The Cautious Birth of a New Bank
(International Relations and Security Network, 15/10/2007)
Finance ministers from seven South American countries met in Rio de Janeiro on 8 October to discuss the future structure, leadership and funding sources for the so-called Banco del Sur (Bank of the South).
Six months behind a schedule proposed by Venezuelan President Hugo Chavez, the bank will finally see inauguration on 3 November in Caracas.
Already, the idea of an alternative funding source for South American countries has been supported across the region and even it seems in Washington, but pragmatic concerns with transparency, defining priorities and political tensions are significant challenges.
Once inaugurated, the multilateral financial institution will become an alternative to the World Bank, the InterAmerican Development Bank and the International Monetary Fund for South American countries interested in loans for social and economic development - loans that come free of the conditions that South American leaders have associated with the failed neo-liberal economic policies of the 1990s. This is a founding principle all leaders can agree upon, but barely.
Brazil is by far the most skeptical member of the group. Given that the South American giant would likely hand over the largest investment, Brazil was interested in a proportional amount of power on the bank's board of directors. Yet after some pressure from Brazilian businesses, especially those that currently enjoy windfall profits from a spike in exports to Venezuela, Brazil agreed to equal representation across all members on the board.
Political tensions between Chavez and Brazilian President Luis Inacio "Lula" da Silva are well known in the region. The two have even embarked upon a low-level, informal meeting every three months to maintain a positive relationship. Yet Chavez's constant berating of the Brazilian Congress, which has still not ratified Venezuela's membership of MercoSur, could lead to tensions within the new bank's leadership in the future, especially if Venezuela is eventually not allowed to join MercoSur due to Brazilian pressure.
Within MercoSur, Brazil and Argentina have always fought over the particulars of the auto industry, textiles and meat, resulting in little adherence to agreed tariff reductions on many products.Paraguay and Uruguay have long suffered from this clash of their two larger neighbors. Uruguay and Argentina continue to bicker over the construction of a paper mill, a political argument that has lasted over two years. While such tensions between these four founding members of MercoSur may not carry over to the Banco del Sur, it is likely that when it comes time to decide what development projects require more attention than others old arguments will arise.
Brazil is also concerned with the possibility that the Banco del Sur will become another platform from which Chavez can spread his ideology to reap political gains and regional support through a multilateral lending program. "We will not be making adventures; this will be a serious bank," Brazilian Finance Minister Guido Mantega told reporters at the Rio de Janeiro summit.
As agreed, the bank will not make grants, only interest-bearing loans. The idea, from the Brazilian side, is to create a self-sustaining organization, not one dependent on a constant donation from the eight founding countries. This pragmatic idea raises another concern with transparency.
By now, many South American leaders are aware of the levels of corruption and lack of transparency in Venezuela. With the bank's central office in Caracas and the two regional offices in Buenos Aires and La Paz, detractors point out that both Argentina and Bolivia are de facto benefactors of Chavez's largesse. They suggest that a third office should be placed in Bogota or Brasilia.
Opening offices in countries perceived as more objective participants of the new bank may do well to quell legitimate concerns that Chavez's participation in the bank may lead to another medium through which he is able to divert Venezuelan funds into his pet projects.
Yet despite these varied concerns, the bank marks a moment from which South American countries can move forward with development projects negotiated on a level playing field.
Former World Bank chief economist and Nobel-prize winning economist, Joseph Stiglitz has endorsed the Banco del Sur. "It's good to have competition in most markets, including the market for development lending," Stiglitz told the Guardian newspaper in early October.
His sentiments accurately reflect a growing consensus that South American development money is wisely placed in South American development projects, rather than South American leaders looking to Washington for every penny they need to support social and economic development projects.
If successful, the Banco del Sur will take the region in one great step towards independence from Washington-controlled money while providing a sorely needed platform for regional integration. If it fails, the bank will become a mammoth example of how the region's leftist leaders, despite their position left of center, cannot agree on the complexities of multilateral lending. Either way, it will be interesting to watch.