[DEBATE] : A Bank of Their Own: Latin America Casting Off Washington's Shackles

[Riaz K. Tayob]

The following column was published by Alternet on October 31, 2007.

A Bank of Their Own: Latin America Casting Off Washington's Shackles 
October 31, 2007 www.alternet.org By Mark Weisbrot

"Developing nations must create their own mechanisms of finance instead 
of suffering under those of the IMF and the World Bank, which are 
institutions of rich nations . . . it is time to wake up."

That was Lula da Silva, the president of Brazil -- not Washington's 
nemesis, Hugo Chavez -- speaking in the Republic of Congo just two weeks 
ago. Although our foreign policy establishment remains in cozy denial 
about it, the recognition that Washington's economic policies and 
institutions have failed miserably in Latin America is broadly shared 
among leaders in the region. Commentators here -- Foreign Affairs, 
Foreign Policy, the editorial boards and op-ed contributors in major 
newspapers -- have taken pains to distinguish "good" leftist presidents 
(Lula of Brazil and Michele Bachelet of Chile) from the "bad" ones -- 
Chavez of Venezuela, Rafael Correa of Ecuador, Evo Morales of Bolivia 
and, depending on the pundit, sometimes Nestor Kirchner of Argentina.

But the reality is that Chavez (most flamboyantly) and his Andean 
colleagues are just saying out loud what everyone else believes. So 
official Washington, and most of the media, has been somewhat surprised 
by the rapid consolidation of a new "Bank of the South" proposed by 
Chavez just last year as an alternative to the Washington-dominated 
International Monetary Fund (IMF), World Bank and Inter-American 
Development Bank.

The media has been reluctant to take the new bank seriously, and some 
continue to call the institution, pejoratively, "Chavez's bank." But it 
has been joined by Brazil, Argentina, Bolivia, Ecuador, Uruguay and 
Paraguay. And just two weeks ago, Colombia, one of the Bush 
administration's few remaining allies in the region and the 
third-largest recipient of U.S. aid (after Israel and Egypt), announced 
that it wanted in. Et tu, Uribe?

The bank, which will be officially launched on Dec. 5, will make 
development loans to its member countries, with a focus on regional 
economic integration. This is important because these countries want to 
increase their trade, energy and commercial relationships for both 
economic and political reasons, just as the European Union has done over 
the last 50 years. The Inter-American Development Bank, which focuses 
entirely on Latin America, devotes only about 2 percent of its lending 
to regional integration.

Unlike the Washington-based international financial institutions, the 
new bank will not impose economic policy conditions on its borrowers. 
Such conditions are widely believed to have been a major cause of Latin 
America's unprecedented economic failure over the last 26 years, the 
worst long-term growth performance in more than a century.

The bank is expected to start with capital of about $7 billion, with all 
member countries contributing. It will be governed primarily on a 
one-country, one-vote basis.

How ironic is it that such an institution would be called "Chavez's 
bank," while nobody calls the IMF or the World Bank "Bush's bank?" The 
IMF and World Bank have 185 member countries but the United States calls 
the shots; it has a formal veto in the IMF, but its power is much 
greater than that, with Europe and Japan having almost never voted 
against Washington in the institution's 63-year history. The rest of the 
world, i.e., the majority and the countries that bear the brunt of the 
institutions' policies, has little to no say in decision making.

Politically, the new bank is another Declaration of Independence for 
South America, which as a result of epoch-making changes in the last few 
years is now more independent of the United States than Europe is. The 
most important change that has brought this about -- other than the 
populist ballot-box revolt that elected left-of-center governments in 
Argentina, Bolivia, Brazil, Ecuador, Uruguay and Venezuela -- has been 
the collapse of the IMF-led "creditor's cartel" in the region. This was 
the main avenue of U.S. influence, and there's not much left of it. Of 
course the U.S. government still has some clout in the region, but 
without the ability to cut off credit to disobedient governments, its 
power is vastly reduced.

The need for alternative regional economic institutions, for both 
development lending and finance, is becoming increasingly accepted by 
most of the world. Ten years ago, in the wake of the Asian financial 
crisis, there was a whole series of proposals, even books by prominent 
economists, on how to reform "the international financial architecture." 
The current crisis triggered by the collapse of subprime-mortgage-backed 
securities may provoke another such discussion. But the fact is, a full 
decade after the Asian crisis, the rich country governments have made no 
significant movement toward reform. New leaders of the IMF and the World 
Bank were appointed in the last few months, and by tradition, these have 
to be a European and an American.

That tradition was honored, despite calls from a majority of the member 
countries and scores of NGOs and think tanks to open up the search 
process. For the World Bank, the Bush administration even managed to add 
insult to injury by appointing Robert Zoellick, a neoconservative in the 
mold of his intensely disliked predecessor, Paul Wolfowitz, to run the 
beleaguered institution. Without even the smallest symbolic changes, it 
is hard to imagine more substantive changes, e.g., in the voting 
structure, taking place in the foreseeable future.

With reform at the top blocked, positive changes will have to come at 
the regional, and of course, most importantly, at the national level. 
Latin Americans are doing their part, and the world will surely thank 
them for it.

Not everyone is happy to see the old order challenged. An insider at the 
Inter-American Development Bank told the Financial Times: "With the 
money of Venezuela and political will of Argentina and Brazil, this is a 
bank that could have lots of money and a different political approach. 
No one will say this publicly, but we don't like it."

Apparently, these institutions that preach the virtues of international 
competition are not so enthusiastic when it breaks into their own 
monopolistic market.


Mark Weisbrot is Co-Director of the Center for Economic and Policy 
Research, in Washington, D.C. (www.cepr.net).