Committee for the Abolition of Illegitimate Debt

Interviewed by Politis (French weekly paper)
September 2008.

Q.1. The implementation of the Bank of the South, which should have been effective 60 days after its foundation by seven South American countries last December, is running late. What is the current situation ? Are there pressures aiming at jeopardising the project?

You are right: 9 months have now elapsed since the heads of states of Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay and Venezuela signed the founding act in Buenos Aires on 9 December 2007. Divergences between governments account for the delay in the implementation of this new institution, which is intended to strengthen Latin-American integration. It is currently agreed that the headquarters of the Bank will be in Caracas, that voting will be on the basis of one country - one vote (while at the World Bank World Bank
WB 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.

and the 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.

http://imf.org votes are proportional to the economic and political weight of participating countries), that the launch capital will amount to USD 7 billion (which could be increased to 10 billion if more countries join).
This being said, several key elements are controversial. For instance, Brazil and Argentina, the two main economic powers in the area, would like to qualify the ‘one country-one vote’ principle by applying it only during the annual meetings of the Bank’s Board.

In fact Brazil does not really feel the need of another multilateral bank for Latin America since it has a major public development bank (BNDES) over which it has complete control and whose portfolio exceeds those of the World Bank, the Inter-American Development Bank and the future Bank of the South. BNDES already finances many projects throughout Latin America and beyond, on condition that the receiving countries buy Brazilian products. This allows Brazilian companies to export their goods or to carry out large-scale infrastructure works. Consequently, the Brazilian government only pays lip-service to the Bank of the South project, all the more so as it was initiated by Hugo Chavez, whose political stance is more radical than Lula’s whether it be towards Washington, Brussels, or Latin-American capitalists.

Q.2. What would you say are the options?

Independently of the terms negotiators use to define their divergences, there are basically two options. [1] Either the newly created bank will support a neo-developmental project that meets the expectations both of private or mixed corporations (mainly Brazilian and Argentinian) and of the governments of Argentina and Brazil (for example, the Lula government takes as its model the construction of the European Union which panders to the interests of Capital). Or it will function as an instrument to finance economic, social and cultural policies: this latter option would take the institution away from profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. -seeking logic and would prioritise integration by implementing the various agreements and conventions that guarantee civic, political, economic, social and cultural rights. Concretely, the Bank of the South should finance a Latin-American policy of food sovereignty and land reform. In the area of health it should provide the continent with a public pharmaceutical industry to produce high quality generic drugs. It should revive and connect railway networks. Ensure that there is a common policy in a number of fields such as research and development, education and environment. Give priority to public control of natural resources. Finance policies that reduce the economic disparity between countries such as Bolivia, Paraguay and Ecuador on the one hand and Brazil, Argentina and Venezuela on the other. In short, a policy designed to unify social rights at a higher level.
It is thus essential that negotiations on the Bank of the South are not limited to governments. Indeed, the social movements of the concerned countries have already sent two open letters to the seven presidents with a number of proposals. [2] For instance the signatory social movements are opposed to the new institution’s executives having the same kind of privileges and impunity as those of the IMF, the WB, the IADB or other international institutions. They want guarantees Guarantees Acts that provide a creditor with security in complement to the debtor’s commitment. A distinction is made between real guarantees (lien, pledge, mortgage, prior charge) and personal guarantees (surety, aval, letter of intent, independent guarantee). as to transparency and accountability.

Q.3. The launching of the Bank of the South is an answer to the supremacy of the countries of the North and of neoliberal policies in the WB, the IMF and the IADB. Does it aim at replacing the Bretton Woods institutions and becoming an international institution? Should the UN be involved?

The Bank of the South is indeed an answer to the supremacy of the countries of the North. The launching of the Bank of the South is made possible and necessary thanks to the conjunction of several factors:
1. The WB and the IMF are going through a crisis at several levels as a result of the catastrophic consequences the Washington consensus has had on populations. Brazil and Argentina paid back all they owed to the IMF, Venezuela did the same with the WB. In April 2007 Ecuador expelled the WB permanent representative in Quito and set up a commission to audit all public debts including multilateral ones. Bolivia left the International Centre for Settlement of Investment Disputes, a kind of tribunal set up by the WB.
2. Countries that joined the Bank of the South have over USD 300 billion as foreign exchange reserves. They can pool part of this amount instead of continuing to lend it to the US government by buying treasury bonds that are remunerated in a constantly devalued currency.
3. The governments of the seven countries are left-wing or centre-left.

In my view the Bank of the South could replace the WB and the IADB. A Monetary Fund of the South should also be created, and if possible, the involved countries should use one single currency. Other areas in the South ought to create a Bank of the South, and the various Banks of the South could develop a South-South cooperation.

The Bretton Woods institutions are of course very worried about the situation: they would like to be invited to participate in the Bank of the South or at least to attend meetings, and they canvas to this end. Some sectors in the UN are deeply interested. I recently participated in an international seminar on the Bank of the South organised by its General Secretary in Quito at the end of June 2008.

The Bank of the South raises huge expectations because Latin-American citizens want the governments they elected to use the favourable historical situation to actually implement an integration policy that is different from the neoliberal model.

Translated by Christine Pagnoulle in collaboration with Judith Harris