The Bank of the South: An Alternative to IMF and World Bank Dominance

by Stephen Lendman

In July, 2004, the IMF and World Bank commemorated the
60th anniversary of their founding at Bretton Woods,
NH to provide a financial framework of assistance for
the postwar world after the expected defeat of Germany
and Japan. With breathtaking hypocrisy, an October,
2004 Development Committee Communique stated: “As we
celebrate the 60th anniversary of the Bretton Woods
Institutions….we recommit ourselves to supporting
efforts by developing countries to pursue sustainable
growth, sound macroeconomic policies, debt
sustainability, open trade, job creation, poverty
reduction and good governance.” Phew.

In fact, for 63 hellish years, both these institutions
achieved mirror opposite results on everything the
above comment states. From inception, their mission
was to integrate developing nations into the Global
North-dominated world economy and use debt repayment
as the way to transfer wealth from poor countries to
powerful bankers in rich ones.

The scheme is called debt slavery because new loans
are needed to service old ones, indebtedness rises,
and borrowing terms stipulate harsh one-way
“structural adjustment” provisions that include:

—privatizations of state enterprises;

—government deregulation;

—deep cuts in social spending;

—wage freezes or cuts;

—unrestricted free market access for foreign
corporations;

—corporate-friendly tax cuts; 

—crackdowns on trade unionists; and

—savage repression for non-believers under a system
incompatible with social democracy.

Everywhere the scheme is the same: huge public wealth
transfers to elitist private hands, exploding public
debt, an ever-widening disparity between the
super-rich and desperate poor, and an aggressive
nationalism to justify huge spending on security for
aggressive surveillance, mass incarceration plus
repression and torture for social control.

An Alternative to Debt Slavery - The Bank of the South

Last December, Hugo Chavez announced his idea for a
Banco del Sur, or Bank of the South, as part of his
crusade against the institutions of international
capital he calls “tools of Washington.” The bank will
be officially launched at a presidential November 3
summit in Caracas, where it’s to be headquartered,
with seven founding member-states - Venezuela,
Argentina, Brazil, Uruguay, Paraguay, Bolivia and
Ecuador.

On October 12, Colombia’s President Alvaro Uribe
announced his nation agreed to become the eighth
member but said “The decision is not a rejection to
the World Bank or Inter-American Development Bank, but
a sign of solidarity and fraternity towards the South
American community.” At this time, only four South
American states aren’t included - Chile, Peru, Guyana
and Surinam, but Chile seems likely to come aboard
following Colombia’s lead, and the others may decide
to join them.

Finance ministers from the founding countries met in
Rio de Janeiro, Brazil October 8 to finalize the
Bank’s Founding Document. Many key operating issues
have yet to be resolved, but unofficial information
was that each nation will commit 10% of its
international reserves and have equal oversight over
the new institution. In a concluding news conference,
Brazilian finance minister Guido Mantega stated: the
participating countries “have been able to overcome
all obstacles that were in the way of an understanding
around the formation of the Bank of the South. We can
now say that the (bank) is close to becoming a
reality” even though Brazil (Latin America’s largest
economy) hasn’t yet formalized its entry.

Venezuelan finance minister Rodrigo Cabeza explained
the bank will help develop the region by offering
South Americans more credits. It’s being “created to
build a new architecture that assumes an improved
relationship of the bank and its capacity to offer
credits for its people.” It also aims to increase
liquidity and revive socioeconomic development and
infrastructure investments in participating countries
and keep them outside the restrictive control of the
IMF and World Bank that are fast losing influence and
being phased out of the region.

In 2005, 80% of IMF’s $81 billion loan portfolio was
to Latin America. Today, it’s 1% with nearly all its
$17 billion in outstanding loans to Turkey and
Pakistan. The World Bank is also being rejected.
Venezuela had already paid off its IMF and World Bank
debt ahead of schedule when Hugo Chavez symbolically
announced on April 30: “We will no longer have to go
to Washington nor to the IMF nor to the World Bank,
not to anyone.” Ecuador’s Raphael Correa is following
suit. He cleared his country’s IMF debt, suspended
World Bank loans, accused the WB of trying to extort
money from him when he was economy and finance
minister in 2005, and last April declared the Bank’s
country representative persona non grata in an
extraordinary diplomatic slap in the face.

The Banco del Sur will replace these repressive
institutions with $7 billion in startup capital when
it begins operating in 2008. It will be under “a new
financial architecture” for regional investment with
the finance ministers of each member nation sitting on
the bank’s administrative council with equal authority
over its operations as things now stand. Venezuelan
Finance Minister Rodrigo Cabeza stressed the banks
Latin roots saying: “The idea is to rely on a
development agency for us, led by us” to finance
public and private development and regional
integration projects. He added: “There will not be
credit subjected to economic policies. There will not
be credit that produces a calamity for our people and
as a result, it will not be a tool of domination” like
the international lending agencies.

Hugo Chavez’s vision is to liberate the region’s
countries from IMF, World Bank and Inter-American
Development Bank (IBD) control that condemn millions
to poverty through their lending practices. Helped by
windfall oil profits, his government is already doing
it with an unprecendented commitment to provide
financial aid and below-market priced oil to regional
and other countries. So far this year, it’s on the
order of around $9 billion, and, unlike the
Washington-controlled kind, it comes at low cost and
with good will, a cooperative spirit and few if any
strings.

Nobel laureate economist Joseph Stiglitz recognizes
Chavez’s efforts and stated his support for the Banco
del Sur on an October 10 visit to Caracas. He said
“One of the advantages of having a Bank of the South
is that it would reflect the perspectives of those in
the South (while in contrast IMF and World Bank
conditions) hinder (regional) development
effectiveness.”

Stiglitz met with Hugo Chavez on his visit and praised
his redistributive social policies. He also criticized
Washington Consensus neoliberal practices that exploit
the regions’ people, “undermin(e)....Andean
cooperation, and it is part of the American strategy
of divide and conquer, a strategy trying to get as
much of the benefits for American companies” at the
expense of the region and its people.

Venezuela’s acting ambassador to the Permanent Mission
to the UN, Aura Mahuampi Rodriguez de Ortiz, warned
the world body about Latin American debt during her
participation in the General Debate on Macroeconomic
Policies in October. She stressed: “The persistence of
the foreign debt of the developing countries affects
negatively on its process of development. It is not
worthy to direct resources for the development of poor
countries if such resources end up directed to the
payment of the foreign debt” instead of going to
economic development internally. She also spoke of the
new Bank of the South, how it will help strengthen
regional integration and also fairly distribute
investments and finance projects to reduce poverty and
social exclusion.

A less publicized Bank of ALBA (Bolivarian Alternative
for the Americas) will also begin operating by year
end under “a new regional financial architecture under
principles that create a new form of channeling
financial resources” to its four country alliance -
Venezuela, Cuba, Bolivia and Nicaragua.

Chavez first proposed ALBA as an alternative to the
Free Trade of the Americas (FTAA) in 2001 with
Venezuela, Cuba and Bolivia its original members in
December, 2004. Nicaragua then joined the alliance in
January, 2007 under its newly elected president,
Daniel Ortega, who signed on as his first act in
office. ALBA’s goal is ambitious. It’s the
comprehensive integration of the region and
development of its “the social state” for all its
people. It’s boldly based on member states
complementarity, not competition; solidarity, not
domination; cooperation, not exploitation; and respect
for each participating nation’s sovereign right to be
free from the grip of other countries and corporate
giants.

In April, the 5th ALBA summit was held in Caracas to
discuss ways to improve the alliance. Initiatives
covered included a Permanent (coordinating)
Secretariat and a plan to create 12 public companies
to be co-managed by ALBA member states. Its goal is to
strengthen key economic sectors in areas of energy,
agriculture, telecommunications, infrastructure,
industrial supplies and cement production. ALBA
country foreign ministers then agreed in June to
create a development Bank of ALBA to help finance
these ventures with low-cost credit. It will
complement the Banco del Sur and also be headquartered
in Caracas.

Uncertain Future Prospects

Socially responsible regional banks, like those
discussed above, will challenge the dominant
institutions of finance capital if they fulfill their
promise. But therein lies the problem. These new
institutions aren’t panaceas, and they may end up
letting capital interests exploit them for their own
advantage. In addition, financial autonomy alone won’t
free the region from Washington’s grip without greater
change. What’s needed are sweeping nationalizations of
basic industries, an end to one-way WTO-style trade
deals, socially redistributing national resources,
developing local economies, achieving land and housing
reform plus a sweeping commitment to social equity and
a resolve to end a 25 year neoliberal nightmare. From
1960 to 1980, the region’s per capita income growth
was 82%. From 1980 to 2000, however, it was 9%, and
from 2000 to 2005 only 4%. For the region, it meant
sweeping poverty, inequality and the most extreme
disparity between the super-rich and desperate poor in
the world. 

Change is needed, and Venezuela under Hugo Chavez has
done most in the region to achieve it. Finance
Minister Rodrigo Cabezas just presented his
government’s 2008 budget to the National Assembly that
allocates 46% of it to social spending. It devotes
special attention to health and education but also to
subsidized and free food, land reform, housing, micro
credit, job training, cooperatives and more as Chavez
continues to use his nation’s resources to address the
needs of his people. Since he took office, social
spending per person is up more than threefold and in
2006 was 20.9% of GDP.

Chavez now has an ally in Ecuador under Raphael Correa
who’s early efforts are promising. Hopefully, they’ll
continue under a new constitution to be drafted in the
next six months and then put to a national referendum
next year. Other Bank of the South founding countries
like Brazil, Argentina and Bolivia, however, claim to
be center-left but, in fact, embrace 1990s
neoliberalism, and financial autonomy won’t change
that. The Bank of the South will only work if it
fulfills a mandate to prioritize local needs and
development, not corporate ones. That’s a tall order,
and achieving it won’t be easy with its dominant
member, Brazil under Lula, closely tied to Washington
and in its grip.

Nonetheless, small signs of change are emerging, the
Bank of the South may be one of them, and a new
generation of leftist leaders may in the end break
Washington’s weakening (but still strong) hold on the
region. That’s the hope, and every step forward means
more power to the people and another possible world.

Stephen Lendman lives in Chicago and can be reached at
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