Different from Europe and the United States, the countries of Latin America, do not have sufficient tax earnings available to guarantee the enjoyment of social rights for their populations. Our countries base the sustainability of their budgets on the generation of fiscal surpluses to obtain sufficient recourses to pay in service of debt. This situation makes us realize the necessity of independent and sovereign financing in the region.

Different from Europe and the United States, the countries of Latin America, do not have sufficient tax earnings available to guarantee the enjoyment of social rights for their populations. Our countries base the sustainability of their budgets on the generation of fiscal surpluses to obtain sufficient recourses to pay in service of debt. Nevertheless, there are always financial requirements which must by covered by means of a) new indebtedness with conditionality over economic, commercial and financial matters; b) privatizations; and, c) issuance of bonds for their internal markets.

This situation makes us realize the necessity of independent and sovereign financing in the region. In this sense, Venezuela, Ecuador, Bolivia, Paraguay, Argentina, Brazil and recently Uruguay, are developing an alternative which will permit them to administer their economies with true sovereignty, without being tied to the conditions imposed by the World Bank (WB), the IDB and the International Monetary Fund (IMF).

The proposal contemplates the creation of a group of financial institutions, which are self-managed and generically named the Bank of the South.

According to the Declaration of Asuncion made on May 22nd, 2007 and signed by the Ministers of Economy and Finance of Argentina, Ecuador, Brazil, Paraguay, Venezuela and the Vice Minister of financial services of Bolivia, this group of new institutions must also include a monetary stabilization fund (which could base itself on the Latin American Reserve Fund.)

The best situation would be, according to the economist Oscar Ugarteche, the constitution of a fund for bonds, with the end result of establishing taxes of interest in the region.

According to Ricardo Patiño, Minister of Economy and Finances of Ecuador, in declarations to the Latin American Information Agency, the collection of international reserves, which the six countries who are developing the project (not including Uruguay) have deposited in banks of the United States and Europe, add up to about $164 billion - money which should be used for the South American monetary stabilization fund.

The Asuncion Declaration gives priority to the elaboration of statutes and the founding of an investment bank, with a more democratic and just management, which would guaranty that each member country has a vote – independent from the contribution which it makes to the financial entity. This would be different from the current International Financial Institutions, in which the countries which register greater monetary support make the decisions. Instead, it would be one country one vote and no longer, on dollar on vote.

This investment bank would also integrate with the Andean Development Bank (CAF by its Spanish acronym) and The River Plate Basin Financial Fund (FONPLATA by its Spanish acronym), among other financial entities of South America. Although the plan is still not formulated which will determine the identity of the new bank's board of directors, the capital aid of each country or the mechanism of financing, they have the information that the initial operating capital will be $7 billion provided for by the member countries in different ways. It has also been predicted that the aid per nation will oscillate between $300 - $500 million dollars. Nevertheless, some spokesmen have indicated that the contribution will depend on the conditions of each country.

Finally, the Declaration of Asuncion proposes advancing the design of a South American monetary unit which would permit exchange of goods and services between countries of the region without having to appeal to the dollar and protect themselves from the variations of its market price. It is in this area where the connections between finance and commerce make themselves evident.

This new financial entity has planned its birthday for some time in the upcoming months. The Southern Cone Common Market (MERCOSUR by its Spanish acronym), which reunited in Paraguay on May 23rd, decided to approve the project of the Bank of the South, as an alternative to the International Monetary Fund (IMF), the Inter-American Development Bank (IDB) and the World Bank (WB).

In addition to these new entities, this new sub-regional financial architecture will require the creation of a universally-accepted International Financial Code. According to international analysts, these transformations of the world economy will be carried out in a planned or abrupt way because the current global economic situation is unsustainable when the largest economy in the world (USA) has a fiscal deficit greater than its gross domestic product (GDP) by 7 points.

Organizations of America which promote debt relief and work with the theme of illegitimate debts point out that it is fundamental that the participation of an active citizenship is considered in the design of these new financial institutions through listening to the advice of social movements which participate in the negotiations.

The winner of the Nobel Peace Prize for Economics, Joseph Stiglitz, has pointed out that the creation of the Bank of the South will be positive because “people of the South will mutually help each other.” Without a doubt, starting from this new process the countries of South America will be constructing a new multilateral financing. With this, they will contribute to a new financial architecture which is favorable for the development of our communities through investment without structural conditions, but at the same time contains stability mechanisms and economic, financial and monetary regulations which facilitate fair trade and integration in the region.

These institutions are planned because they integrate from the beginning the countries which make up the Union of South American Nations (UNASUR by its Spanish acronym). Unfortunately, the governments of Peru, Colombia and Chile are not taking part, limiting themselves – in the majority of cases – to be spectators of the process.

This article was first published at the bulletin Nº1 of the Finance and Trade Hemisphere Network coordinated by Latindadd. See full bulletin pdf format

Related information:

* Southern Bank: Between rhetoric and a historic opportunity, by Gabriel Papa (Brecha)

* Turning back to the stakes on the Bank of the South, by Eric Toussaint (CADTM)

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