IFIs Latin American Monitor
Fri May 15 2009
On May 8, the Finance and Economy Ministers of Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay and Venezuela met again in Buenos Aires to work on the articles of agreement of the Bank of the South. This issue has been pending resolution since the founding chart of the institution was signed on December 9 2007 in the Argentine capital. However, this time the ministers have apparently reached a final agreement. The time has come now for presidents and Parliaments of each one of the countries to ratify it.
The definition as to the starting capital that member countries will contribute to the Bank was agreed on April 25 2008, at a meeting held in Montevideo. As it was established, the Bank’s starting capital will amount to 7 billion dollars and will be made up of 2 billion dollars to be allocated by Argentina, Brazil and Venezuela respectively, 400 million by Ecuador and Uruguay; and 200 million by Bolivia and Paraguay.
Since then, the most controversial issue has been the “weight” of each country in decision-making. In this sense, the ministers have decided to stick to the initial “one country, one vote” proposal for the Bank’s Board, which differentiates it from the IMF and the World Bank, but they agreed that in order to approve projects over 70 million dollars, the support of two-thirds of the allocated capital will be needed. Thus, for this kind of projects, it will be necessary to have the support of at least two of the largest contributors: Argentina, Brazil and Venezuela.
The Bank’s main headquarters will be located in Venezuela, and the institution will have two satellite offices – one in La Paz and the other one in Buenos Aires. The credits to be allocated by the Bank of the South will be for social and infrastructure projects, as it was informed in a press conference following the last ministerial meeting.
A response to the crisis
Carlos Fernández and Guido Mantega, Economy Ministers of Argentina and Brazil respectively, stated that setting into motion the Bank of the South is the best response to the global financial crisis; therefore, it should start to operate “as soon as possible”.
Fernández said that “the creation of the Bank is more highly valued in the context of the international financial crisis”; while Mantega asserted that “we are taking a further step towards regional financial integration.”
Likewise, the Bank’s setting into operation will serve to put a halt to the new advance of the International Monetary Fund (IMF), which after the G20 summits held in Washington and London, aims to re-position itself as lender in the region.
Given the fact that the Bank of the South will not operate as an IMF-style lender, an issue that concerns the Economy Ministries of the seven countries is how to be financed to pay for debt maturities.
Some regional leaders still do not discard that the Bank of the South could take this option provided the only way possible continued to be the IMF. In this respect, in his recent visit to Buenos Aires, Venezuelan President Hugo Chávez mentioned the need to activate the Bank of the South as soon as possible, as well as a South American Financial Fund, with 10 per cent of the reserves of each country to aid those countries facing difficulties. Right there he unexpectedly set a date – June 24 – in Caracas to hold the meeting of presidents that will set the Bank of the South into operation. “You’ll have to bring the checkbook”, he warned Argentine President Cristina Kirchner, since the only thing still missing is no less than the funds.
Source: International Debt Observatory
South American nations agree on technical rules for Bank of the South, by Americas Program