From 2002 to date, the International Monetary Fund ((IMF) has lost 88% of its loan portfolio, including the loans said to be for the poor within the framework of the Poverty Reduction and Growth Facility. The World Bank (WB) since 1996 has last 42% of its loan portfolio and that includes the slight increase in HIPC’s (Highly Indebted Poor Countries). The problem with both institutions are the onerous conditions imposed on governments for extending credits, the financial cost of these same credits, and the discredit of policies that have not resulted in what was hoped for, but rather in greater concentration of income and more emigration.  Moreover, economies have been denationalized, net transfers of resources have turned openly negative for the region, as much as in the decade of the 80’s, and remittances by those emigrants finance the balance of payments and permit the accumulation of reserves.  This is added to the evidence that both institutions work more for the United States Treasury than for the well-being of the international community or that of the country being advised and financed.

Since the month of June, when the Bank of the South was about to be launched at the Summit of South American Presidents in Asuncion, we started to see a slow-down.  Some governments have started to dig in their heels to curb the drive launched first by Chavez in 2005, then by Chavez and Kirchner in 2006 and finally by Correa in 2007, who spoke of broadening the concept of the Bank of the South to one of regional financial architecture, including a development bank, a stabilization fund and a South American currency already baptized by Evo Morales as the Pacha, which means earth in Quechua.  The Ecuadorean initiative already has the support of Uruguay, Paraguay, and Bolivia, in addition to the three big initiating countries.

The first part subjected to technical debate has been the Bank of the South which would come to be a type of development fund analogous to the European one, that is to say, which finances infrastructure projects in zones of lesser relative development, where a matrix of autonomous development is needed and promoted.  A development matrix in South America requires a previous or simultaneous energy matrix.  It is clear that today such a matrix has to be clean energy and the infrastructure works must not damage the environment.  The process of technical consultations among the ministries of finance of the interested members of the Union of South American Nations (UNASUR) take place monthly; however, they say that the statute of the Bank is ready and that what is lacking is the political will to go ahead with it.

Meanwhile, there is a debate on the Initiative for the Integration of South American Regional Infrastructure (IIRSA) and whether this should be financed by Bank of the South or not. Various groups oppose this while others support it.  This is a "red herring", that distracts attention from the essence of the problem.  The essence of the matter is whether South America is going to integrate within a financial scheme autonomous from the United States dollar, now that that currency has lost between 25% and 30% of its value relative to most South American currencies and that South America has aggregated international reserves equal to the Euro zone.

Faced with the discredit of the IMF, Asia launched the Chiang Mai initiative.  Knowing that they hold 84% of international reserves world-wide (according to the International Financial Statistics service of the IMF) and that when there are wars the Americans always ask the Asians to revalue (or in other words, devalue the dollar) they have opted to discuss an Asian unit of accounting to stabilize their intraregional trade which is 50% of their total external trade.  The Chiang Mai project is that ASEAN + 3 become a common zone for trade, finance, people, transport, goods and services by the year 2015.  Their concern, like the Europeans years ago, is how to level the zones that are more backward so that it be a relatively homogeneous region. To this end they are working on a development fund.  The first thing which the ministers of finance did, on signing the Chiang Mai Initiative in their declaration of the year 2000, was -in point 8- to mandate  research centres in the region with specific studies on diverse aspects of the process, recognizing that the Japanese are more advanced in the field of monetary research.

In the meantime in South America at the highest levels this is not being discussed but rather whether Bank of the South will be a competition for one or another national development bank, or if this or that project is convenient. Leaving aside the frivolity of the debate, emphasis should be placed on the national development banks dedicating themselves to the promotion of national companies. This is what a development bank does. The biggest South American and perhaps the biggest of all American development banks is the National Bank of Social and Economic Development of Brazil (BNDES) which has total loans equivalent to 55 billion US dollars, much more than the WB in South America (36 billion USD), than the Interamerican Development Bank (IDB) (46 billion USD) and seven times more than the Andean Development Corporation (CAF) (8.1 billion USD). It is within this framework that the BNDES promotes its enterpreneurs and Brazilian national interest; that the Bank of the South should be used to finance a matrix of South American development, a matrix of clean energy, and above all, to recycle the currency surpluses that are in South America and the central banks, and which today finance the United States.

Dr. Fukushima of the Nomura Research Institute, sponsored by Nomura Securities, says in his work, “Challenges for Currency Cooperation in East Asia”, that the problem with the management of reserves today is that it is financing a government with a large deficit which makes use of external savings to carry out wars in which its financers do not believe.  Do South Americans believe in those wars?  Does anyone believe that there will be an economic recovery in the United States that would return it to a place of economic respect?  If not, it is time to start working on a concrete alternative, and quickly.  One lesson learned in the 20^th Century is that Republican governments maintain a barely responsible management of the economy and that they burden the rest of the world with their economic problems in such a way that the poor of the Third World end up paying for the expenditures of rich Americans, who pay progressively less in taxes while their government makes war. This has been true from the time of Coolidge, Harding and Hoover, passing on thru Nixon, Reagan and now Bush Jr.

The international financial instability being experienced at this moment is the direct product of the United States’ form of economic management. In Latin America until now we have not had any life-savers in case of problems, other than the IMF, which we now know first leaves the passenger to drown while it studies the conditions under which it will rescue him, and then recovers his body from the riverbank, usually blaming him for having drowned.  When governments have let go of the life-savers, they have started to grow with better distribution. That we learned with Brazil and Argentina. The only South American country with a loan from the IMF is Peru and that is to lock-in policies in case of a change in the Minister of the Economy, under some presidential impulse. It will never be spent because it is to guarantee the form of economic management sought by the elites in the face of the unreliable President Garcia.

The greatest resistance of the Brazilian government at the highest level to the regional architecture is that they would like the Bank of the South to finance IIRSA, a network of regional highways across the Amazon.  That is to put the cart before the donkey, as they say in Mexico.  A non-existent institution cannot finance anything. Even though it does happen, it is like dividing an inheritance before the death of the provider.  In order for Brazil to finance IIRSA, if that is what they want to do, the obvious way is to issue bonds in a South American accounting unit, payable in national currency within South America and deliver that money to BNDES.  That can be developed by means of a South American bond fund and the culmination of a study on the South American monetary unit.  IIRSA is an issue that is separate from the urgency of a regional financial architecture. First we design and make possible the architecture and then IIRSA can be discussed where and with whom is appropriate.  Support for IIRSA is neither a synonym for nor a condition of collaboration with the financial architecture; Marco Aurelio Garcia, the President of the Brazilian Central Bank, Mantega in the Ministry of Finance, Luciano Coutinho of BNDES and (foreign affairs minister) Amorim should have that clear.

In the second place, the central banks which buy treasury bonds could easily buy treasury bonds of neighbouring countries and bonds of development banks guaranteed by the treasuries, and recycle currency reserves within the region.  In part, this is the intent of the South American monetary unit as an accounting unit.  That was the intent of Chavez when he launched Bank of the South in 2005. That does not oppose that Bank of the South should be used to finance projects in the least advanced zones to level their development with the rest of South America.  It is obvious that Brazil does not need the Bank of the South to finance itself nor to finance its projects.  But neither does it gain anything by placing obstacles in the way of the concept of regional autonomy.  Brazil should see itself in the mirror of China in the Chiang Mai initiative.  After opposing it ferociously, it supports it unconditionally because it has understood that being the largest market it has the most to gain with full integration.

At this point, to oppose the South American financial architecture is to do a service to the status quo, to the United States Treasury and to the weakened and discredited financial institutions of Washington.  The reason it is urgent, at this moment, is that now Washington is not opposed to Asian regional integration and it is possible that it would also not oppose the South American version.  With the new government, who knows. We should remember that in 1984, Washington broke up the debtors club which was going to meet in Cartagena, Colombia, with the support of one Latin American government.  Let’s not repeat this now with Brazil. The Brazilian people and all South American peoples hope that Lula will live up to our expectations for the integration of peoples.
(Translation:  Donald Lee and ALAI).

- Oscar Ugarteche, a Peruvian economist, works at the Institute for Economic Research of UNAM, Mexico, and is a member of the Latin American Network on Debt, Development and Rights (Latindadd).