____________________ 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. ____________________ Friends, 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. rkm -------------------------------------------------------- Original source URL: http://www.kairoscanada.org/e/economic/debt/E-bulletin_debt_Nov07.asp 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 written. 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 loans].² 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 support. 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 tankers. 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 making. 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 South. 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 www.kairoscanada.org/e/support/donate.asp Page URL: www.kairoscanada.org/e/economic/debt/E-bulletin_debt_Nov07.asp KAIROS Canadian Ecumenical Justice Initiatives 129 St. Clair Ave. West € Toronto, ON € Canada € M4V 1N5 Tel: 416-463-5312 | Toll-free: 1-877-403-8933| Fax: 416-463-5569 E-mail: info @ kairoscanada.org -- -------------------------------------------------------- Posting archives: http://cyberjournal.org/show_archives/?lists=newslog Escaping the Matrix website: http://escapingthematrix.org/ cyberjournal website: http://cyberjournal.org How We the People can change the world: http://governourselves.blogspot.com/ Community Democracy Framework: http://cyberjournal.org/DemocracyFramework.html Moderator: •••@••.••• (comments welcome)
