Interview of Eric Toussaint published in the Belgian daily Le Soir on 12-13 May 2007

The Bank of the South Becoming Reality

20 May 2007 by Véronique Kiesel (quotidien Le Soir)

A Revolutionary Project has been launched in South America: the “Bank of the South”; an alternative to the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

On May 3 in Quito ministers for economy in six South American countries - Argentina, Venezuela, Bolivia, Ecuador, Paraguay, and Brazil - agreed on setting up a Bank of the South. Eric Toussaint, President of CADTM Belgium (Committee for the Abolition of Third World Debt), is one of Ecuador’s advisors on this project.

Why a Bank of the South?

President Chavez had mentioned this possible development in early 2006. He wanted to set up financial institutions that would provide an alternative to the World Bank (WB) and the International Monetary Funds (IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
) for all countries of the South. He had discussed this with Indian and African heads of states. The project was eventually refocused on South America, with the possibility of extending it later to other countries. Brazil joined more recently, and it is of course important that this economic heavy-weight should be part of it.
Those six countries want to gain their independence towards from the IMF and the WB, but also from the Inter-American Development Bank (IDB) which is also run by countries of the North. Venezuela is the first country in the area to cut all ties with the IMF and the WB on April 30, 2007. Argentina and Brazil, who wanted to pay back the totality of their debt, have since distanced themselves from these institutions. Ecuador just dismissed the WB representative in Ecuador, and Bolivia and Nicaragua made it known that they no longer recognize the authority of the International Centre for Settlement of Investment Disputes (ICSID ICSID The International Centre for the Settlement of Investment Disputes (ICSID) is a World Bank arbitration mechanism for resolving disputes that may arise between States and foreign investors. It was established in 1965 when the Washington Convention of that year entered into force.

Contrary to some opinions defending the fact that ICSID mechanism has been widely accepted in the American hemisphere, many States in the region continue to keep their distance: Canada, Cuba, Mexico and Dominican Republic are not party to the Convention. In the case of Mexico, this attitude is rated by specialists as “wise and rebellious”. We must also recall that the following Caribbean States remain outside the ICSID jurisdiction: Antigua and Barbuda, Belize, Dominica (Commonwealth of) and Suriname. In South America, Brazil has not ratified (or even signed) the ICSID convention and the 6th most powerful world economy seems to show no special interest in doing so.

In the case of Costa Rica, access to ICSID system is extremely interesting: Costa Rica signed the ICSID Convention in September, 1981 but didn’t ratify it until 12 years later, in 1993. We read in a memorandum of GCAB (Global Committee of Argentina Bondholders) that Costa Rica`s decision resulted from direct United States pressure due to the Santa Elena expropriation case, which was decided in 2000 :
"In the 1990s, following the expropriation of property owned allegedly by an American investor, Costa Rica refused to submit the dispute to ICSID arbitration. The American investor invoked the Helms Amendment and delayed a $ 175 million loan from the Inter-American Development Bank to Costa Rica. Costa Rica consented to the ICSID proceedings, and the American investor ultimately recovered U.S. $ 16 million”.
), which depends on the WB. Beyond this convergence there is a shared strong will towards clearly left-wing regional economic integration.

What is going to happen ?

A ministerial meeting is to take place in Rio on May 22, before a summit meeting of the various presidents on June 22 or 26, in the course of which the foundation of the Bank of the South should be officially announced. Its final statutes should be ready by the end of 2007. Uruguay has not joined yet because it is in conflict with Argentina over a cellulose plant situated on the border. But Argentina is set on settling this dispute so that Uruguay can join. Chile and Peru could soon join the project too.
There is further a wish to set up a monetary fund for stabilisation. There is already a Latin-American reserve funds that could be used as a starting point. If this is not possible, a new fund will be set up aiming at countering speculative attacks and other external shocks.
Here too the aim is to be able to do without the IMF, but with a further objective, namely to set up a monetary unit that might become a common currency, that is exactly what the European ECU was before the euro was set up.
Trade between South American countries currently occur in US dollars. But Argentina and Brazil have now decided that their mutual transactions amounting to some 15 billion dollars a year, would be settled in Argentinian pesos and in Brazilian reals.

What will the major differences with the WB and IMF be?

The Bank of the South will have the mandate to apply international human rights treaties, including cultural and social rights, whereas the World Bank says that its business is not concerned by these treaties. Furthermore, the Bank of the South should, if the heads of State agree, be founded on the principle of one country, one vote. At present, at the IMF and elsewhere, the weight of the country’s vote depends on its initial investment, which is not democratic. What’s more, the bank’s managers and employees will be answerable to the courts, unlike those of the WB who are protected by total immunity which is only lifted if the Bank so decides. They will also pay income tax, which is not the case for the WB staff. The archives of the new institution will be available to the public, whereas this too is not true for the IMF and the WB.
Finally, the bank will not borrow on the capital markets. Its capital will be provided by the member states, who will place part of their international reserves there, but it will also be provided by taxes of the Tobin-tax type.

However, there are major economic differences between Brazil and Bolivia for example

When Greece, Spain and Portugal joined the EU, integration funds were made available for them to reach a comparable level of economic development. Similarly Bolivia, which so far has been seen as a low cost provider of raw material and energy, will have to be helped to acquire a diversified industrial potential, comparable to Venezuela or Brazil. The objective is to bring the various economies of the member countries to the same higher level, and unlike in the EU situation, the South American regional integration must from the start focus on social justice.


Translated by Christine Pagnoulle and Elizabeth Anne



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