IMF UPSTAGED BY CHAVEZ & CO

On November 3, Banco del Sur, a new Latin American development bank, will be inaugurated in Caracas, the Venezuelan capital, in a direct challenge to the US dominated World Bank and IMF – international Monetary Fund.
Also called Bank of the South, it is the brainchild of Venezuelan leader, Hugo Chavez. It will have $7 billion in start-up funds and an estimated $50 billion in assets within a year. Its creation has been welcomed by former World Bank chief economist, Joseph Stiglitz, a Nobel prize winner, who was an adviser to the Clinton Administration. Stiglitz reckons Bank of the South will be a shot in the arm for development in the region and a much needed wake up call for international lending institutions like the IMF. According to him, it will not only be a positive alternative to the World Bank and IMT, it will mirror the needs and ideals of the peoples in the region.
Brazil, the region’s biggest economy is onboard, along with Bolivia, Paraguay, Argentina, Ecuador and Uruguay though other countries are expected to join soon. In 2005, when the idea of supplanting the IMF with a regional development bank was first proposed, the Argentinean president, Nestor Kirchner remarked “there is life after the IMF and it is a very good life.
Washington is angry with this latest development, given that the US Treasury is the IMF’s largest shareholder. The reality, however, is that the power of the IMF has been in steady decline for some years in Latin America where it has been depicted as a tool of US policy. An example of the decline is that 80% of IMF loans, amounting to $4.5 billion, were spread across Latin American nations in 2005 but that has now dwindled to a trickle with some estimates putting the figure at 1% - approximately $50 million. The massive decrease in the IMF lender role can be attributed to Venezuelan leader, Hugo Chavez, who has used his country’s great oil wealth to make interest free loans to some of those countries who are on the Board of Bank of the South. For example, Chavez authorized a loan of $2.5 billion to Argentina and Bolivia got $1.5 billion. A loan to ease Ecuador poverty levels amounted to $500 million. Bolivia and Ecuador still owe international lenders approximately $15 billion and will now be hoping Bank of the South will help them get out from under those debts.
Since he came to power, Chavez has proved a thorn in the side of Washington by his continuing efforts to challenge US influence across the Latin American continent. This latest venture may be his biggest gamble to date in that effort and it could well work, especially with support from the economic giant of the region, Brazil. It possible the new bank could end, for the foreseeable future, IMF’s lending and oversee a declining role for the World Bank. Recently, the IMF was in such dire financial straits from unpaid loans it considered dipping into its gold reserves to keep itself afloat.
All the countries on the Board of the new institution have expressed opposition to the IMF, though Brazil, which has maintains close links to Washington, has been less vocal than the others. But, even Brazil has been critical of the way the IMF over decades set strict conditions for granting loans, conditions that were followed by stringent austerity measures, greater privatization and growing poverty levels, especially in the 1970s and 80s. According to Venezuela’s finance minister, Rodrigo Cabezas, the new bank will depart from the authoritarian nature of the IMF and “no conditions will be set on loans to members.” As for Hugo Chavez, he sees the bank as furthering his strategy to dilute US influence in the region.
Privately, Brazil has not been happy about ditching the IMF in favor of the new institution, feeling perhaps that it would not be a good idea to allow the Left, led by Chavez and Bolivia’s, Evo Morales, to detach Latin American nations from their traditional links to the US. But many Brazilian companies have expressed support for Bank of the South, in part because they do a lot business with oil-rich Venezuela and they fear the flow of money would cease if Brazil opted out of the new bank. It was pressure from such companies that forced Brazil to join the Board though Brazil’s finance minister stressed the need to keep Bank of the South’s operations within South America. He argued that the bank must operate on the basis of only interest bearing loans. In other words, Brazil was not happy that Chavez had talked about loaning money to Cuba. Brazil wants to see a properly functioning bank and not a vehicle for Chavez and Morales to play out socialist economic theories.
While the US can do little about the new bank, it may well feel that it will have to devote more time, money and manpower to covert strategies to weaken Venezuela’s hold on other countries in the region. For years, the influence of Chavez was underestimated by the Bush Administration. It paid little attention to what was happening in its back yard post 9/11. In the intervening years, the drift to the Left, allied to a growing anti-Americanism, can be traced directly to Chavez. A major mistake of the Bush Administration was to see Chavez as a buffoon when in fact he was a shrewd operator. Better still, Chavez had one of the great political survivors of our times as his closest adviser and mentor – Fidel Castro. Chavez has negotiated some difficult political hurdles and the emergence of Bank of the South testimony to the fact that he was seriously underestimated.
Only time will tell how big an impact the new bank will have in terms of poverty levels in the region. Some observers believe that no matter what happens the IMF will continue to have a role, even though for the time being it will be a watch and wait role while the US burrow away covertly, hoping to undermine Chavez.