After months of fanfare, the far-reaching vision first
proposed by Venezuela for a development bank funded and
run by Latin American countries themselves appears to have been
Venezuelan president Hugo Chavez
sees the so-called Banco del Sur as part of an alternative to
the World Bank and IMF, from which Venezuela has announced its
attention to withdraw. His finance minister, Rodrigo Cabezas
told Emerging Markets that the bank is a means to
definitively rid ourselves from the strangulating and
humiliating conditions of the Washington-based
Former World Bank chief Joseph
Stiglitz has also weighed in. It is a good thing to have
competition in most markets including development
lending, he told a recent press conference in
But first, members need to agree
on how to fund the institution. The original goal was to raise
$7 billion in capital. This is, of course, a mere fraction of
the combined $164 billion that its putative member nations
Argentina, Bolivia, Brazil, Ecuador, Paraguay and
Venezuela have deposited in banks outside the
Brazils decision, after
much vacillation, to join the bank has put paid, for now, to
grandiose funding visions. It has quashed Argentine proposals
to inject 10% of reserves, or $3.7 billion, into the bank, and
is instead pushing for a more modest $500 million from each
member state, partly to guarantee equitable shares. Venezuela
and Argentina have both pledged to put in more than $1 billion
each to get things going.
Luis Rosero, Ecuadors
deputy finance minister, says the new bank will be in tune with
the needs of the region and have a structure that allows
decisions to be made quickly. Unlike the multilateral
institutions, each member nation in the Bank of the South will
have an equal voice, he tells Emerging Markets.
Still some way
The leaders of Argentina,
Bolivia, Brazil, Ecuador, Paraguay and Uruguay are expected to
join Chavez in Caracas at a November 3 summit to launch the
Bank. Yet so far little has happened to make it a concrete
reality. Aside from funding, several key issues remain for its
founding members to tackle before the bank can be born.
There is still no consensus on
how the bank will operate. The smaller economies represented in
the bank have proposed that the institution lends to
communities and municipalities as well as small producers and
businesses. The Ecuadorian proposal also says that cultural,
environmental and educational criteria will be taken into
account when loans are made. A separate proposal called for the
creation of the Southern Fund, to serve as a contingency fund
in times of financial crisis, in theory replacing the IMF.
Brazil in an echo of a broader, regional tussle for
influence has flatly rejected this idea.
The wealthier countries back the
Venezuelan vision of a bank with the clout, scope and project
lending capabilities of the Inter-American Development Bank
(IDB), but with a sharper focus on industries and local
production. The plan calls for recuperating the
industrial fabric of poorer nations and strengthening that of
the wealthier ones.
In the end, a June meeting of
member states was to work toward meshing the two proposals, a
process that has not been completed. The idea for the Southern
Fund was scrapped.
Cabezas maintains that the bank
will still be bold in its ambition. He told Emerging Markets
that it will be a development bank with a social
commitment, which will deal with the asymmetries in Latin
But the new bank needs to find a
way to include more nations if it is to be representative, and
not act as a kind of financial arm of the Bolivarian
Alternative for the Americas (Alba), Venezuelan president Hugo
Chavezs response to US-led free trade agreements.
Moreover, six nations are barely
enough to create an institution of any weight, especially if
members such as Bolivia and Paraguay face problems making their
$500 million contribution. This would be even more difficult
for Nicaragua, a country Chavez would like to see join the
Whats more, the
banks founding membership does not include Uruguay, the
only full member of Mercosur not part of the plan. Although
only a small economy, its absence is symbolically important.
Chile, an associate member of Mercosur, is economically
important and also not a member. The other two South American
countries not interested, Colombia and Peru, are focused on
free trade agreements with the United States and the European
Then theres the issue of
competition. The bank would also vie against existing regional
institutions, notably the Andean Development Corporation (CAF)
the regions principal lender, managing more than
$10 billion. Its president has denied there will be any tension
between the two. We will finance different things, and
the programmes of [Banco del Sur] will be different from
ours, he told Emerging Markets earlier this year.
We can work together.
IDB president Luis Alberto
Moreno declined to comment directly on the threat posed to his
institution, saying only that the IDB works with all
institutions in the region.
World Bank president Robert
Zoellick said: The issue is not granting money. The real
issue is how to help build capacities, transparency,
governance, so that the money is used in a way that is
beneficial for the people.
Despite the unease expressed by
some of his staff, many doubt that the Bank of the South is
viable. Liliana Rojas-Suarez, senior fellow at the Center for
Global Development, says that discussions have to be taken
seriously in the sense that it generates political
fragmentation. But she does not see a long-term
challenge to the IDB or other multilaterals, as she
argues that the bank would struggle to attract top-flight staff
with the right technical know-how.