Source:
Latindadd
Oriana Suarez
Mon Mar 08 2010
On the occasion of the meeting of heads of State and Government of the Union of South American Nations (UNASUR) in Quito (February 9-11), finance ministers and directors of central banks of member countries held a meeting aimed at taking steps on policy and technical issues related to the financial integration of the region. This was a breakthrough in itself, because the meeting had not been carried out since October 2009 when it was first planned, leaving serious doubts about the real willingness of countries to advance the regional integration process.
The thick agenda focused on the Bank of the South, the clearinghouse mechanism (unit of account or currency), international reserves and the recapitalization of the banks.
Although no formal concrete agreements were reached, Coordinating Minister for Economic Policy of Ecuador Diego Borja said that, in practice, the region is beginning to be financially integrated through monetary compensation agreements. On the one hand with the entry into force of the SUCRE some countries are already able to trade using their own currencies (Cuba, Venezuela and soon other ALBA countries). On the other, with the agreement between Argentina and Brazil, these countries also have the opportunity to do so in their local currencies. In addition, a proposal was introduced to expand the compensation powers under the Latin American Integration Association (ALADI), so other countries can also access this facility, useful mainly for small producers. Thus, in practice, the region is moving towards a compensation scheme without recourse to the dollar.
The Ministers also discussed the subject of a joint holding of the countries’ international reserves, which would reduce the risk of exposure and would improve the profitability of the countries. In this regard, some national experiences to use reserves productively are underway, as Borja noted, so the leap from there to coordinating a common reserve fund is a matter of political will. The region already has an existing precedent, which is the Latin American Reserve Fund (FLAR), in which seven countries provide reserves of their central banks.
To push or not to push for a regional development bank
The Bank of the South has not yet seen the light, despite open negotiations started even before the adoption of the SUCRE. The Founding Agreement was signed in 2009, but so far it has only been ratified by Venezuela, so in practice it cannot take effect, as it requires ratification by two of the largest countries (Argentina, Brazil or Venezuela) and two smaller ones (Bolivia, Ecuador, Paraguay or Uruguay).
However, although Brazil was one of the main proponents of the initiative, it seems it has lost interest. Perhaps because it is an election year in which the country is focused on domestic issues, or because the country does not require a regional financing body given that it has its own development bank, the second “big” country needed for the entry into force of the Bank of the South would have to be Argentina. This country has passed the issue to parliament, so a resolution on this matter is expected this year.
In the case of the smaller countries, Ecuador will probably ratify the agreement in April and Bolivia is expected to do so around the same time. For his part, Jose Mujica, the new Uruguayan president, would also maintain interest and political will to further advance the regional financial integration.
In this scenario, despite the delays and conflicting signals from Brazil, there is optimism that the Bank of the South could be launched towards the end of the year. That is why the Technical Group of the Bank of the South, met in early February to develop a roadmap in order to have all operational issues ready for when the Bank starts its operations, so that the implementation does not take longer. To this end, the Technical Group created sub-working groups to define the administrative, organizational and credit policies issues and the vision, the profile and the five-year plan of the Bank. They intend to have their proposals ready by September.
Challenges ahead
It is important to take advantage of the current political moment in the region, when there are governments with alternatives visions to the neoliberal policies that govern the world, and that are presented as an opportunity to implement specific changes. In this regard, civil society should continue to encourage the consolidation of UNASUR as a regional space. Even though it has not defined institutions yet, UNASUR is building its own vision of the international processes. In the words of Foreign Minister of Ecuador Ricardo Patiño, civil society must own UNASUR as it has been geared as a space for civil society participation; UNASUR aims not only at political integration, but at that of the Latin American peoples.
In particular, in order to further enhance the countries’ monetary compensation it is important to continue with initiatives in the framework of ALADI and to develop rules so that the SUCRE System can be extended to other countries in the region that are not necessarily members of ALBA. With regard to the Bank of the South, pressure should be borne on the Brazilian government to ratify the Founding Agreement. One of President Lula’s legacies should be the decisive commitment to regional integration as an effective way of advancing Latin American development. Similarly, the Argentine government – apparently more willing to continue with the integration of the South – should be encouraged to ratify the agreement by the end of this year.
However, we must not forget that a New Regional Architecture should be supported by a Reserve Fund and should also have a regional alternative arbitration mechanism in order to settle trade, investment and debt disputes without recourse to external bodies that do not place development as the ultimate objective of international economic relations, where disputes are instead reviewed according to their impact on the accumulation of income and capital.
In addition, it is important to create specific mechanisms so that all the new bodies effectively respond to development objectives in harmony with nature, without negatively impacting populations and based on a constant dialogue with civil society, so that a real surveillance and monitoring can be carried out in order to make finances really work for the people.
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