clock menu more-arrow no yes

Filed under:

Bank of the South is moving forward despite doubts

RIO DE JANEIRO, Brazil — The idea by Hugo Chavez, Venezuela's president, to create a Bank of the South to finance regional development projects is moving forward, aided by the tacit approval of Brazil, which has South America's largest economy.

But doubts persist about the need for such a bank, which many economists and analysts continue to see as a political move by Chavez to try to spread his influence and carry out his crusade against Washington-based multilateral institutions like the World Bank and the Inter-American Development Bank.

Seven South American countries are expected to inaugurate the new bank at a ceremony on Nov. 3 in Caracas, the capital of Venezuela, where the bank will be based.

At a meeting here last week the countries — Argentina, Brazil, Bolivia, Ecuador, Paraguay, Uruguay and Venezuela — signed off on the idea of creating an institution with up to $7 billion in initial capital, paving the way for the bank to begin operating as early as 2008.

An eighth country, Colombia, said last week that it wanted to be included as well.

The Bank of the South will be designed to promote investment in infrastructure and could help stimulate greater regional trade and integration. Chavez sees it as an alternative financing institution to the World Bank, the IDB and the International Monetary Fund, all of which have significant Washington involvement.

"The idea is to rely on a development agency for us, led by us," Rodrigo Cabezas, Venezuela's finance minister, said last week.

Several issues remain unresolved about how the Bank of the South would function, including how much capital each country would commit, what its lending conditions would be and whether the members would have equal voting rights.

The new bank could struggle to be competitive with the IDB, especially, which has investment grade status in the international markets due to the participation of the United States and other developed nations, and thus obtains resources at relatively low cost. None of the future partners of the Bank of the South borrow on terms readily available to rich, industrialized nations. If the bank is able to obtain resources in the international capital markets, it will likely be at higher costs than those paid by Brazil or Colombia, economists say.

Still, efforts by leaders in the region to remain on good terms with Chavez appear to be outweighing uncertainty about the new institution.