[DEBATE] : A Bank of Their Own: Latin America Casting Off Washington's Shackles
Riaz K. Tayob
riazt at iafrica.com
Sat Nov 3 10:13:28 GMT 2007
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
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
Mark Weisbrot is Co-Director of the Center for Economic and Policy
Research, in Washington, D.C. (www.cepr.net).
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