"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."
That was Lula da Silva, the president of
But the reality is that Chavez (most flamboyantly) and his Andean colleagues are just saying out loud what everyone else believes. So official Washington, and most of the media, has been somewhat surprised by the rapid consolidation of a new "Bank of the South" proposed by Chavez just last year as an alternative to the Washington-dominated International Monetary Fund (IMF), World Bank and Inter-American Development Bank.
The media has been reluctant to take the new bank seriously, and some continue to call the institution, pejoratively, "Chavez’s bank." But it has been joined by
The bank, which will be officially launched on Dec. 5, will make development loans to its member countries, with a focus on regional economic integration. This is important because these countries want to increase their trade, energy and commercial relationships for both economic and political reasons, just as the European Union has done over the last 50 years. The Inter-American Development Bank, which focuses entirely on
Unlike the Washington-based international financial institutions, the new bank will not impose economic policy conditions on its borrowers. Such conditions are widely believed to have been a major cause of
The bank is expected to start with capital of about $7 billion, with all member countries contributing. It will be governed primarily on a one-country, one-vote basis.
How ironic is it that such an institution would be called "Chavez’s bank," while nobody calls the IMF or the World Bank "Bush’s bank?" The IMF and World Bank have 185 member countries but the
Politically, the new bank is another Declaration of Independence for South America, which as a result of epoch-making changes in the last few years is now more independent of the
The need for alternative regional economic institutions, for both development lending and finance, is becoming increasingly accepted by most of the world. Ten years ago, in the wake of the Asian financial crisis, there was a whole series of proposals, even books by prominent economists, on how to reform "the international financial architecture." The current crisis triggered by the collapse of subprime-mortgage-backed securities may provoke another such discussion. But the fact is, a full decade after the Asian crisis, the rich country governments have made no significant movement toward reform. New leaders of the IMF and the World Bank were appointed in the last few months, and by tradition, these have to be a European and an American.
That tradition was honored, despite calls from a majority of the member countries and scores of NGOs and think tanks to open up the search process. For the World Bank, the Bush administration even managed to add insult to injury by appointing Robert Zoellick, a neoconservative in the mold of his intensely disliked predecessor, Paul Wolfowitz, to run the beleaguered institution. Without even the smallest symbolic changes, it is hard to imagine more substantive changes, e.g., in the voting structure, taking place in the foreseeable future.
With reform at the top blocked, positive changes will have to come at the regional, and of course, most importantly, at the national level. Latin Americans are doing their part, and the world will surely thank them for it.
Not everyone is happy to see the old order challenged. An insider at the Inter-American Development Bank told the Financial Times: "With the money of
Apparently, these institutions that preach the virtues of international competition are not so enthusiastic when it breaks into their own monopolistic market.
Mark Weisbrot is Co-Director of the Center for Economic and Policy Research, in