Source:
IFIs Latin American Monitor
Tue Apr 29 2008
The finance ministers of the Bank of the South met last Friday 25 in Montevideo, Uruguay. The aim was to analyze the issues pending resolution regarding the setting up of the Bank, among them the contribution of capital. The event was of a private nature but once the meeting came to an end, the ministers informed about the main resolutions in a press conference. All the agreements still have to be approved by Argentina, which failed to attend the meeting.
The meeting was attended by the ministers of Brazil, Guido Mantega; Ecuador, Fausto Ortiz; Paraguay, César Barreto; Venezuela, Rafael Isea; and the host minister, Danilo Astori. Due to its ongoing political crisis, Bolivia was represented by the under-secretary of Pensions and Financial Services, José Luis Pérez Ramírez. The Argentine delegation failed to attend the meeting owing to the resignation of finance minister, Martín Lousteau and the appointment, that same day, of Carlos Fernández, as the new minister.
The main resolution adopted at the meeting had to do with the contribution of capital of Bank member countries. For such purpose, three bands were created in order to contemplate the existing asymmetries among bloc member countries. The first group includes Brazil, Argentina and Venezuela, which will provide some $2 billion dollars. The second group is made up of Uruguay and Ecuador, which will contribute $400 million dollars, while the third group includes Paraguay and Bolivia, with a contribution of $100 million.
Each country shall initially furnish 20 per cent of its corresponding amount, thus totalling an opening capital of $1.4 billion. Two different deadlines shall be applied for the full subscription of capital: a maximum five-year term for the first band and a maximum ten-year term for the other two bands.
Officials also decided that countries will be able to furnish up to 10 per cent of capital in local currency and the rest in foreign currencies.
Astori pointed out that the decision was to favor the smaller countries, through the implementation of a different ratio between contribution of capital and Bank credit access. Thus, the first band will comprise a four-times multiplier between the contribution of capital and credit access capacity, while an eight-times multiplier will be applied for the other two bands.
All these decisions shall be reviewed by Argentina. Ministers will send this proposal to the presidents of each country and will then resume meetings to continue to analyze the operation of the institution. Finally, the bylaws of the Bank will be subject to parliamentary approval in each one of the member countries.
As it has been estimated, the Bank of the South would be in operation before year-end.
The meeting failed to consider the issue of Bank governance. Brazil’s finance minister, Guido Mantega, said that it was not possible to anticipate information on the creation of posts and Bank management supervision – an issue that will be discussed at the next meeting with the participation of Argentina. However, some media informed that Brazil is already considering governance schemes of other international banks which link the amount of paid-in capital to decision-making on loan approval.
Source: Observa and Uruguayan Presidency website, La Nación y Clarín (Argentina)
Related information:
* Bank of the South: 90 days of silence
* The Bank of the South: the struggle of the big ones against the small ones
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