South America: Banking On the Neighbours
By Anuradha Mittal
OAKLAND, Jun 6 2007 (IPS) - Resentment against the international financial institutions is growing across the world, laying a foundation for an alternative economic vision in South America. The challenge is for it to be a true alternative, writes Anuradha Mittal, executive director of the California based Oakland Institute. This has laid the foundation for an alternative economic vision for the region with President Chávez’s idea of creating an alternative fund – Banco del Sur or the Bank of the South – to free the region from the IFIs coming to fruition. With Argentina, Bolivia, and Ecuador already on board, Brazil too joined the Bank in April – significantly increasing the available resources. The goal of this Latin American controlled multilateral lender is to fund social and economic development in the region without the political conditions that come with the IMF loans. The intention of this alternative institution is to adhere to local needs than to dictates of the Western nations and Latin America appears to have taken a turn in an overwhelmingly positive economic direction. However, while breaking free from the international financial institutions is essential for formulating national policies that would address the needs of the overall population, much deeper structural changes are required some questions remain to ensure the fulfillment of aspirations behind this institution.
The scandal that ended with World Bank president Paul Wolfowitz’s resignation is just the tip of the iceberg. It does not end the larger crisis of credibility faced by the International Financial Institutions (IFIs), with discontent brewing all over the world most prominent being in Latin America.
At the end of April, Venezuelan president Hugo Chávez officially pulled out of the World Bank and the International Monetary Fund (IMF). President Chávez said: “We will no longer have to go to Washington, nor to the IMF, nor to the World Bank, not to anyone.” It was sentiment echoed by President Rafael Correa of Ecuador who said, “We will not stand for extortion by this international bureaucracy,” before kicking out the World Bank’s representative from his country. This was a response to the Bank withholding a previously approved $100 million loan in 2005, to forcefully redirect oil revenues for debt repayment instead of social spending. Argentina has openly defied the IMF by adopting a number of macro-economic policies opposed by the institution, which allowed its remarkable recovery from the financial crisis the country was mired in.
The IMF is feeling the squeeze, with its lending in the region falling to $50 million, or less than one percent of its global portfolio, compared with 80% in 2005. Instead, Venezuela, who just offered $500 million of financial cooperation to Ecuador and helped Argentina replenish its reserves after it repaid $9.5 billion of debt to the IMF in late 2005, is becoming what some call the “lender of the last resort”.