Anxiety mounts over Bank of the South

18/03/2007 | Thierry Ogier, Lucien Chauvin

Finance ministers plan launch of Chavez backed institution

Unease is mounting in the IDB and other Washington-backed multilateral lending institutions about the plan by Venezuela and Argentina to set up an alternative Latin development bank.

The founding documents of the Bank of the South will be discussed in Guatemala City today by the finance ministers of Venezuela, Argentina, Bolivia, and Ecuador.

Venezuelan finance minister Rodrigo Cabeza told Emerging Markets ahead of the gathering: “This will be a development bank with a social commitment that will deal with the asymmetries in Latin America.

“We will definitively rid ourselves of the strangulating and humiliating conditions of the IMF and the World Bank.”

Brazil has overcome initial scepticism and this month agreed to join the working group to prepare the ground for the bank, which is due to be established in June.

Cabeza said that the initial capital of the Bank of the South – which has been championed by Venezuelan president Hugo Chavez and his Argentine counterpart Nestor Kirchner – will be $7 billion, of which Venezuela will contribute an initial $1.4 billion.

Kirchner has said Argentina could contribute to the bank’s capital 10% of its $3.5 billion reserves, the Argentine newspaper Pagina/12 reported earlier this month.

Investors gathering at the IDB meeting in Guatemala City are concerned that a politically-motivated initiative may undermine existing institutions – although sceptics wonder about the project’s ability to raise funds, and the quality of any guarantees.

Luis Alberto Moreno, president of the IDB, declined to comment directly on the Bank of the South project, and instead told Emerging Markets: “The important thing is to help Latin Americans fight their way out of poverty, and the quicker that happens the better... We work with all institutions, Caribbean development bank and other sister institutions.” 

In an interview with Emerging Markets, Enrique Garcia, president of the Andean Development Bank (CAF), denied that there would be any tension. “We will finance different things and the programmes of the Bank [of the South] will be different from ours. We can work together”, he said.

Behind the scenes, though, there is growing unease among some multilateral bank staff towards what may be perceived as a long term threat. One IDB insider said: “Most of the countries that are in the IDB will be there too. There is no way to stop them.” 

Some observers think there is too little substance in the Chavez-led project, though. Lilliana Rojas Suarez, senior fellow at Center for Global Development, told Emerging Markets that the discussions had to be taken seriously, “in the sense that it generates political fragmentation”. But she does not see “a long term challenge to the IDB”, as the new bank would struggle to attract serious economists.

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