* “Bank of the South” vs. IMF – about time!


Richard Moore

The Bank will have an initial capital of around US$7 billion
and specialize in development loans to its member countries
with a focus on regional economic integration.


I see this as an important milestone. $7 billion may be small potatoes as 
finance goes, and Chavez' oil-funded initiatives have been more dramatic, but 
this bank will prove to be an essential cornerstone in the systematic effort to 
achieve regional autonomy and prosperity in South America. Control over your own
credit and finance is essential if you are to have sovereignty over your 
economic affairs generally. And without economic sovereignty, political 
sovereignty can only be a pretense.


Original source URL:

KAIROS: Canadian Ecumenical Justice Initiatives
Bank of the South Challenges Hegemony of World Bank and IMF

KAIROS Debt E-Bulletin
Fall 2007
John Dillon

On December 10th a new international financial institution will be launched. 
Unlike the World Bank, the Inter-American Development Bank (IDB) and the 
International Monetary Fund (IMF) that are dominated by the USA, the Bank of the
South will be controlled exclusively by seven or eight South American countries.
Since it was originally proposed by Venezuela and Argentina in February, Brazil,
Bolivia, Ecuador, Uruguay, Paraguay all joined. Recently Colombia also announced
its intention to join although its status is not clear as this bulletin is being

The Bank will have an initial capital of around US$7 billion and specialize in 
development loans to its member countries with a focus on regional economic 
integration. Although it will be officially inaugurated in a December photo op 
when most South American Presidents are in Buenos Aires for the inauguration of 
President Cristina Kirchner, its actual statutes and procedures will still not 
be completely decided.

At a September 2007 conference sponsored by the Latin American Council of 
Churches Ricadro Patiño, Ecuador¹s Minister for the Atlantic Coast, spoke 
eloquently about his government¹s vision for the Bank of the South. According to
Minister Patiño:

A Bank of the South is needed to end the outflow of capital from the South to 
the North through debt payments, profit repatriation by transnational 
corporations and capital flight initiated by wealthy elites. The result is 
recession, poverty and migration from Southern countries.

It¹s ludicrous for Southern countries to keep their foreign exchange reserves in
US Treasury bills or Northern Banks when they could be put to use for 
development. In the words of Ecuadorian President Rafael Correa: ³We cannot 
continue placing US$200 billion of our reserves in the first world and then 
later make ourselves submit to their conditions to obtain a few dollars [in 

The goal is to break the chains of economic, financial and political domination 
and contribute to the construction of a more human society where people are 
empowered to have control over their own development.

Each member would contribute to the Bank according to its means.

A new financial architecture should include not only the Bank but also a 
Southern Fund that would operate like a regional central bank, initially 
building on the existing Latin American Reserve Fund.

Over time national currencies and eventually a regional currency would play a 
larger role in facilitating South-South commerce. [President Evo Morales of 
Bolivia has proposed that South American nations establish their own currency to
be called the ³Pacha² which means ³land² in the Quecha language.]

The Bank would be democratic based on the principle of one country, one vote.

It would be transparent, rendering public accounts of its activities.

Loans would be provided for public services, small producers, co-operatives and 
indigenous communities.

Civil society would have a role in the design of the bank, its decision-making 
and in oversight of its operations.

The new Bank of the South will not impose economic policy conditions on its 
borrowers like those demanded by the World Bank and the IMF which have failed to
achieve their own goals of economic growth let alone any sustainable and 
socially just model of development.

Unresolved Issues

Then in the question period Minister Patiño acknowledged that there are still 
many unresolved issues concerning how the Bank will function.

The Bank was supposed to have been launched on November third, but this was 
delayed until December fifth and then put off again until December tenth. Even 
then negotiations concerning the Bank¹s structure and policies will still 
continue for another sixty days.

According to Patiño much will depend on how responsive the sponsoring 
governments are to pressures from civil society. He told the Latin American 
Council of Churches gathering that different interests are involved in each 
country. Some governments and private investors want a Bank that would fund 
large infrastructure projects like multi-modal transportation corridors, 
pipelines and large hydroelectric dams.

Venezuela does not need development loans but President Hugo Chavez does want to
sell its natural gas to South American partners. Argentina without a bank of its
own wants access to credit. Uruguay, Paraguay and Ecuador as smaller countries 
want loans without having to borrow from the World Bank or the IDB.

As the largest country in South America, Brazil is key. Within Brazil itself 
different conflicting interests are at play. Brazil already has a large 
state-controlled investment bank known as BNDES (National Bank for Economic and 
Social Development). BNDES annually makes loans worth nearly US$30 billion and 
is perceived as being wary of the emergence of another regional bank with a 
different mandate. Private bankers in Brazil have reacted negatively to the 
prospect of a new institution that they view as politically motivated. Hence 
Brazil for a time delayed progress on the establishment of a rival bank.

Then President Lula da Silva declared that the Bank of the South would go 
forward. Speaking recently in the Republic of the Congo, Lula stated that 
"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." While this vision is welcome, other 
Brazilian officials indicate that there is a more pragmatic side to Brazil¹s 

Jose Botafogo, a former Brazilian Ambassador explains ³Lula and Brazil are not 
socialists like Chavez but they are under pressure from Brazilian companies who 
do a lot of business in Venezuela to keep relations good. Brazil would probably 
rather not have a new bank, but it¹s willing to accept one if it¹s a real bank 
and not just a Chavez social program.²

Brazil¹s Economy Minister, and former BNDES President, Guido Mantega has 
emphasized that the Bank of the South must adhere to conventional banking 
standards and to ³the norms of the market.² Mantega has said that most members 
would contribute between US$300 million and US$500 million to the Bank¹s initial
capitalization while Venezuela would put in US$1.4 billion.

President Alvaro Uribe of Colombia is the latest head of state to verbally 
support the Bank declaring that ³It is not a rejection of the World Bank or of 
the Inter-American Development Bank. Rather it is a gesture of solidarity and 
loyalty to South American fraternity.² Analysts in Bogota are sceptical of 
Uribe¹s motives saying that by siding with a Venezuelan initiative he may be 
sending a signal to Washington concerning his irritation with delays in the 
approval of a US-Colombia Free Trade Agreement

One of the most difficult issues, according to Ricadro Patiño, has been whether 
the Bank would operate on the basis of ³one country one vote.² Reports indicate 
that this principle was accepted as applying to the Bank¹s Board of Directors 
that will only meet once a year. However, when it comes to the actual allocation
of credits there may be a system of weighted voting according to the 
contributions made by various members.

One contentious issue concerns whether the Bank will Finance large 
infrastructure projects that are widely opposed by environmentalists. On this 
issue the Ecuadorian government has been out of step with some of its 
supporters. Patiño responds that there are differences of opinion among 
environmentalists concerning the value of some megaprojects. President Correa 
has declared his support for an ambitious plan to connect the Brazilian 
Amazonian city of Manaus to the Ecuadorian port at Manta creating a 
transcontinental transportation corridor from the Atlantic to the Pacific.

President Hugo Chavez has revived his plan for a huge 9,000 kilometre gas 
pipeline from Venezuela, across the Amazon and down into Argentina. Chavez wants
this project for fulfilling his vision of South American integration to be 
partly financed by the Bank. Environmentalists are harshly critical of the 
project¹s consequences for deforestation, not just by the pipeline itself but 
also because building access roads would open up huge tracts of the Amazon 
rainforest for settlement, dislodging some of the 22 indigenous peoples who live
there. They cite the danger to the region¹s biodiversity and the contamination 
that will result from the need to traverse numerous rivers and streams.

Critics are also concerned that the immense cost of the project ­ estimated at 
around US$25 billion ­ would add to external debt and potentially eat up a large
portion of the Bank of the South¹s resources. They point out that it would be 
cheaper to ship gas from Venezuela to Argentina by Liquefied Natural Gas 

A Civil Society Vision

In an open letter to the Presidents of Argentina, Bolivia, Brazil, Chile, 
Colombia, Ecuador, Paraguay, Uruguay and Venezuela hundreds of civil society 
organizations from throughout the Americas and beyond have called for a Bank 
that overcomes the negative experiences of the past that led to ever greater 
foreign debt, loss of sovereignty, deregulation and privatization of basic 
services and acquiescence with the undemocratic practices of the World Bank and 
the IMF.

The letter strongly opposes the conditions imposed by these International 
Financial Institutions (IFIs) that have led to capital flight and 
deindustrialization. Moreover, the IFIs have subordinated Southern countries to 
Northern interests by imposing an economic model based on exports of minerals 
and agricultural products. In addition, they have exacerbated social 
inequalities and ecological damage.

Instead the hemisphere¹s social organizations want The Bank of the South

1. to promote a new development framework that values peoples¹ sovereignty over 
their territories; self-determination over economic, social and environmental 
policies; solidarity; sustainability and ecological justice.

2. to be guided by concrete goals including dignified employment; guaranteed 
food, health care and housing; universal public education; redistribution of 
wealth to overcome inequalities including of gender and ethnicity; and the 
reduction of greenhouse gas emissions.

3. to be an integral part of a new Latin American and Caribbean financial 
architecture that will include a new South Fund that will serve as a continental
Central Bank capable of facilitating a payments system, promoting macroeconomic 
stability, reducing structural asymmetries and eventually establishing a common 
monetary system enabling countries to trade in their own currencies and working 
towards establishing a regional currency.

4. to facilitate the recuperation of the historical, social and ecological debts
owed by the peoples of the North to the peoples of the South who are actually 
the creditors of these debts.

5. to allow for the participation of citizens¹ organizations and social 
movements in decisions on its structure and on its operations monitoring how its
funds are allocated.

6. to respect the principle of ³one country one vote² at all levels of decision 

7. to be funded by contributions in proportion to the capacity of each member 
country with funds coming from foreign exchange reserves, loans from member 
countries, common international taxes (for example a Currency Transaction Tax) 
and from donations.

8. to have a transparent management, its books open to public inspection and its
loans constantly audited.

9. to have a high quality of administration without any kind of immunity for its
functionaries (as occurs with other International Financial Institutions).

10. to promote a genuinely co-operative regional integration based on the 
principles of subsidiarity, proportionality and complementarity; financing 
public projects; assisting self-reliant development and equitable trade among 
family farmers, co-operatives, indigenous communities, women¹s organizations, 
and groups of fishers or workers.

11. to give to projects for food sovereignty, energy self-reliance, technologies
appropriate to endogenous and sustainable development, including free software; 
generic medicine production; the recuperation of ancestral knowledge; the 
promotion of environmental justice; and the strengthening of public services.

12. to promote alternatives to the economic model promoted by existing 
international financial institutions based on the building of mega-projects that
destroy the environment and biodiversity.

Will the Bank of the South live up to these expectations? Much will depend on 
the political negotiations among its sponsors and their responsiveness to 
popular pressure for a progressive model in solidarity with the aspirations of 
social movement.

Even if the initial structure of the Bank does not fulfill all the movement¹s 
expectations, it is sure to grow and evolve over the years just as the World 
Bank and the IMF have changed drastically since they were first planned at the 
1944 Bretton Woods conference.

We in Canada and other Northern countries are not mere bystanders. At an October
civil society meeting in Oslo, Norway, Minister Patiño said ³There has been a 
lot of pressure from the North, from the international financial institutions, 
for us not to create it. The IMF has called it Œadventurous¹, ŒChavez creation¹ 
and said it is technically impossible.² Patiño called on Northern civil society 
groups to press their governments and the IFIs not to boycott the Bank of the 

While there has been little overt public opposition from the IFIs, an insider at
the Inter-American Development Bank told the Financial Times: ³With 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.² With initial capitalization worth US$7 billion,
the Bank of the South would outweigh the IDB¹s $4 billion of paid-in capital.

It is up to us to make clear that far from being a threat, the emergence of the 
Bank of the South is an opportunity for a much-needed new type of lenders.

A Favourable Conjuncture for New Initiatives

The launch of the Bank of the South follows an unprecedented crisis of 
legitimacy that has weakened the power and influence of both the IMF and the 
World Bank.

In 2005 both Brazil and Argentina paid off all their debts to the IMF and 
declared that they would not seek any loans from it due to the unacceptable 
conditions attached to its lending. Their precedents were quickly followed by 
other countries.

In March of 2006 President Evo Morales of Bolivia announced that he would not 
enter into any agreements with the IMF. Two months later Serbia paid off its 
debts to the IMF and Indonesia declared that it would pay back all it owed to 
the Fund within two years. Then in November Uruguay said it too would pay off 
the IMF and in December the Philippines said it would follow suit.

Early in 2007 Russia and Thailand said they would pay off the Fund. Then in 
March Angola terminated all consultations with the IMF. Ecuador paid off its 
debts that same month. As a result of this string of repayments the IMF is 
undergoing its own financial crisis. Its portfolio of loans fell from US$70 
billion in 2003 to a bit more than US$20 billion in 2006. The Fund faces a net 
loss of about US$100 million in 2007 due to a lack of clients. Nearly all of the
IMF¹s US$17 billion in outstanding loans are owed by just two countries ­ Turkey
and Pakistan.

In April of 2007 President Chavez announced that Venezuela would leave both the 
IMF and the World Bank. That same month Bolivia, Nicaragua and Venezuela also 
said they would withdraw from the International Centre for the Settlement of 
Investment Disputes, an arm of the World Bank that had been used by 
transnational corporations to resist Bolivia¹s efforts to take control over its 
own water distribution.

Then President Rafael Correa expelled the World Bank¹s representative from 
Ecuador. When Correa was Economy Minister back in 2005 the World Bank had 
refused to proceed with a promised loan worth US$100 million for Ecuador in 
apparent retaliation against a decision by Correa to direct earnings from 
petroleum exports towards meeting social needs instead of debt payments.

The World Bank is undergoing a crisis of legitimacy that goes far beyond the 
scandal over the nepotism shown by former President Paul Wofowitz towards his 
girlfriend. President Bush has appointed another neo-conservative, Robert 
Zoellick, to replace Wolfowitz. Zoellick is a big fan of Structural Adjustment 
Programs (SAPs). When he was US Trade Representative, Zoellick promoted free 
trade agreements as a way of making neo-liberal SAPs permanent.

Prior to these Bush appointees, the World Bank¹s reputation was already severely
undermined during the tenure of James Wolfensohn when it failed to act on the 
recommendations of three broad consultations in which it actively participated:

  € The Structural Adjustment Participatory Review Initiative (SAPRI)
  € The World Commission on Dams; and
  € The Extractive Industries Review.

Even though each of these bodies made credible proposals for reform of World 
Bank policies, no significant changes came about.

A key development that has made the emergence of new institutions like the Bank 
of the South possible is the build up of huge amounts of foreign exchange 
reserves in the coffers of Southern countries¹ central banks. According to World
Bank data, at the end of 2006 Southern countries held reserves equivalent to 
US$2,687 billion which is larger than their combined foreign debts. Most of 
these reserves are deposited in Northern financial institutions or used to buy 
securities such as US Treasury bonds. While the largest part of these reserves 
are held by Asian countries, particularly China, the holdings of South American 
countries are not insignificant reaching US$320 billion.

For further information or to be removed from this list please contact John 
Dillon, Program Coordinator, Global Economic Justice at KAIROS 

³We are living in an important time, full of exciting new challenges such as the
emergence of the Bank of the South.²

With these words Rev. Israel Batista, General Secretary of the Latin American 
Council of Churches (CLAI), explains why the CLAI is working with social 
movements such as Jubilee South and Ecological Action to influence plans for a 
new kind of bank.

The Latin American Council of Churches, Jubilee South and Ecological Action are 
all KAIROS partners dedicated to freeing Southern peoples from the burdens of 
financial debt and creating new, more just and sustainable alternatives.

Help KAIROS work with these partners to promote these alternatives.
Click here to donate online now or go to

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