Tell us what it's going to take for you to return to Guyana.

Saturday, November 03, 2007

Where will Venezuela's Bank of the South Take Guyana?

For me this is ample cause to be worried. How Guyana aligns itself will have lots to do with how other countries treat Guyana.

Banco del Sur: A giant step forward to expand regional trade and growth

Guyana's Ambassador to Caracas, Dr. Odeen Ishmael writes: Seven South American countries have agreed to establish the “Banco del Sur” [Bank of the South] which is seen as a giant step forward to expand regional trade and growth with the use of their own resources.

Venezuela’s President Hugo Chavez and the presidents of Argentina, Bolivia, Brazil, Ecuador, Paraguay and Uruguay will inaugurate the bank in Caracas on November 3. This decision was taken by the Declaration of Rio de Janeiro signed by the finance ministers of the seven countries at a meeting held in the Brazilian city on October 8.

The other countries of the Union of South America (UNASUR) -- Chile, Colombia, Guyana, Peru and Suriname -- have not yet stated their intention to join the bank.

This new regional development bank, championed by President Chavez, will fulfill one of the main objectives of UNASUR in promoting regional integration since it will assist in financing integration projects in the 12 South American countries. It will be headquartered in Caracas but will maintain regional offices in La Paz and Buenos Aires. The members have already agreed that each country will have an equal voice on the bank's board of directors.

At the Rio meeting, Venezuela’s Finance Minister Rodrigo Cabezas stated that the Banco del Sur would mark the beginning of “a new financial architecture for the South.'' He emphasized the bank's difference from multilateral financial institutions such as the World Bank and International Monetary Fund, pointing out that no conditions would be set on loans to members.

When President Chavez first proposed the bank more than two years ago, he envisioned it as part of a drive to counter the influence of the United States in Latin America, while at the same time using his nation’s profits from record high crude oil prices to finance social and economic development programs. He has also been promoting the Banco del Sur as an alternative to the International Monetary Fund (IMF), which he blames for perpetuating poverty in Latin America.

At the time of President Chavez’ initial proposal, some international commentators scoffed at the idea and dismissed it as one existing in the realms of fantasy. Some even doubted that it would ever take root and win support from other South American countries, Brazil in particular.

Despite these doubts, President Chavez has persevered in his campaign to secure backing for the establishment of this important South American financial body. He consistently points out that South American countries’ reserves are held in banks in the United States, thus “subsidizing” that country’s economy. He explains that the South American countries can surely utilize at least part of these reserves -- their own money -- to operate their own development bank.

The momentum gathered pace at the South American Energy Summit held in April last when Brazil announced its intention to participate in this new development bank. However, the South American giant currently feels that the Banco del Sur should not operate as an alternative to the IMF or for its funds to be used to strengthen currencies.

  • So far the participating countries have not yet decided on the amount each will contribute to the bank, or how the institution will raise additional funds. However, these matters will be ironed within 60 days after the formal launching on November 3.

In Rio, Brazil’s Finance Minister Guido Mantega revealed that his country would make a “large” contribution to the Banco del Sur which he emphasized should be self-sustaining by earning enough interest on investments to ensure increasing capital available for loans.

In explaining the functions of the bank, he mentioned that it will not make grants, but only interest-bearing loans to both the public and private sectors, and will operate only within South America. He added that the bank will seek to increase its capital through borrowing, possibly through international capital markets. At the same time, it will collaborate with existing regional financial institutions such as Brazil's state development bank (BNDES) and the Andean Development Corporation (CAF).

From all announcements made so far, the Banco del Sur will operate in the same manner as the long-established Inter-American Development Bank (IDB), but all this will be finally determined when the institution begins its formal operations. So far there has been no reaction from the Washington-based organization which, over the years, has been financing development projects throughout Latin America and the Caribbean.

But judging from Latin American media reports, some questions are being raised such as what will be the total initial contribution of each member country; how will these contributions be made; what projects will be given priority; and which countries will be more influential in determining the lending policies.

Many of the questions are from skeptics, but after November 3 it is expected they will all be answered. Already, in term of priority projects, there already exist numerous infrastructural schemes planned by UNASUR through the Integration of Infrastructure in the Region of South America (IIRSA).

No doubt, the member countries will soon be approaching the Banco del Sur for development finance to finalize some these important undertakings.

Whatever initial steps the Banco del Sur makes, only time will determine the viability of the new institution as it sets out on its task of managing development for integration in South America.

Odeen Ishmael

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