Editor's note: An earlier version of this article accidentally quoted Chavez as saying that Latin America has repaid $2.2 billion in debt. the correct figure should have been $2.2 trillion.
Buenos Aires, Argentina, March 14, 2007--President Bush wrapped up his 5 nation-tour today dodging criticisms on immigration policy and opposition to the war in Iraq in Meridia, Mexico where protestors lobbed concrete rocks at his hotel. Venezuelan president Hugo Chavez dogged Bush during his own whirlwind tour of Latin America, signing trade accords to promote regional integration. Part of Chavez’s agenda is to squeeze the International Monetary Fund out of Latin America and replace it with a regionally based institution.
Speaking in front of thousands of supporters in Buenos Aires, Chavez announced plans to create Banco del Sur or Bank of the South, a socialist alternative to the Washington based IMF lending institution. Argentina has already agreed to transfer 10 percent of the nation's reserves to boost the Bank of the South, a financial institution that could serve as an alternative to the IMF.
Chavez said that the Bank of the South can break the vicious cycles of foreign debt. "We have paid a countless amount of resources to pay back foreign debt. In the past 20 or 25 years we have paid more than 2.2 trillion dollars in debt. We have paid back the loans more than three times over.”
He also announced that Argentina and Bolivia have eagerly adhered to the development fund. “Seven years ago I was alone in South America with a proposal for the Bank of the South, a bank that is ours to replace the international financing system, the International Monetary Fund and the World Bank. 15 days ago with Argentina we signed an agreement and today we have agreed to move forward to outline the Bank of the South. Tomorrow, Bolivia will adhere to the Bank of the South. They are building a bank that is ours."
Leaders in the Southern Cone, so far from Venezuela, Argentina and Bolivia, have joined the bank project with hopes that such a bank would allow Latin American nations to avoid the policy conditions that generally come with IMF loans.
According to Alan Cibils, an Argentine economist specializing in foreign lending institutions, the Bank of the South is still in its early stages but could develop into a concrete alternative to the IMF and World Bank. “It could be that part of the function of this bank is to act as a lender of last resort for countries in crisis that need funds and instead of going to the IMF they would go to the Banco del Sur, so that's a possibility. The other possibility or the other alternative is that it acts as a development bank for development projects of the different countries. I think either way it's a good idea to have both of these functions.”
The IMF’s current crisis has further compelled leaders to look for regional alternatives for financing. “I think that it points to a very clear failure of the northern institutions specifically the IMF and also the World Bank and the effects of the policies they have promoted in Latin Ameirca and throughout the world,” says Cibils. He adds, “so having an alternative institution that is local and really obeys more to local needs than to the
need of northern finance I think is a good thing and is desirable.”
Despite enthusiasm, Cibils warns that the fund will have to overcome corruption and stay wary of draining economic reserves in the respective Latin American countries. “Now how this will be implemented and whether it will be able to act outside of the clientalism and corruption that you sometimes have in governments like Argentina for example is an open question.”
Carlos Aznarez international journalist with Resumen Latinoamericano says that Argentina and Brazil joined the Bank of the South project to keep up with competition with one another in the global market and in leadership of Mercosur. “Not all the countries think the same about the Bank of the South. The idea that is pushing Chavez is the idea to precisely use the funds and federal reserves from each country to promote economic growth in Latin America’s poorest countries.” Although he says he is skeptical over Brazil’s and Argentina’s intentions to adhere to the regional fund. “The direction this project is going to take depends on the ideological influence of Venezuela. Bolivia is the country that is going to receive substantial support because it doesn’t have a lot of economic alliances. And Brazil and Argentina are going to flirt with the Bank of the South.”
The Bank of the South is set to begin operations within four months with international reserves from all participating nations. Venezuela hopes that Nicaragua and Ecuador will soon join the fund, whose initial capital will be 10 percent of Caracas and Buenos Aires international reserves, or roughly seven billion dollars.