Southern Bank: A road towards a new financial architecture

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The neo-liberal model shows clear signs of erosion in Latin America. This has been expressed in voter support for candidates who have been critical of neo-liberalism. Moreover, some governments need to keep not only a formal but also a real distance from the IMF, but does not imply that they are launching a process to revert neo-liberal policies. In this context, the creation of the Southern Bank should not be considered from a financial point of view but rather from a geopolitical and epistemological perspective, implying: the reformulation of development finance contents.

The neo-liberal model shows clear signs of erosion in Latin America. This has been expressed in voter support for candidates who have been critical of neo-liberalism, or who, anyhow, have built their political and electoral discourse on the rejection of and criticism to neo-liberal adjustment and stabilisation impositions, such as in the cases of Ollanta Humala in Peru, López Obrador in Mexico, or the governments of Chávez in Venezuela, Kirchner in Argentina, Vázquez in Uruguay, Morales in Bolivia, Lula in Brazil, and more recently, Correa in Ecuador and Ortega in Nicaragua.

Moreover, some governments need to keep not only a formal but also a real distance from the IMF, as it was shown through decisions made by Argentina and Brazil to fulfil their financial commitments to this multilateral institution in advance. Therefore, there exists a Latin American context in which – unlike previous decades – no government in the region would publicly ascribe to IMF recommendations nor base their public policies on IMF adjustment programmes.

Nevertheless, the persistence and presence of structural adjustment and reform is quite strong in the region. The distance put by some governments between themselves and the IMF does not imply that they are launching a process to revert neo-liberal policies. The structural reform promoted by the World Bank and IDB, which placed special emphasis on bringing about strong institutional changes, has deeply modified the institutional framework and has dismantled state regulation capacities, while reinforcing financial groups and monopolies, and multiplying the existence of clientele networks and band-aid practices. These neo-liberal structural reforms have been so strong that they have even hindered the creation of development alternatives in the region.

Invisible conditionality and persistence of neo-liberal adjustment

Indeed, there is a void in which the criticism to the neo-liberal model runs the risk of being a rhetoric aimed at political legitimation before voter discontent with structural adjustment and reform, rather than a proposal implying real changes in the relationship among capital, labour, State and market.

This is why the IMF erosion in the region is not correlative to the erosion that may be suffered by the IDB or the Andean Development Corporation (CAF); and that, in the long run, the dynamics of adjustment and stabilisation may still persist through something that could be known as “invisible conditionality” (or implicit conditionality), which has secured the presence of neo-liberalism in the region.

Invisible conditionality is in fact the resource through which the IDB, CAF or the World Bank itself, manage to create development credits, while their disbursement remains subject to the country’s compliance with goals previously set by the IMF as regards fiscal discipline (expressed in terms of fiscal surplus), trade liberalisation, capital account opening and economic deregulation. Thus, the IMF continues to be present in the region, under the disguise of financing for development from multilateral banking.

In view of this, one of the most important initiatives among those that have been recently launched by governments that are critical of neo-liberalism, is the one proposing the creation of the Southern Bank as a sub-regional bank that would change power relations within multilateral development banking, and would reproblematise development within a context in which the liberal ideology has blocked the way to the major goals of humankind, particularly to critical and alternative discourses and proposals.

Indeed, the creation of the Southern Bank would be fully drawn into debate over the need for a new global financial architecture and the search for new modalities of development financing within a context in which the global casino economy has generated powerful institutional frameworks to impose its decisions not only on certain countries but also on the whole global economy, as it is evidenced by the macroeconomic supremacy that intends to be awarded to country-risk ratings of investment banks.

That explains why the creation of the Southern Bank should be regarded from a political and epistemological perspective rather than a financial or economic one. A political perspective should be adopted since the creation of the Southern Bank implies a dispute at the core of the world-system in neo-liberal times: financing and speculation as gravitational centres of the global economy, which define new power relationships and whose expressions represent the strategies of dominion, imposition and colonialism characteristic of multilateral development banking.

The \"no-objection\" mechanism and colonial control by multilateral banking

In fact, behind development project financing carried out by multilateral banks, i.e. the IDB, CAF and World Bank, there are colonialist practices that use the idea of development and economic growth as figureheads to emphasize and strengthen both the conditions of that which the ECLAC called as dependence in the 1970s as well as the control, assimilation or breaking down of social resistance to neo-liberalism.

It should be remembered that multilateral banks have created a control mechanism that is applied to all development projects in the region, which is known as the “no-objection” mechanism. This mechanism allows absolute control over resources, methodologies, time-frames, mechanisms, technical staff and the answers provided by societies upon the development projects of multilateral banks.

The “no-objection” mechanism is part of a power exercise based on certain goals that are set according to the dynamics of the world-system and the struggle for world hegemony, rather than on the characteristics of a certain development model. Consequently, following the financing of a development project by this multilateral banking, both the society and the State end up being further dismantled and more vulnerable, and the social milieu appears to have become more fragmented and prone to manipulation by clientele and band-aid practices. The true role of multilateral banking is not so much that of development financing but rather the exercise of colonial power. This explains why its dynamics rely more on politics than on economics or finance.

However, there is another dynamic, which is as important as those exercises aimed at political imposition, which result from the “no-objection” mechanism and refer to the episteme on which development financing is built on. It is by virtue of this that multilateral banks have worked hard to reconceptualise the theoretical frameworks from which reality is understood and, so far, they have won the epistemological battle. Maybe the time of defeat for critical thinking is evidenced by ECLAC’s adhesion to the epistemic contents of neoclassical discourse.

Multilateral banking and the epistemology of power

Research institutes linked to multilateral banking and even surveys funded by multilateral banks themselves, have firmly positioned concepts that are useful for this new power relations, which has resulted in a one-way debate, under only one theoretical framework: neo-liberalism and its economic expression within the monetary and neoclassical thinking.

Thus, for instance, we have the theoretical work on poverty carried out by the World Bank, and the epistemological dispute over this phenomenon, in which the Bank has managed to turn poverty into an economic and individual phenomenon thanks to its “one dollar a day” notion. As a result, that rich discussion where poverty was regarded as a social and political phenomenon has been dissolved, being now framed within the coordinates of the market and the homo economicus.

The broad panoply of concepts produced by multilateral banks has been adopted by social sciences and economics without even including a process of critical re-elaboration. For example, the concepts of competitiveness, opening up, ethnic development, poverty, human capital, social capital, local development, decentralisation and autonomy, local powers, production chains, citizen participation, labour flexibilisation, social dialogue, regionalisation and communities, sustainable development, governance, gender and poverty, citizenship, etc., form part of the discussion both of policy-makers and social sciences themselves.

These aspects should be considered as relevant when it comes to discuss the setting up of a Southern Bank, since this does not merely imply the creation of a financial institution to grant development finance loans, but a strategy aimed at recovering the concepts of sovereignty and regulation and at establishing a new social contract that would overcome the neo-liberal concept of “social market economy”.

The Southern Bank: challenges and opportunities

On account of the above, the creation of the Southern Bank should not be considered from a financial point of view but rather from a geopolitical and epistemological perspective, implying: the reformulation of development finance contents; the possibilities for integration under the criteria of complementarity and subsidiarity, and the elaboration of an independent thinking that should remain clearly detached from the theoretical frameworks of neo-liberalism.

In this way, the trap behind the creation of a Southern Bank would be to turn it into an instrument aimed at financing development projects, which would start to compete in this area with the IDB, World Bank, CAF, or would fulfil the privatisation tasks projected by IIRSA, thus complementing multilateral banking.

The idea to think, propose and set up a Southern Bank should be aimed, in fact, at a reformulation of the global financial architecture, with a view to protecting countries from the casino gambling practices of financial speculators, getting rid of investment arbitration decisions based on country risk ratings, and allowing an exchange and integration based on new ideas regarding growth with equity, interculturality and plurinationality.

That is to say, the Southern Bank should take part in those new proposals aimed at protecting countries from the financial globalisation and political meddling implied in the conditionality attached by the IDB, CAF, World Bank and IMF, either implicitly as invisible conditionality, or explicitly through the no-objection mechanism.

For such purpose, the Southern Bank should be democratically made up; a country representative to the Board of Directors should hold a vote and such vote should have to be previously agreed with social organisations and production sectors, that is to say, the Southern Bank Board should always have an open, democratic, transparent, plural and consensus agenda.

In the second place, the Southern Bank has the huge opportunity to create a regional unit of account, i.e. the Latin American peso, which could adopt a crawling peg against the euro. This could be a way out for fixed exchange rates with the US dollar, particularly in the cases of Ecuador and El Salvador; and it may allow a transition from the dollar area – taking into account that nearly all regional currencies are pegged to the dollar in one way or another – towards the rescue of monetary sovereignty within the region.

Southern Bank credits would be granted in accordance with this common unit, and shall be issued in euros, which is a world currency and has the capacity to maintain its reserve status at least until the region manages to implement a monetary integration strategy and finally consolidates a common Latin American currency. However, at no time should the Southern Bank thinks about maintaining its units of account in US dollars, except as clearing house.

A key aspect of the Southern Bank lies in its relationship with multilateral banks; a relationship that could be neither of subordination nor of dependence. Multilateral banks, in fact, reflect a situation of colonialism and imposition. Behind each loan granted by multilateral banks there is a series of conditions that become political instruments of dominion, blackmail, and even, as in the case of the World Bank, of destruction of social and popular organisations.

In this sense, the Southern Bank can open several lines of credit as follows:

1) a fund transfer to cover the outstanding balances on IDB and World Bank projects still pending in the region, particularly for the construction of local infrastructure, which have implied the adoption of onerous conditionalities, either explicit or implicit, such as for example, the setting up of trust funds for multilateral debt payment, using resources obtained from fees on public services which are financed by these multilateral banks; or the public indebtedness with the IDB or World Bank, provided that once the works are concluded they will be transferred to the private sector. This transfer fund will allow to complete ongoing projects that have been or are being financed with IDB and World Bank resources, in order to alleviate the burden of conditionality, undermine the political power of these multilateral institutions and rescue national sovereignty from the countries’ own indebtedness, above all in the areas of health and education which are sensitive issues and have been considered as priorities by multilateral banks; this line of credits should allow for the recovery of sovereignty with regards to development finance;

2) a line of credits for the reactivation of production, particularly for those sectors that were worst hit by stabilisation and macroeconomic adjustment policies, and that represented the bulk of production and services of domestic economies; the idea is that the Southern Bank will contribute to reinvigorate the savings-local investment cycle with a view to reestablishing a domestic production sector capable of forging trade integration alliances and strategies within a common economic area;

3) lines of credit for R&D, that is, research and development, being it possible to think of a bank research project with universities in the region. This can bring about the need to coordinate and integrate knowledge and technical production within the region, in a context in which technology networks and the production of scientific knowledge are controlled by the North. These lines of credits could be framed within that known as investment risk although it implies the opening up of new production areas as well as the creation of added value.

4) an emergency line to solve liquidity problems caused by current account deficit of the balance of payments, and in order to avoid competing with the Latin American Reserve Fund (FLAR), it would be possible to think of syndicated lending mechanisms between the Southern Bank and FLAR, so that such an important institution as FLAR is maintained within the savings control mechanisms of the region. These loans to the balance of payments account would definitely left the region outside the area of IMF influence.

This implies that collaterals and guarantees should be different for each one of the lines of credit. Nevertheless, that which should radically differentiate the Southern Bank from multilateral banking is the existence of conditionality expressed by means of the “no-objection” mechanism. In this sense, the Southern Bank should offer guarantees for each one of its lines of credit, but in no case should it attach economic policy conditionalities to member countries. Besides, collaterals should be radically separated from any attempted imposition via conditionalities or “no-objection” mechanisms.

The resources that may be incorporated into the Southern Bank are: government savings expressed in international reserves, government pension funds, export surplus resulting from outstanding profits in commodity prices, and bank membership quotas to be furnished by member countries.

The Southern Bank could also establish partnerships with countries from other regions in order to absorb short and medium-term liquidity through financial instruments such as equity securities. For such purpose, strategic partnerships may be established with other financial institutions and central banks of friendly countries.

The Southern Bank should propose a reflection about the economic policy of the region, aiming at recovering the epistemological sovereignty which has been so far monopolised by the technocratic discourse of multilateral banks. The concepts operating within the notions of development, such as growth, income, poverty, equity, etc., are built around the need for theoretical legitimation of the centre rather than around the needs for understanding the problems of the periphery.

In this sense, the Southern Bank opens possibilities for challenging neo-liberalism in previously forbidden fields: on the one side, development financing with due respect for the sovereignty and integration of peoples, and on the other hand, the theoretical thinking on an equitable, intercultural, democratic, sovereign and plurinational development.

(Traducción: Monitor de IFIs en América Latina, Instituto del Tercer Mundo - ITeM)
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