Dismantling the Instruments of American Dominance

Washington restive as Chávez plans pioneer bank

By Richard Lapper

Until recently, few took seriously President Hugo Chávez's idea of setting up a new South American development bank to rival the continent's main lending institutions.

But with Venezuela's finance minister this week promising the proposed Bank of the South will start to distribute loans as early as next year with backing from Argentina, Bolivia, Ecuador, Paraguay, and possibly Nicaragua and Brazil, traditional multilateral lenders are facing up to the possibility of a competitor.

Venezuela and Argentina have long bridled against what they see as US domination of the western hemisphere's multilateral lending institutions, and want more control over the region's development.

"The south needs to take care of its own problems," said one senior Argentine banker.

Officially both its potential rivals, the Inter-American Development Bank - in which the US has a 30 per cent stake - and the smaller Andean Development Corporation, have welcomed the development, arguing that with plenty of money around and many pressing infrastructure and social needs, there would be plenty of business.

But privately there are concerns. One insider at the IDB said the bank could reinforce regional divisions that have arisen as a result of the radicalisation of Venezuela and the growth of an anti-American camp - backed since last year by elections in Bolivia, Ecuador and Nicaragua.

He says the Bank of the South, especially if Brazil were to join, would represent the biggest threat to the IDB since Latin America suffered a series of debt defaults in the 1980s. "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."

He fears the Washington-based multilateral could, in a worst-case scenario, be reduced to an institution backed mainly by the US and its closest regional allies, Mexico and Colombia.

Backed initially by Argentina and three smaller countries - Ecuador, Paraguay, and Bolivia - the new bank will have a capital base of $7bn (£3.6bn, €5bn): an amount that would probably be funded by sizable contributions from the combined international reserves of Argentina and Venezuela.

That compares to paid-in capital of $4bn and $3.7bn currently held by the IDB and CAF respectively, although the IDB can also draw on resources of more than $100bn.

Venezuela's radical government and its supporters used this week's IDB annual conference in Guatemala City to advance their plans. Rodrigo Cabeza, Venezuela's finance minister, told the meeting "technical commissions" would meet in Argentina, Caracas and Ecuador in coming weeks, with a final plan ready by the end of June.

Mr Cabeza was optimistic too that Nicaragua and more importantly Brazil - once lukewarm about the idea - would join the bank. Loans to the education and health sectors in Bolivia have been identified as early priorities.

"It is going to happen," said Mr Cabeza. "It will allow us to dispense with the conditions that the multilaterals [such as the IDB and the World Bank] attachto loans. It will deepen financial and economic integration."

A crucial issue will be whether Brazil signs up to the new institution. This week, Paulo Bernardo, Brazilian planning minister, said "significant strengthening of the CAF" was "maybe the best alternative" to the Bank of the South, adding the CAF's relatively low cost base and agility added to its attractions.

The CAF recently welcomed Brazil as a shareholder; a commitment which will add more than a $1bn to its paid-in capital. Argentina is expected to make a similar commitment to the CAF, adding a further $600m. Argentina and Venezuela will also continue to be big borrowers from the IDB, says a senior bank official.

But according to other IDB insiders, the Bank of the South could seriously complicate the challenges facing its president Luis Alberto Moreno, the former Colombian diplomat who took over leadership with US backing 18 months ago.

One dilemma the IDB faces is how to find a new role in an era in which itis needed less to provide macroeconomic stabilityand more to promotesmaller-scale private sectoractivity.

Rising commodity prices and a flood of international liquidity have allowed most countries in the region to build up big current account surpluses, to strengthen reserves and to cast off dependency upon the Washington-based multilaterals.

Original article posted here.