A Bank of Their Own: Latin America Casting off Washington's Shackles

"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 have 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.