A Bank of Their Own: Latin America Casting off Washington's Shackles
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"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.
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 monopolistic market.