Amid ongoing discussions, Bank of the South nears launch
9 July 2007
While the specific role and activities of the new Latin American regional development bank are still being debated, plans are moving forward to formalize an agreement between members that would create an alternative to the World Bank and IMF.
The launch of the new multilateral development bank, Bank of the South, is predicted to happen this month. The new institution is the brainchild of Venezuelan President Hugo Chávez and is supported by seven other Latin American nations including Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay and Venezuela.
While countries in the region have expressed interest in developing an alternative to the existing multilateral development banks, there has been some difficulty building consensus on the exact role and responsibilities of the Bank, especially between the two powerhouses of the region, Venezuela and Brazil.
"Brazil was able to lobby powerfully that the bank should have equal capital participation from all its members," says Vince McElhinny, Latin America and Caribbean program manager at the Bank Information Center. "As that implies a much lower starting capital than initially proposed by Venezuela, it is a serious setback for the bank's ambitions." The original plans called for an initial start-up of $7.1 billion, but if Brazil has its way, the total capital would be little more than $3.1 billion.
The role of the Bank of the South is also likely to be shaped by the declining influence of other organizations that have traditionally operated in the region including the International Monetary Fund, the World Bank, the Inter-American Development Bank and Mercosur. As many countries have been able to pay off their outstanding debts with the these institutions, the volume of lending has stagnated or decreased. Governments in Latin America seem to be following a trend away from organizations controlled by the US and other rich countries.
Although the exact function of the Bank of the South and the approach it will take are not yet clearly defined, the willingness of countries in the region to support its creation suggests that this may be the first of several challenges to the existing international financial institutions.