Bank, praised the effort saying, “It is a good thing to have competition in most markets, including the market for development lending,” referring to the fact that the new bank would compete with the IMF, World Bank and other IFIs.

Participating countries felt the need for such a bank in reaction to the strict conditions attached to IFI loans to South American countries. These called for radical cuts in public spending and other demands that often worsened living conditions for the poorest citizens. The Bank of the South will not make such demands. Venezuela’s finance minister, Rodrigo Cabezas said, “International financial institutions have humiliating demands that are contrary to national development.”

The Bank of the South, he said, “is a space for sovereignty.” Bolivia’s ambassador to the U.S., Gustavo Guzman, said that the bank is “an act of self determination” for South American countries. The bank, launched on November 3 of this year, is set to begin operations in 2008 and initially will be funded by Argentina, Bolivia, Brazil, Colombia, Ecuador, Paraguay, Uruguay and Venezuela. They are negotiating with Chile, Peru, Guyana and Suriname to join as well. The finance ministers still have not decided exactly how much money each country will put in for initial funding, but they have agreed that the amount should be as much or more than they have paid to current IFIs. Initial estiPage 14 November/December 2007 NewsNotes Maryknoll Office for Global Concerns Time for a trade moratorium mates are for an initial fund of US$7 billion. The bank’s headquarters will be in Caracas, Venezuela with regional offices in La Paz, Bolivia and Buenos Aires, Argentina.

One especially contentious issue in the forming of the bank was how votes would be distributed. After much debate, larger countries like Brazil and Argentina ceded so that the voting allotment will be one country/ one vote, rather than the typical IFI structure of votes based on financial contributions.

In a recent presentation, Cabezas listed the bank’s principle objectives. Primarily, it will provide loans for development projects, emphasizing infrastructure, integration of roads, health and education infrastructures and energy projects like oil and gas pipelines. It will also work to foster South American integration and to diminish asymmetries both between and within client countries. The bank will not, at least initially, give loans for balance of payment problems or other financial emergencies, but will concentrate on longer term development projects.

Civil society organizations around the Americas have been following the development of the bank and have called for transparency and independent oversight of all of the bank’s activities. Minister Cabezas reported that formal structures will be put in place to guarantee public access to the bank’s numbers.

The Bank of the South represents a significant shift in power relations in South America. Countries there are emerging from years of strong U.S. influence on their economies into a time of more freedom and flexibility in economic policy making. They hope to never again depend on crushingly restrictive loans from the U.S. or other agencies.