'The bank, with an estimated start up fund of US $7 billion, will give interest bearing loans for poverty reduction programs and badly needed infrastructural projects.'

Martin Piper explains more about a new bank in South America which aims to help much needed development programs and projects

December saw the inauguration of Banco del Sur, or “the Bank of the South”, a new development lending institution, initially proposed by Venezuela’s Hugo Chavez, at the Cochabamba summit in 2006.

The bank has been set up specifically to serve South America and has the backing of Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay and Venezuela, with finance ministers of each country permanently sitting on its board.

The governments of Chile and Peru, whilst expressing interest, have opted out initially, whilst Colombia’s president Alvaro Uribe pulled out due to a recent fall out with Chavez.

Co-operation

The bank, with an estimated start up fund of US $7 billion, will give interest bearing loans for poverty reduction programs and badly needed infrastructural projects, especially in the energy sector, aiming to promote regional integration and cooperation through a financial institution that is transparent and democratic.

Each member nation will sit on the bank’s administrative council, holding equal authority over its operations. World Bank (WB) president, Robert Zoellick, advised the bank on transparency and former WB chief economist Joseph Stiglitz endorsed the bank, stating “it is good to have competition in most markets, including the market for development lending”.

After a visit to Caracas on October 10 2007, where the banks headquarters are located, Stiglitz commented that the bank “will reflect the perspectives of those in the south” adding “ it would not only be a positive alternative to the World Bank and the International Monetary Fund (IMF), it will also mirror the ideals and needs of the people in the region”.

The WB and IMF are viewed negatively by many governments in Latin America. Whilst credited with bringing an end to hyper-inflation and a degree of economic stability, they are often criticised for their neo-liberal political agenda and inability to reduce poverty.

The IMF’s Structural Adjustment Programs, for example, demand the selling off of national assets, tax breaks for foreign companies, cuts in public spending and a general rise in the cost of living. Banco del Sur, in contrast, will offer loans with few, if any strings attached.

Bolivia ’s ambassador to Washington, Gustavo Guzman, in a recent BBC report, explained the bank would provide a much needed “alternative source” of funds , in a period when traditional lending institutions are struggling to redefine themselves.

Shrunk

The IMF’s investment portfolio in Latin America has shrunk from 80% in 2005, to 1% today of its total lending. With countries such as Venezuela, Ecuador and Argentina either paying off their loans ahead of schedule, or defaulting and suspending further borrowing.

There is strong opposition in the west, due to the bank’s Venezuelan roots, initially conceived by Chavez and based in Caracas, it is perceived by many as part of Chavez’s “Bolivarian revolution” and socialist vision for the region.

Lula da Silva, Brazil’s president, dismissed such concerns that Chavez would exert control over the bank, stating in an interview with the New York Times that “it is small-minded to think that one bank, created with the multilateral representation of many countries, would be at the service of one person or one country, it’s not that simple”.

The bank is also expected to hold regional offices in La Paz and Buenos Aires. It maintains a “one nation one vote” policy and will demonstrably possess a structure enabling equal participation of all its members.

Michael Slifter, Latin American expert at the Washington-based Inter-American dialogue, has suggested that while it was tempting to dismiss the bank because of the political agenda behind it, he would advise sceptics to “wait and see”.

Martin Piper is a former employee of Christian Aid who now lives and works in South America.

These are personal comments and not necessarily the position of Christian Aid or its partners.

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