The Bank of the South: An Alternative to IMF and World Bank Dominance

Hugo Chavez's vision is to liberate the region's countries from IMF, World Bank, and Inter-American Development Bank (IBD) control that condemn millions to poverty through their lending practices. Helped by windfall oil profits, his government is already doing it with an unprecedented commitment to provide financial aid and below-market priced oil to regional and other countries.

In July, 2004, the IMF and
World Bank commemorated the 60th anniversary of their founding at Bretton Woods, NH to
provide a financial framework of assistance for the postwar world after the
expected defeat of Germany
and Japan.
With breathtaking hypocrisy, an October, 2004 Development Committee Communique
stated: "As we celebrate the 60th anniversary of the Bretton Woods
Institutions….we recommit ourselves to supporting efforts by developing
countries to pursue sustainable growth, sound macroeconomic policies, debt
sustainability, open trade, job creation, poverty reduction and good
governance." Phew.

In fact, for 63 hellish years,
both these institutions achieved mirror opposite results on everything the
above comment states. From inception, their mission was to integrate developing
nations into the Global North-dominated world economy and use debt repayment as
the way to transfer wealth from poor countries to powerful bankers in rich

The scheme is called debt
slavery because new loans are needed to service old ones, indebtedness rises,
and borrowing terms stipulate harsh one-way "structural adjustment"
provisions that include:

  • privatizations of state
  • government deregulation;
  • deep cuts in social
  • wage freezes or cuts;
  • unrestricted free market
    access for foreign corporations;
  • corporate-friendly tax
  • crackdowns on trade
    unionists; and
  • savage repression for
    non-believers under a system incompatible with social democracy.

Everywhere the scheme is the
same: huge public wealth transfers to elitist private hands, exploding public
debt, an ever-widening disparity between the super-rich and desperate poor, and
an aggressive nationalism to justify huge spending on security for aggressive
surveillance, mass incarceration plus repression and torture for social

An Alternative to Debt Slavery – The Bank of the South

Last December, Hugo Chavez
announced his idea for a Banco del Sur, or Bank of the South, as part of his
crusade against the institutions of international capital he calls "tools
of Washington."
The bank will be officially launched at a presidential November 3 summit in Caracas, where it is to be headquartered, with seven
founding member-states – Venezuela,
Argentina, Brazil, Uruguay,
Paraguay, Bolivia and Ecuador.

On October 12, Colombia's
President Alvaro Uribe announced his nation agreed to become the eighth member
but said "The decision is not a rejection to the World Bank or
Inter-American Development Bank, but a sign of solidarity and fraternity
towards the South American community." At this time, only four South
American states aren't included – Chile,
Peru, Guyana and Surinam,
but Chile seems likely to
come aboard following Colombia's
lead, and the others may decide to join them.

Finance ministers from the
founding countries met in Rio de
Janeiro, Brazil
October 8 to finalize the Bank's Founding Document. Many key operating issues
have yet to be resolved, but unofficial information was that each nation will
commit 10% of its international reserves and have equal oversight over the new
institution. In a concluding news conference, Brazilian finance minister Guido
Mantega stated: the participating countries "have been able to overcome
all obstacles that were in the way of an understanding around the formation of
the Bank of the South. We can now say that the (bank) is close to becoming a
reality" even though Brazil
(Latin America's largest economy) hasn't yet
formalized its entry.

Venezuelan finance minister
Rodrigo Cabezas explained the bank will help develop the region by offering
South Americans more credits. It's being "created to build a new
architecture that assumes an improved relationship of the bank and its capacity
to offer credits for its people." It also aims to increase liquidity and
revive socioeconomic development and infrastructure investments in
participating countries and keep them outside the restrictive control of the
IMF and World Bank that are fast losing influence and being phased out of the

In 2005, 80% of IMF's $81
billion loan portfolio was to Latin America.
Today, it's 1% with nearly all its $17 billion in outstanding loans to Turkey and Pakistan. The World Bank is also
being rejected. Venezuela
had already paid off its IMF and World Bank debt ahead of schedule when Hugo
Chavez symbolically announced on April 30: "We will no longer have to go
to Washington
nor to the IMF nor to the World Bank, not to anyone." Ecuador's Rafael
Correa is following suit. He cleared his country's IMF debt, suspended World
Bank loans, accused the WB of trying to extort money from him when he was
economy and finance minister in 2005, and last April declared the Bank's
country representative persona non grata in an extraordinary diplomatic slap in
the face.

The Banco del Sur will replace
these repressive institutions with $7 billion in startup capital when it begins
operating in 2008. It will be under "a new financial architecture"
for regional investment with the finance ministers of each member nation
sitting on the bank's administrative council with equal authority over its
operations as things now stand. Venezuelan Finance Minister Rodrigo Cabezas
stressed the bank's Latin roots, saying: "The idea is to rely on a
development agency for us, led by us" to finance public and private
development and regional integration projects. He added: "There will not
be credit subjected to economic policies. There will not be credit that
produces a calamity for our people and as a result, it will not be a tool of
domination" like the international lending agencies.

Hugo Chavez's vision is to
liberate the region's countries from IMF, World Bank, and Inter-American
Development Bank (IBD) control that condemn millions to poverty through their
lending practices. Helped by windfall oil profits, his government is already doing
it with an unprecedented commitment to provide financial aid and below-market
priced oil to regional and other countries. So far this year, it's on the order
of around $9 billion, and, unlike the Washington-controlled kind, it comes at
low cost and with good will, a cooperative spirit and few if any strings.

Nobel laureate economist Joseph
Stiglitz recognizes Chavez's efforts and stated his support for the Banco del
Sur on an October 10 visit to Caracas.
He said "One of the advantages of having a Bank of the South is that it
would reflect the perspectives of those in the South (while in contrast IMF and
World Bank conditions) hinder (regional) development effectiveness."

Stiglitz met with Hugo Chavez
on his visit and praised his redistributive social policies. He also criticized
Washington Consensus neoliberal practices that exploit the region's people,
"undermin(e)….Andean cooperation, and it is part of the American
strategy of divide and conquer, a strategy trying to get as much of the
benefits for American companies" at the expense of the region and its

Venezuela's acting ambassador to
the Permanent Mission to the UN, Aura Mahuampi Rodriguez de Ortiz, warned the
world body about Latin American debt during her participation in the General Debate
on Macroeconomic Policies in October. She stressed: "The persistence of
the foreign debt of the developing countries affects negatively on its process
of development. It is not worthy to direct resources for the development of
poor countries if such resources end up directed to the payment of the foreign
debt" instead of going to economic development internally. She also spoke
of the new Bank of the South, how it will help strengthen regional integration
and also fairly distribute investments and finance projects to reduce poverty
and social exclusion.

A less publicized Bank of ALBA
(Bolivarian Alternative for the Americas) will also begin operating by year end
under "a new regional financial architecture under principles that create
a new form of channeling financial resources" to its four country alliance
– Venezuela, Cuba, Bolivia and Nicaragua.

Chavez first proposed ALBA as
an alternative to the Free Trade Area of the Americas (FTAA) in 2001 with Venezuela, Cuba,
and Bolivia
its original members in December, 2004. Nicaragua then joined the alliance
in January, 2007 under its newly elected president, Daniel Ortega, who signed
on as his first act in office. ALBA's goal is ambitious. It is the
comprehensive integration of the region and development of the "social
state" for all its people. It is boldly based on member states'
complementarity, not competition; solidarity, not domination; cooperation, not
exploitation; and respect for each participating nation's sovereign right to be
free from the grip of other countries and corporate giants.

In April, the 5th ALBA summit
was held in Caracas
to discuss ways to improve the alliance. Initiatives covered included a
Permanent (coordinating) Secretariat and a plan to create 12 public companies
to be co-managed by ALBA member states. Its goal is to strengthen key economic
sectors in areas of energy, agriculture, telecommunications, infrastructure,
industrial supplies and cement production. ALBA country foreign ministers then
agreed in June to create a development Bank of ALBA to help finance these
ventures with low-cost credit. It will complement the Banco del Sur and also be
headquartered in Caracas.

Uncertain Future Prospects

Socially responsible regional
banks, like those discussed above, will challenge the dominant institutions of
finance capital if they fulfill their promise. But therein lies the problem.
These new institutions aren't panaceas and they may end up letting capital
interests exploit them for their own advantage. In addition, financial autonomy
alone won't free the region from Washington's
grip without greater change. What's needed are sweeping nationalizations of
basic industries, an end to one-way WTO-style trade deals, socially
redistributing national resources, developing local economies, achieving land
and housing reform, plus a sweeping commitment to social equity and a resolve
to end a 25 year neoliberal nightmare. From 1960 to 1980, the region's per
capita income growth was 82%. From 1980 to 2000, however, it was 9%, and from
2000 to 2005 only 4%. For the region, it meant sweeping poverty, inequality and
the most extreme disparity between the super-rich and desperate poor in the

Change is needed, and Venezuela under
Hugo Chavez has done most in the region to achieve it. Finance Minister Rodrigo
Cabezas just presented his government's 2008 budget to the National Assembly
that allocates 46% of it to social spending. It devotes special attention to
health and education but also to subsidized and free food, land reform,
housing, micro credit, job training, cooperatives and more as Chavez continues
to use his nation's resources to address the needs of his people. Since he took
office, social spending per person is up more than threefold and in 2006 was
20.9% of GDP.

Chavez now has an ally in Ecuador under
Rafael Correa, whose early efforts are promising. Hopefully, they'll continue
under a new constitution to be drafted in the next six months and then put to a
national referendum next year. Other Bank of the South founding countries like Brazil, Argentina,
and Bolivia,
however, claim to be center-left but, in fact, embrace 1990s neoliberalism, and
financial autonomy won't change that. The Bank of the South will only work if
it fulfills a mandate to prioritize local needs and development, not corporate
ones. That's a tall order, and achieving it won't be easy with its dominant
member, Brazil under Lula,
closely tied to Washington
and in its grip.

Nonetheless, small signs of
change are emerging, the Bank of the South may be one of them, and a new
generation of leftist leaders may in the end break Washington's weakening (but still strong)
hold on the region. That's the hope, and every step forward means more power to
the people and another possible world.

Stephen Lendman lives in Chicago
and can be reached at [email protected].

Also visit his blog
site at sjlendman.blogspot.com and listen to The Steve Lendman News and
Information Hour on TheMicroEffect.com Mondays at noon US central time.