The Bank of the South: a conception without original sin

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The brief evolution of the proposal for the Bank of the South serves as a good example of “resistance to change”.  Initially, those who like to think of themselves as opinion leaders in political and financial circles, perceived it as a mere rhetorical idea put forward by President Hugo Chavez.  That is, as another one of the many proposals by the Venezuelan president, concerning non-dependent Latin American integration practices, which have been underestimated by the pedantry of those who traditionally have considered themselves the owners of the hemisphere.

Nevertheless, in spite of the initial reaction, that semblance of an ecclesiastical hierarchy, that professes to govern the so-called global financial architecture, is shaken to the core by a simple mention of the Bank of the South. The proposal for the Bank has even reached the half-deaf ears of the two multilateral organisations in Washington D.C.: the World Bank (WB) and the International Monetary Fund (IMF).

Why a proposal that sounded so logical has had to pass rapidly from a treatment of indifference to being recognized by the main actors in the process of integration, is a mystery for economic historians to elucidate.  The interesting aspect of it all is that the proposition was ignored just for being so obvious, since it is presented as a structural change proposal.  Change again generates resistance by those who consider the status quo to be the only possible reality and who wish to conserve it.

The greatest challenge the Bank of the South proposal is facing at the moment is to convert itself into a project for change that is both possible and viable.

Some of the arguments that justify the creation of the Bank of the South, enable us to comprehend not only the diagnosis of the situation it is aiming to overcome, but have also provided us with clues on how to differentiate this proposal from existing financial bodies.  This means dealing with some of the elements contained in the proposal, in order to answer the questions that those opposed to the project persistently pose: Why create a financial organisation, when finance mechanisms and organisations already exist that are successfully funding development?

The Bank of the South: part of a non-dependent integration strategy

Firstly, it is important to recognize the fact that the proposal is neither superficial nor improvised, it clearly forms part of the South American integration strategy. In other words, the Bank is and should be part of a proposal for global change in predominant economic and financial power relations, within Latin America, thus serving as a road to overcome the profound productive, trade and social gaps.

In this sense, the government of the Bolivarian Republic of Venezuela has been the driving force for the creation of this organisation, alongside a number of other projects, where Telesur stands out, along with energy integration, the ALBA initiative, and a set of agreements where trade compensations complement and give a new dimension to the scope of integration.  At the beginning of this year, in Venezuela the Presidential Commission for the Bank of the South was formed, composed of members from high level institutions, whose technical teams have been working for two years on the design of this proposal.  These are the Finance Ministry, the Planning Ministry, the Ministry of Foreign Affairs and the Venezuelan Central Bank. This Commission has developed an ample and inclusive working paper, which has served as a document for discussion and negotiation with the countries involved.  Therefore, the Bank of the South is neither an improvisation nor a proposal that “lacks content”, as has been asserted by those who attempt to disqualify it.  All these initiatives have something in common: they have gone beyond rhetoric to become facts.  They have not stagnated in paralysing criticism of dependence, but have taken on proposals for independence.

Closing the open veins

One of the mechanisms sustaining the vicious circle of dependence, is the interaction between financial flows of savings and investment.  The aim is to reverse the tendency of draining regional financial resources towards the main financial centres.  Therefore, the idea is to close the open vein of Latin America, in order to productively take advantage of these resources.   For a long time it has been argued that one of the problems for funding regional development is "insufficient savings", which again results in a disastrous paradox where international financial markets accumulate significant resources originating from the South.  The idea is to demonstrate that it is feasible to convert the financial resources that the region generates, so as to take advantage of them endogenously, consolidating our productive structures and overcoming the so-called social gaps.  However, this legitimate intention will have to confront the logic of the predominance of speculative financial capital over productive capital.

The Bank of the South\'s strategy should be oriented towards higher levels of autonomy that make for combining development with independence.  Economic and financial independence make way for political independence. That is the way to put an end to the role of protectorate and the intervention of multilateral organisations in our economic policies.

Finance... for what development?

As has been stated, these financial resources are a necessity for supporting development.  But what exactly is implied by development?  At the bottom of the discussion on the objectives and operation of the Bank of the South, the development proposal defended by traditional organisations of the international finance system - which up to now has been predominant -, comes into conflict with the endogenous development proposal, still under construction.  The neoliberal proposal of exogenous development has counted on funding from multilateral organisations on the understanding that “dynamic insertion” in the so-called globalisation process will bring about in and of itself the development of nations.  When in reality, what these multilateral organisations have done is finance projects that make it possible to connect a few productive activities (in general primary export) with chains of capital valuation, on a global scale.  Venezuela experienced this proposal well in advance; since the 60s, enormous financial resources were invested to construct the giant conglomerate of basic enterprises that is the City of Guayana, in the south of the country.  However, the communicating vessels making up this productive nucleus were and are oriented outwards, to the detriment of its integration with the national productive structure.  With every piece of primary material, we were - and still are - exporting cheap energy, contributing to accumulation of wealth in the developed centres of global capitalism.

Similarly, the building of transport and communications infrastructure has been funded - and continues to be - in a way that strengthens dependence, in answer to the needs of the transnational capital market.

The neoliberal paradigm, and especially the theory of endogenous neoclassic growth, continues to be the hegemonic thinking present in organisations of the financial architecture represented in the region (IMF, WB, IADB), including those organisations born in the process of regional integration, such as the Andean Corporation for Development (CAF), the South American Infrastructure Integration (IIRSA) and the Latin American Reserves Fund (FLAR).  The conception of development is part of what should differentiate the Bank of the South from the dominant institutions.

Overcoming the short-sighted vision of the market and the predominant logic of speculative financial capital within integration schemes, as well as the predominant development paradigm imposed by neoliberal ideology, is one of the challenges the Bank of the South faces in order to distinguish it from the present system.

It is not a question of denying the importance of commercial integration, since without that, the process would just be a poetically idealistic discourse.  The challenge is how to subordinate trade and market integration to the strategic objectives of independence and economic, financial, commercial, and political autonomy.  And not the other way around, as this relation is clearly established today.

The importance of cooperation

There could well be a great distance between the necessity of creating a regional block and the need perceived by decision makers.  The possibility of creating a regional pole of economic and political control that allows for negotiations from a more favourable position with the dominant poles of power, requires a shared vision with high awareness of cooperation among the national states involved.  However, this necessary vision of unity as a regional block is confronted by particular hegemonic views on the one hand, and on the other hand the survival of countries affected by asymmetric conditions.  Some countries have opted for bilateralism, thus steering clear of the integration blocks, or they play in both fields: participating in the integration scheme whilst slowly crafting an FTA relationship with the USA.  Others have opted for the benefits of being free riders, enjoying individually those parts of integration that interest them, without caring about the delays this causes for the process as a whole.

The need for a “team vision” faces the disadvantage of being crosscurrent with values promoted by neoliberal ideology, as expressed in policies of liberalization and opening of markets.  These have amply benefited hegemonic economical power groups, especially financial capital.  In other words, the effort of constructing a regional block is an uphill struggle.  It faces strong opposition from specific conservative forces that will attempt to defend their conquered terrain, bolstered by the promotion of bilateral strategies that subject foreign policy to corporate interests.

It is fundamental for the Bank of the South to promote inclusive and non-dependent integration.  Maintaining an integration discourse, at the same time as letting asymmetry be reinforced, generates a double standard that undermines the credibility of the integration schemes.  Taking into account the asymmetries between countries involves incorporating the values of cooperation and solidarity into the integration process, contrary to the postulates of neoliberal ideology.  It means considering that countries with a smaller economic, population and territorial mass have the right not to be excluded and to be considered as more than mere markets.

Neoliberal thinking has been successful in positioning the belief that cooperation is contrary to market competition and efficiency.  Nevertheless, cooperation has also shown that it can develop markets.  A recent example is how the inauguration, in Uruguay, of a Bandes office stimulated competition strategies from the local and foreign banks, when the Venezuelan development bank offered certain financial products in Uruguayan territory.  The commercial experience of the ALBA scheme and of the trade agreements promoted by the Bolivarian Republic of Venezuela, is demonstrating that it is possible to develop trade flows and at the same time to contribute to strengthening a country\'s capacities and opportunities, especially the social capabilities that facilitate economic growth with social inclusion. Thousands who have benefited from health, education and housing projects serve as living testimonies to this cause.  This interchange goes beyond the support for reducing social gaps, but also contributes to technology and knowledge transfer.  Such is the case of the managerial support of the Uruguayan electrical company UTE (Usinas y Transmisiones Eléctricas) given to its Venezuelan counterpart CADAFE (Compañía Anónima de Administración y Fomento Eléctrica).  Venezuela is demonstrating with deeds that another integration is possible, as long as it exorcizes the neoliberal thinking that has possessed the practices of regional integration.

The socio-political and diversity framework

Finally, we should not forget that a proposal with such good and fair intentions will be viable, only if it keeps a sense of reality.  And to that end, we cannot forget the limitations that the existing institutions in each country impose.  Within these institutions, two components stand out: the governmental and state bureaucracies and the dominant power groups.  In order to negotiate the key points of the Bank of the South proposal, it is fundamental to avoid committing the same errors multilateral organisations have made.  Before their officials even alight from the plane in our countries, they already have a diagnosis and a standard recipe; and these fail to take into account the distinct reality of so many diverse countries.  We are Latin Americans, we belong to the same hemisphere, but we have important differences and if there is something that has been proved during the long night of neoliberalism, it is that recipes cannot be imposed, and that our complex realities demand different rhythms of advancement, independent of our will to integrate.

One of the areas in which institutional diversity is evident is in negotiation capabilities.  We have, on the one hand, countries with strong institutions in diplomatic relations, a solid experience in international negotiations, an almost supra-governmental tradition in foreign affairs ministries; and on the other hand are those countries with weaker institutions and little tradition in international negotiations.  At the same time, bureaucracies of the foreign ministries and the governmental organisations suffocate government strategies and become a true obstacle in attempting integration under a way of thinking that is not subordinated to hegemonic interests.

Central banks have a decisive power in the financial aspect of integration.  In most of the region\'s central banks, a neoliberal conception of their role is foremost.  They therefore defend their autonomy and independence and use this to maintain a conservative position that converts them de facto into snipers against the financial integration process.  At the same time, they fail to criticize the relations of subordination and dependence imposed by the actors with power in the international financial system. For neoliberal thinking, the best of worlds for a central bank is to be independent from the national States but contented employees of the IMF.

Another factor that influences present institutions is the existence of power groups, in the form of different socioeconomic actors.  This is why the history of development banks in our countries has turned out rather unfortunate.  In more than a few cases, these experiences led to the private appropriation of a significant mass of public financial resources, to capital flight, to a depressing file of inefficiency and corruption.  For that reason, it is necessary to build a development bank that does not end up serving the interests of local or national power groups, be they economic, political-partisan or professional groups.  The bank of the South should be at the service of the peoples.

Promoting change

A number of these factors should call our attention towards construction of a financial architecture that promotes true regional integration.  If we created a Bank of the South that reproduces the same genetic pattern as the WB, the IMF, the IADB or even FLAR, IIRSA and CAF, a qualitative change will not be brought about.  It would be better to leave them to do their task, as they do it well, (within their neoliberal ideology).

We have abundant reasons to affirm that the progressive tendency in Latin America is consolidating, and therefore the conditions, in spite of the weaknesses and threats indicated, are favourable for new winds to help us navigate towards a different and possible world.

For this to take place, the Bank of the South needs to be built under a strategy of stages or modules.  It is not possible to achieve multiple goals at the same time; with limited resources, it will be difficult to efficiently maintain all the functions at the same level: as a development bank, as a macroeconomic stabilization fund and as a financial investment bank.  The three aspects can be developed progressively, and this does not mean it will take forever, since Latin America has been moving faster forward than ever in recent years.

The integration experience should be strengthened, along with its two main supports: on the one hand, existing institutions are trying to respond to the challenges of this new phase of integration; and at the same time, parallel to this, the peoples, organized and aware, are pushing for an integration that benefits them at last, overcoming the resistance of both conservative bureaucracies and the interests of hegemonic groups.  (Translation:  ALAI).

- Jose Felix Rivas Alvarado is an economist, Director of the Central Bank of Venezuela (BCV).

 (The ideas expressed in this article do not engage the position of the directory of the BCV, nor represent the official position of the Venezuelan government).

(This article is included in the July issue of América Latina en Movimiento, No. 422, focused on the theme “Deuda: cambios en la arquitectura financiera”, now in circulation:
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