Act Locally » January 22, 2008
Latin America Banks on Independence (cont’d)
IMF lending has plummeted in recent years, as its supposed beneficiaries have launched a rebellion. Cutting ties with the fund is not just a Latin American phenomenon. Russia, Thailand, Indonesia and the Philippines have also pursued strategies of early debt repayment. Many Asian countries that were burned by the region’s neoliberal financial crisis in 1997 are building large cash reserves to prevent a return to the IMF in times of economic downturn, and they have recently worked on creating a regional currency exchange that will further increase their distance from Washington.
These developments are sapping both the IMF’s influence and its cash flow. Its loan portfolio has dwindled from nearly $100 billion in 2004 to around $20 billion today. A single country, Turkey, now accounts for the bulk of its lending. The IMF has lost almost all influence in Latin America, with lending there plummeting to a paltry $50 million, less than 1 percent of its global loan portfolio. As recently as 2005, the region had accounted for 80 percent of its outstanding loans.
Deprived of lucrative interest payments from poorer countries, the IMF is now desperately trying to meet its $1 billion administrative budget without dipping into its gold reserves. In stark contrast to the triumphalist pronouncements made in past fall meetings, in 2007 the IMF’s newly installed Dominique Strauss-Kahn confessed that “downsizing is on the table” for the institution.
Ignoring the wider picture, pro-free trade pundits have generally responded to the Bank of the South by minimizing its significance and predicting failure. The Wall Street Journal characterized the bank as but one of Hugo Chávez’s many madcap schemes, insisting that it is “unlikely to live up to his grandiose vision.” Meanwhile the Economist asserted, “The IMF can sleep easy.” It pointed out that the Bank of the South’s founding agreement lacked many details about its governance and lending policies, and that disagreements persist among the region’s key players.
It is true that Latin America has a history of internal disputes thwarting dreams of regional unity–and that quarrels persist today. While Venezuela and Ecuador have pushed for the bank to have a far-reaching mandate, Brazil prefers a more modest institution. To the disappointment of many of his progressive supporters, Brazilian President Luiz Inácio Lula da Silva has adhered to conservative economic policies designed to keep Brazil in good standing with foreign creditors. The country also runs a large internal development bank, which loaned $38 billion in 2007 to fund national projects. Therefore, Brazil has less to gain directly from making the Bank of the South into a robust regional lender.
Activists, while generally positive, have expressed some concerns. Environmentalists worry the Bank of the South, while more democratically managed than its counterparts in Washington, may nevertheless develop a similarly destructive record of funding large-scale, ecologically harmful construction projects.
Other progressives, ranging from the members of the Jubilee South coalition to Cuban commentator Eduardo Dimas, have argued that the institution must go beyond traditional development lending to support such measures as land reform, a common regional currency and projects explicitly designed to promote political solidarity in the region. These would more closely link the bank with the Bolivarian Alternative for the Americas (ALBA), an initiative through which the Venezuelan government has paid for Cuban doctors to provide services in the region and has promoted other forms of mutual assistance.
Reservations about the Bank of the South’s mandate, however, should not obscure the swiftness and severity of Latin America’s assault on the international financial institutions.
Chávez first floated the idea of the bank in 2006, and the speed at which it has come into existence has been shocking. The widespread support within Latin America for independent bodies such as the new bank suggests that the days when the United States could act as an economic overseer dictating policy for countries across the globe are coming to an end.
Upon the inauguration of the Bank of the South, even Lula da Silva delivered a message of defiance to the North. “Developing nations must create their own mechanisms of finance,” he said, “instead of suffering under those of the IMF and the World Bank, which are institutions of rich nations.” He added bluntly: “It is time to wake up.”