After the launching of the Southern Bank in Buenos Aires the countries had to reach an agreement on the contribution that experts considered would be made in equal parts. Argentina, with the support of Brazil, said that this was unreasonable; that the contribution of the larger countries should be greater, and their power within the Bank should therefore also be greater. Naturally this distorts the idea of a democratic Bank with a board composed by seven equal associates in which each country would have a vote.

Big fish eat up small fish. It what may be only natural, but is nonetheless abusive. This is precisely what may be about to happen in the constitution of the Southern Bank if Argentina’s initiative, with the support of Brazil, succeeds.

The Southern Bank is presumably the democratic alternative to the international development banks based in Washington. The criticism levelled at the IFIs, the Inter-American Development Band (IADB), the World Bank and the International Monetary Fund (IMF), is that the votes are proportional to the countries’ GDP size, so that the richer countries have more votes than the poorer ones and ultimately, the richest country has veto power in the boardroom. Thus the president of these institutions is chosen by Washington and the G7.

The May 2007 Quito Declaration went against this type of plutocracy. The declaration boasted that the democratic elements of the new regionally-based international financial architecture that would take root in South America with the development bank known as the Southern Bank. The bank would target more socially-oriented projects and the poorer areas in order to breach the gap between the most and the least prosperous areas.

The Declaration of Quito was based on a proposal of the Government of Venezuela with the support of Argentina to launch a development bank that would simultaneously act as monetary stabilization fund. Brazil apparently objected to this idea as anti-technical partly because it was and partly because it had not been proposed by Brasilia. After getting over the resentments typical of these multilateral initiatives, the Southern Bank was given a structure and after seven months of negotiations, in December 2007, it was launched in Buenos Aires by the presidents of the seven member-countries in South America. Colombia, Peru and Chile, who have signed free trade agreements with the United States or are in the process of signing them, did not join. Emir Sader, Brazilian political sociologist and current executive director of the Latin-American Council of Social Sciences (CLACSO) holds that South America is split in two between countries who desired integration as peers and those who preferred integration subordinated to the United States.

After the launching of the Southern Bank in Buenos Aires the countries had to reach an agreement on the contribution that experts considered would be made in equal parts. The seed capital of the Bank is seven billion dollars, a sum which divided among the seven member-countries equals a one-billion dollar contribution from each. Argentina, with the support of Brazil, said that this was unreasonable; that the contribution of the larger countries should be greater, and their power within the Bank should therefore also be greater. Naturally this distorts the idea of a democratic Bank with a board composed by seven equal associates in which each country would have a vote.

This brings to mind the discussions that took place when the future European Economic Community was created in the 50s and it then turned out that Luxembourg, which is a city state, had the same weight inside the Community than Germany, the powerhouse of Europe. The issue had a political solution then and with time the smaller countries of Europe ended up balancing out the tensions of power with the larger countries. The headquarters of the Economic European Community was established in Brussels and for this reason, today the city is the capital of the European Union.

The solution to the impasse is in sight. If Cristina Fernández’s government pretends to uphold the democratic spirit of the Quito Declaration, it would agree to a proposal that would allow the smaller countries to have unpaid seed capital for one billion dollars but they would have a different time to contribute the capital than the big countries. The financing for the bank would come from its leverage by issuing bonds in the member-countries’ currencies, in a currency pool or in a South American monetary unit that is still being designed.

Perhaps this is the best moment for the big fish to consider not eating up the small fish but to become partners, bearing in mind that what they have in front of them is a shark waiting to eat them all up and who would be delighted if this initiative failed.

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