On May 3rd, Finance Ministers from the six countries in favour of establishing the Bank of the South met in Quito to debate what responsibilities this institution should have.  The previous week, Ricardo Patiño, Finance Minister of Ecuador, discussed Ecuador\'s proposals for the Bank during the international seminar "The Illegitimacy of External Debt" which took place in Quito from the 25^th to 27^th of April.

Oscar Ugarteche, President of ALAI and member of the Latin American Debt, Development and Rights Network from Peru and Pablo Dávalos from Ecuador, member of ATTAC, the Association for the Taxation of Financial Transactions and Citizen Action, made presentations alongside Minister Patiño at the seminar.

Patiño, who is also a member of the Jubilee South campaign, discussed the rationale and aims for the Bank of the South. He also outlined the differences in ideas between the countries promoting the initiative, which include Venezuela, Ecuador, Argentina, Bolivia, Brazil and Paraguay.

Patiño indicated that "The idea emerged from international civil society forums and then matured when progressive governments in Argentina, Bolivia, Venezuela and Ecuador decided to collectively consider how to make the Bank of the South a reality primarily utilizing public savings from Southern countries and creating the necessary financial infrastructure." He added that these initial conversations also aroused the attention of the Paraguayan and Brazilian administrations which have also shown interest in the establishment of the Bank of the South. However, some countries would like the process to go faster than others.

Technical committees for the project had met four times within the previous month, demonstrating the political will of these six countries to bring about the Bank of the South. The May meeting of the Finance Ministers in Quito and the presence at this gathering of the President of Ecuador, Rafael Correa, is another indicator of the eagerness to realize this initiative. The Bank of the South would begin with an initial capital of 7 billion dollars, $600 million of which would be contributed by Venezuela.

What is the purpose of the Bank of the South?  Minister Patiño indicated that the motivation is fundamentally financial and economic. The six above-mentioned countries have combined international reserves of $164 billion deposited in banks within the United States and Europe. However, he added that, paradoxically, "Our countries have all these savings gaining interest at very low interest rates, while concurrently they seek out financial assistance from the World Bank (WB), the International Monetary Fund (IMF) and the Inter-American Development Bank (IADB).  Our countries have an immense amount of savings that could be used to address our financial problems without being subject to the conditions"⁽¹⁾ that these institutions impose.

"If we consider what these financial institutions paid out to the region in 2005, the IADB spent $4,898 million, the WB $5,087 million and the Andean Development Corporation (CAF) $1,337 million. This totals $11,322 million, while together we have $164 billion in savings. We have in reserves ten times the credit that we received in 2005, which comes along with all sorts of conditions," said Patiño.

The Ecuadorian official also indicated that the governments of Chile, Colombia and Peru have expressed complete disagreement with the Bank of the South saying that they are very satisfied with the CAF, the IADB and the WB and that their needs “are already being served.” With regard to the conceptual differences between the countries in favour of the Bank of the South, Patiño emphasized that opinions diverge with regard to how the bank should be operated (whether countries or shareholders would be able to vote, although they have reached consensus that no single country should be able to dominate), as well as with regard to what relationship and role the Bank of the South should have with the Latin American Reserve Fund (FLAR) and CAF. Additional issues include whether only countries from the region may be involved or if those from other continents may join, and whether international financial institutions should take part as shareholders, although they would not be allowed to vote.

Peruvian economist Oscar Ugarteche proposed that the Bank of the South be set up within South America (along with the participation of Nicaragua) and in this way provide financial representation to the South American Union (UNASUR). In a global context, this kind of integration would open up the possibility of negotiating as a block. He also proposed that the bank should work toward a common currency as a means to escape the influence of the dollar and the conditions imposed by the World Bank and the IMF. The Bank of the South should not repeat the mistakes of the World Bank which behaves as a political party acting in the interests of the United States.

The Ecuadorian economist, Pablo Dávalos, expressed that the establishment of the Bank of the South should not be seen from a financial perspective, but rather from a geopolitical and ideological perspective. This means reconsidering the aspects of financing in the interests of development, the possibilities for integration based upon criteria of complementation and subsidies, and the development of an independent line of thought that marks clear differences from the neoliberal theoretical framework.

In the opinion of Dávalos, the Bank of the South should not compete with the IADB, the World Bank or the CAF with regard to financing development projects nor should it support projects such as the Initiative for the Integration of Regional Infrastructure in South America (IIRSA) which primarily benefits big capital and leads to further privatization of land. The bank should develop new proposals in order to "protect countries from the financial globalisation and political interference that comes about as a result of the conditions set by the IADB, the CAF, the World Bank and the IMF whether implicitly - as an invisible condition - or explicitly through the no-objection mechanism."

In conclusion, he indicated that the Bank of the South could open lines of credit to cover the accounts of pending IADB and World Bank projects in the region in order to stimulate production and research and development, as well as to remedy cash flow problems in various countries.

Note

⁽¹⁾ An example of conditions imposed by the World Bank (WB) occurred in March 2005 when this institution decided not to deliver a loan of $100 million to Ecuador. This took place after Congress approved reforms to the Production and Social Investment and Public Debt Stabilization Fund (FEIREP) which was originally designed to earmark oil income surpluses for external debt payments. The reforms developed by then Finance Minister Rafael Correa, now President of Ecuador, would allow oil resources to be channelled toward social investment. As a result, on April 26^th, President Correa declared Mr. Eduardo Somensantto, the representative for the World Bank in Ecuador, “persona non grata.”

(Translation: ALAI, from the article originally published in Spanish on April 26 2007).