Abstract
The proposal of a Banco del Sur began to be discussed in 2007 and generated important debates about the need to establish a new regional financial architecture. These discussions resulted in consensus about the importance of financing development at the regional level. An analysis of the positions and development visions of four key states—Argentina, Brazil, Venezuela, and Ecuador— in the negotiations for the establishment of the Banco del Sur and their implications for its design reveals important differences about its purpose—whether it should be the center of an institutional network aimed at the construction of a new regional financial architecture or simply a development bank.
La posibilidad de un Banco del Sur se comenzó a discutir en 2007 y generó importantes debates sobre la necesidad de establecer una nueva arquitectura financiera regional. Estas discusiones dieron lugar a un consenso sobre la importancia de financiar el desarrollo a nivel regional. Un análisis de las posiciones y visiones de desarrollo de cuatro naciones clave (Argentina, Brasil, Venezuela y Ecuador) en las negociaciones para el establecimiento del Banco del Sur y sus implicaciones en dicho proyecto revelan importantes divergencias sobre su presunto propósito: ¿debe ser el centro de una red institucional destinada a la construcción de una nueva arquitectura financiera regional o simplemente un banco de desarrollo?
The first voices expressing the need for autonomous financing of development in Latin America emerged in the mid-2000s, and governments voiced their interest in the establishment of a new regional financial institution. The Venezuelan President Hugo Chávez and other high-level officials of his government went so far as to link this need to the possibility of building a great Southern gas pipeline that would stretch from Venezuela to Argentina and might become the region’s principal energy system. This would have been an enormous project requiring a corresponding investment, and a regional bank was seen as necessary to achieve this. The proposal came at an economic juncture when, paradoxically, the countries of the South were contributing to stimulating the global economy through an increase in reserves deposited in the commercial banks of the North. After 2005, the idea of no longer financing the economies of the North began to solidify, and this led to the idea of a Southern development bank.
As a first step, Venezuela and Brazil signed a memorandum of understanding in 2005 to study the feasibility of such a bank (Linares, 2007). The idea moved to the development phase with the signing by Venezuela and Argentina of a memorandum of understanding in February 2007. This agreement was based on dynamic relations between the two countries that included financial innovations and fruitful political and economic links. Venezuela had recently acquired nearly US$7 billion in Argentine bonds, and the two countries had issued a joint sovereign-debt bond (Dellatorre, 2006). For Venezuela, acquisition of the Argentine bonds had served as a control mechanism for the parallel foreign currency market and had allowed the retention of working capital, thus reducing inflation. For Argentina, restructuring of its sovereign debt had substantial benefits (Crespilho, 2010).
Joining Venezuela and Argentina in the negotiations for the Banco del Sur in March 2007 were Bolivia, Ecuador, Paraguay, 1 Uruguay, and Brazil. In these negotiations, there was sustained academic and political debate about the possibility of establishing a new regional financial architecture, gradually replacing the international financial institutions with others that were regionally based. As Ortiz and Ugarteche (2008) explained, “What is at stake is not only the creation of a development bank but also a new regional architecture that includes three interrelated elements: (1) a Southern monetary unit, (2) a monetary stabilization fund, the Fondo del Sur, and (3) a Banco del Sur that would use existing reserves for the region’s development.” The Banco del Sur initiative, therefore, created expectations of an alternative architecture for the region that would contribute to “overcoming the vicious circle of conditioning the financial dynamic on the fragility exhibited by volatile markets, the pressure to provide profitable differentials to compete in attracting volatile international capital, the use of public guarantees for speculative or advantageous enrichment, and the recurring drainage due to capital flight and placement of savings overseas” (Marchini, 2006). Despite the technical and political complexities of this project, the region’s economic and political climate in 2007 was exceptionally favorable. Governments that, despite ideological variants, maintained a clear commitment to regional integration had come to power. Some of these governments had begun dismantling neoliberal structural adjustment policies, and unorthodox economic policies, many in line with a new developmentalism, prevailed.
On an institutional level, the Banco del Sur initiative arose at a time of serious difficulties for the existing international financial institutions. The International Monetary Fund (IMF) had been discredited, and many of its best clients had settled their accounts with the institution. Among them were not only countries critical of their efforts such as Argentina and Venezuela but even Turkey, a faithful follower of its policies. This entailed severe decapitalization and even heavy personnel cuts (Woods, 2010). The situation of the World Bank and the institutional network devoted to financing development projects was no different, and its lobbying ability in South American countries was less than that of institutions such as the Brazil’s Banco Nacional de Desarrollo Económico y Social (National Bank for Economic and Social Development—BNDES). It was only the financial crisis at the end of the decade that gave new impetus to global institutions, reactivating their capacity for funding and political action.
Similarly, the region’s recent history was marked by the liberalization of capital and financial deregulation, which increased the penetration of large financial conglomerates. The region remained a net exporter of capital, with meager benefits obtained from its reserves, while receiving loans at higher cost and direct investments that did not match expenses (López, 2011). In addition, the international reserves of Southern countries were deposited in U.S. and European banks and were not just in dollars but in bonds, where they constituted a significant sustainer of the U.S. federal debt. Nevertheless, from a commercial viewpoint, these transactions incurred losses for the economies of the South; while the bonds paid 4–5 percent interest, these countries paid 8–10 percent interest on their foreign-debt securities (Toussaint, 2007). In turn, the logic of financialization in Latin America had deepened an existing structural dynamic in the region’s economy, which was marked by constant capital flight and recurring speculative crises. In Marshall and Rochon’s (2009: 187) view, the broader objective of the bank had to be “simultaneously to promote investment and production in South America and minimize capital flight in the region.”
This article analyzes the extensive negotiations for establishing the Banco del Sur. First I examine participants’ views on the type of institution it should be, whether the center of an institutional network aiming at the construction of a new regional financial architecture or simply a development bank. Secondly, I look at the development visions of some key states—Argentina, Brazil, Venezuela, and Ecuador—and their implications for the bank’s design. Lastly, I consider this entity’s challenges and prospects.
The Initial Phase of the Negotiations
In general terms, the states that signed the Banco del Sur agreement concurred regarding the need to establish a new institutionality that would manage the region’s finances in a “sovereign” way and overcome dependency and the interference of the traditional international financial institutions (Gambina, 2009; Ugarteche, 2008a). They also agreed on the need for regional “development” (based on “national” interests), reduction of asymmetries, and improvement of social conditions for the population, as well as the reduction of inequalities and the empowerment of minorities (Strautman and Soares, 2007; Toussaint, 2007). In the course of several meetings, representatives of the various governments and academic, technical, and political consultants presented ideas on the need to reconfigure the region’s financial architecture, with the Banco del Sur as a starting point.
To this end, in May 2007, the Quito Declaration, promoted by Ecuador, was signed, asserting the “need to design a new regional financial architecture aimed at strengthening the continent’s role in the globalized financial and commercial world so as to benefit a production system that prioritizes the basic needs of our peoples” (“Declaración de Quito,” 2007). In addition to creating a development bank, participants agreed to examine the possibility of establishing a regional stabilization fund and moving ahead with the establishment of a regional monetary system that might “begin with bilateral trade in national currencies.” A similar spirit was apparent in the Asunción meeting a few weeks later. In October of that year, however, consensus was reached in Río de Janeiro on the principal features of the Banco del Sur as a development bank, and the other initiatives agreed upon in Quito were abandoned (“Declaración de Río,” 2007).
On December 9, 2007, the founding charter was signed, launching a new negotiation process for a constituent agreement. Ecuador kept the leadership focused on an alternative regional financial architecture. In the words of President Rafael Correa, “The Banco del Sur [will be] the heart of a network of development banks reoriented toward an alternative plan, the organization of Latin American central banks around the Fondo del Sur as a central element and convergence toward a common monetary plan based on the development of a system of payments supported by a regional account currency” (“Discursos,” 2007). Ecuador proposed these initiatives in a national context of assessment of its sovereign debt. In addition, its having a dollarized economy may have given it another reason for seeking a new financial architecture (Strautman and Soares, 2007), given that developing a regional financial system would have fewer risks than de-dollarization.
Brazil, for its part, maintained that the bank should become an institution for promoting development focused on financing infrastructure (Strautman and Soares, 2007). In contrast to Correa, President Luiz Inácio (Lula) da Silva (“Discursos,” 2007) defended the new initiative as
a genuinely South American development bank, . . . that can finance projects in key sectors of our economies such as infrastructure, science, and technology to promote social development with projects aimed at reducing poverty and regional asymmetries. Through it we will overcome the limited access to financing from multilateral development banks and private banks . . . an important step toward strengthening South America’s financial autonomy.
The negotiations included discussion of the possibility of setting up a sister institution along the lines of the Fondo del Sur with the goal of gradually replacing the IMF and the World Bank in the region. Brazil’s response to this is reported by Ugarteche (2008b) as follows: “This idea was objected to by Brazil as antitechnical, in part because it was and in part because it didn’t come from Brasília.” In this case, the strength of the so-called big economies was important in the politics of the negotiations. Ecuador, attempting to mediate between the “big guys,” aimed for a middle ground between technical feasibility and political innovation (Ugarteche, 2008a).
Along with supporting a traditional conception of the bank as one more multilateral organization, Brazil maintained that it should follow the model of the latter in terms of decision making (Ortiz and Ugarteche, 2008). President da Silva was articulate about this (“Discursos,” 2007): The solidity, credibility, and, most important, efficacy of the Banco del Sur will depend on firm and credible practices of administration and governance that combine, in a just and balanced way, the principles of parity and proportionality. Initiatives such as the creation of a stabilization fund for countries with disequilibrium in the balance of payments, a system of payments in local currency, and a South American fund are projects that will permit a reduction of our region’s dependency vis-à-vis the international financial system and the consolidation of economic-financial relations among our countries.
For the Brazilian government it was fundamental that it have influence over the financial conception of credit for development in the region. Its principal credit mechanism, the powerful BNDES, could invest only in projects to be carried out in Brazil or by Brazilian companies overseas. One possible strategy for improving this situation was expanding its participation in an existing investment mechanism such as the Corporación Andina de Fomento (Andean Development Corporation—CAF) (Strautman and Soares, 2007), and the government did attempt to add some US$200 million to that entity. However, this strategy only opened “access to more lines of the institution’s financing” rather than having greater impact on the granting of credit. For its part, the Venezuelan government promoted the creation of the Banco del Sur as an alternative to the traditional international financial institutions, going so far as to conceive of it as a substitute for them. Likewise, it defended the “one country–one vote” mechanism while rejecting private-sector financing and placing emphasis on state, cooperative, and community production (Ortiz and Ugarteche, 2008).
Twenty months after the signing of the founding charter (the commitment had been to reach an agreement in 60 days, which could be extended for another 60) the constituent agreement was signed on September 26, 2009. The delay was not a minor issue; the commentary on this situation from the Economist (2007) suffices as an indicator: “Rather than a gesture of defiance, the bank looks like an object lesson in why South American unity is so hard.” In effect, the agreement incorporated the various nuances of the previous discussion among the states. Thus the principal function of the bank was to be “to finance development projects in key sectors of the economy, aimed at improving competitiveness, scientific-technological development, infrastructure, creation and provision of services, intraregional productive complementarity, and the maximization of value added to raw materials produced in the countries of the region” (Gaceta Oficial, 2009). To this clearly developmentalist and extractivist perspective was added the intention to support projects in sectors such as “health, education, social security, community development, social economy, promotion of participatory democracy and leadership, culture, sports, projects aimed the fight against poverty and social exclusion and, in general, all those tending toward an improvement in the quality of life and the protection of the environment.” In addition, special mention was made of the financing of “regional infrastructure” and the “creation and expansion of regional production chains.”
The constituent agreement paved the way for the bank’s link to the speculative financial sector of the economy. Thus the Banco del Sur could “issue bonds and any other security to finance its credit activities” and “carry out operations of securitization of assets and, in general, take deposits of any kind” (Gaceta Oficial, 2009). In addition, the institution could function as an agent of debt instruments for members, administer trust funds, and exercise other fiduciary functions. This mechanism would allow the bank to collect its own funds and create mechanisms to attract deposits and at the same time be assessed by the capital markets.
The bank’s highest decision-making body was to be an administrative council of ministers of the treasury, economy, finance, or their equivalents and its executive body a governing board. Each member country was to have one vote, with decisions to be made by a qualified majority (for structural matters and major financing) or a simple majority (for operational matters). The capital assigned to the bank was US$7 billion, with contributions of US$2 billion each from Brazil, Argentina, and Venezuela, US$4 million each from Ecuador and Uruguay, and US$100 million each from Bolivia and Paraguay. The authorized capital stock amounted to US$20 billion, and the underwriting capital could amount to US$10 billion if other member countries of the Unión de Naciones Suramericanas (Union of South American Nations—UNASUR) were to join the project. The bank would be capable of granting US$60 billion in loans, which would make it virtually the largest development financier in South America, along with the BNDES. The maximum debt limit would depend on contributions, with the countries on the lowest level being able to receive a greater range of loans per dollar invested.
Leadership and the Development Visions of Key States
Argentina
Reviving the idea of development ultimately entailed relinquishing the hegemonic idea of the self-regulating market as the mechanism for allocating resources to investment in production. Some Argentine representatives were very vocal about this idea. Guillermo Wierzba, director of the Centro de Economía y Finanzas para el Desarrollo de la Argentina (Economy and Finance Center for Argentine Development), emphasized the centrality of the resurgence of the development paradigm and the pertinence of the Banco del Sur in this new dynamic. For Wierzba (2011), reviving the idea of development meant strengthening the role of the state in both production and social and environmental investment. Other Argentine representatives and analysts spoke of the country’s commitment to a new regional developmentalism linked to the recovery of democracy.
The analysis presented assumed, along with government investment, other dynamics of social participation identified with the national political expressions of the region’s “progressive” governments. According to Wierzba (2011), The logic proposed for the assessment and allocation of credit based on achievements is intimately linked to the restoration of citizen democracy as a rationale for long-term resource allocation in their economies. . . . The revival of the idea of development banks and the Banco del Sur in the region has to do with the restoration of democracies and the broadening of political and social participation of the citizenry and, therefore, with the need to displace the market, which has failed and tends toward the concentration of wealth and the reassertion of underdevelopment, as the pivotal point for long-term resource allocation.
Argentina’s interest in the Banco del Sur stemmed from its desire to extend the national productive apparatus and redistribute income through active social policies advanced by the president. Víctor Fuentes Castillo, adviser to the finance department of the Ministry of the Economy and a negotiator for the Banco del Sur, suggested that this was because Argentina lacked its own development bank: “Argentina is interested in the Banco del Sur because we had a development bank that shut down because of mismanagement—it gave out political credits and ended badly. It was not operated responsibly. Here we are always talking about the need for a development bank” (interview, Buenos Aires, September 3, 2011). Further, he acknowledged leadership vis-à-vis the poorer countries in the region as a motivation for countries like Argentina, Venezuela, and Brazil: “Also important is ‘the vision’—equally valued—to aid in the development of other countries that are worse off than we or have less purchasing power or are smaller.” This idea implied a moral imperative for leadership: “In this sense, the three big countries—for example—have a greater moral responsibility to assume a certain amount of leadership. That is why Brazil, Venezuela, and Argentina take this on, and, in fact, we used to hold meetings among us three” (interview, Buenos Aires, September 3, 2011). In this context, however, there is debate among the different interests that mediate the visions of the states in the negotiations: “From what I see in UNASUR and in the Banco del Sur, it seems that Argentina sometimes acts as a mediator of ideological differences. It is in the middle between Ecuador, Bolivia, and Venezuela and, perhaps, Brazil, which should not by any means be considered a right-wing country but has a very specialized staff. We stand in the middle and try to achieve a certain balance.”
Once again, the objective of an institution like this one centers on deep structural changes to the productive apparatus. The debate over the establishment of the Banco del Sur revives criticisms of the region’s overspecialization in production and the export of raw materials (although, paradoxically, this has helped to moderate the crisis because of the balance in the countries’ foreign accounts). In Wierzba’s proposal and those of others, the call was for diversification. For Fuentes Castillo, there was “a certain consensus that we must give impetus to industry: to be a developed country you must be an industrial country, so we must make the transition toward industrialization.” The so-called consensus reintroduced the developmentalist notion of the imperative to generate greater value added and, ultimately, more jobs and wealth that would translate into well-being (interview, Buenos Aires, September 3, 2011). The idea of establishing a new developmentalism in new financial structures in South America was urgent according to the logic of anti-neoliberal governments seeking regional integration as a path toward greater autonomy from the countries in the center of the capitalist system. This made the social situation, including well-being and employment, the crux of any regional development policy and diversification of production, along with technical education and health, the most pressing need.
To a certain extent, Argentina’s neo-developmentalist proposal is rooted in the Kirchner administration’s political process. This developmentalist platform of growth with equity is related to Sunkel’s proposal (2006) of a “sociocentric” development whose principal innovation was social participation in line with the Economic Commission for Latin America and the Caribbean (ECLAC). This strategy raises the question of the possibility of a new dependency dynamics involving emerging subregional powers—mainly Brazil—or extraregional ones such as China. At the same time, as Crespilho (2010) states, it implies removing the “alternative” classification from these integrationist proposals. In sum, the latter represent a salvaging of the traditional model of development or what Escobar (2010) calls the strengthening of South American left governments’ modernizing vocation. In addition, Gudynas (2009) claims that the satisfaction of social demands has become a major justification for a new extractivism linked to progressive governments in the region that has intensified the depredation of nature while making extractive economies more dependent. On a purely discursive level, social participation is used to legitimize the new developmentalist strategy. In practice this has not been apparent either in the negotiations for the main regional integration accords or in the establishment of the Banco del Sur.
Brazil
For advocates of the Banco del Sur initiative in Brazil, a strategy focused on unilaterally strengthening the position of the BNDES in South America could guarantee Brazil’s control of investments but might also inspire anti-Brazilian sentiment. In this context, it was considered necessary to opt for a “multilateral” strategy such as the Banco del Sur. Calixtre and Barros (2010: 20) advance the idea that the “locus” of Brazilian foreign policy in recent years has been South America, viewed primarily as an opportunity of investment. They argue that the country’s leadership has political overtones: From the beginning of the Lula administration, with the priority it gave to South-South relations in foreign policy, South America stopped being viewed simply as a captive market and became an area that justified major investment such as the commercial and financial projects of the G-20 nations and those associated with the Olympic Games and the World Cup (initiatives that depended on the support of all the region’s countries). This movement coincided with the crisis of the free-market paradigm of integration, which reached its peak with the symbolic postponement of the proposed Free Trade Area of the Americas at the Mar del Plata Summit of the Americas in 2005. Even before this there was intensification of the activities of new initiatives for integration such as the South American Community of Nations (later UNASUR) and the South American Defense Council, along with the BNDES and Petrobras.
Nevertheless, Brazil’s decision-making leadership had serious reservations regarding the initiative and participated in the constituent agreement only after the Banco del Sur was identified as a potential financier of the Inter-American Development Bank’s Initiative for the Integration of the Regional Infrastructure of Latin America (IIRSA). It has been suggested that Brazil was interested in the bank as a supplement to the principal multilateral financiers for infrastructure projects (Carvalho et al., 2009; Crespilho, 2010; Rosero and Erten, 2010)—in other words, as joining the Inter-American Development Bank, the BNDES, the CAF, and the Fondo Financiero para el Desarrollo de la Cuenca del Plata (Fund for the Development of the Plata Basin—FONPLATA) in efforts to consolidate the physical integration promoted by Brazil in the framework of UNASUR. Ultimately, Brazil entered the negotiations because it could not remain outside the principal existing or future regional mechanisms (Crespilho, 2010) but also because its presence would guarantee it a voice in the project conceived by representatives of Ecuador, Venezuela, and academia (Rosero and Erten, 2010). The proposal’s initial rejection by some sectors of the Brazilian government was mitigated by the need to be part of a nascent multilateral institution that enjoyed the support of partners like Argentina and Venezuela. In turn, Brazilian participation would contribute to turning the original idea into a more modest and manageable project that would complement other initiatives in which Brazil was involved. Calixtre and Barros (2010) suggest that, despite the lack of any specific reference to IIRSA in the constituent agreement, other points attributable to Brazilian lobbying were included in the document, among them profitability, efficiency, and financing exclusively for development.
In any case, the physical integration promoted by Brazil, although some countries and social movements opposed it, was fundamental to its interest in expanded production and political leadership in the region and the world. Burges (2007: 1344) contrasts the competing leadership visions of Brazil and Venezuela, arguing that the Brazilian objective was to “create a vibrant market in South America for Brazilian products and a source of the energy resources necessary to its economy.” This “market-friendly” view was not, however, fundamentally neoliberal, since it had at its core “state support for national enterprises” to take advantage of global and regional market opportunities. The essence of the strategy was the “neo-structuralist imperative that leads Brazil to make diversification of the country’s commercial ties a foreign policy priority” (2007: 1350).
In addition to Brazil’s importance in defense of the South American political union within the framework of UNASUR, the economic strategy was fundamental to the country’s notion of strengthening its presence in the region. For building solid ties in the South, physical integration was central: “Efforts to continue the development of an authentic network of transportation, energy, and telecommunications agreed upon within the IIRSA remain solid” (Burges, 2007: 1350). Support for the IIRSA was a means of shoring up the installed capacity of Brazilian companies in their international expansion, which entailed renewed support for pro-multilateral-market strategies such as the reciprocal-payments agreement of the Asociación Latinoamericana de Integración (Latin American Integration Association—ALADI) and the plan to finance exports guaranteed by the BNDES. References to UNASUR’s Consejo de Infraestructura y Planificación (Infrastructure and Planning Council) are no coincidence; the council was the new coordination body in the IIRSA proposal as a technical body under UNASUR that might be financed in part by the Banco del Sur (Barros, 2011).
Ecuador
Although Ecuador’s original idea of establishing a group of institutions at the regional level did not produce the expected results with regard to the negotiations for the Banco del Sur, progress was made in establishing a common account currency within the Alianza Bolivariana para los Pueblos de Nuestra America (Bolivarian Alliance for the Peoples of Our America—ALBA), and Ecuador remained proactive in public fora on the type of development bank the Banco del Sur should be. In contrast to the Brazilian view, focused almost exclusively on physical integration, the Ecuadorian position centered on establishing a new kind of development bank. Presentations of the Ecuadorian proposal were explicit about the need to establish priorities different from those of the traditional institutions, which would involve “creating a new concept of supranational sovereignty based on the basic necessities of the people in the region” with energy and food sovereignty being fundamental pillars (Onofre, 2011). One idea repeatedly proposed by the Ecuadorian representatives was promoting supplements to the production systems in the region through the investment platform of the Banco del Sur. Another was direct financing of “popular economies” based on recognition of their different identities and sociocultural histories.
One of the proposals most widely discussed by representatives such as Pedro Páez was the design of sovereignty projects related to health, with industrial production of generic medicine on a regional level. The most important step forward in this proposal was the idea of pursuing basic and applied research using Western scientific methodologies and at the same time incorporating the knowledge of original peoples (Páez, 2009). In contrast to approaches centered on infrastructure, this Ecuadorian proposal, although not yet well developed, shows concrete ways to apply, recognize, and incorporate different cultural visions into the development perspective. This should not come as a surprise, since Ecuador is one of the parties with the strongest interest in transcending traditional policy. The debate over “living well,” extractivism, and the rights of nature, while it is not yet official Ecuadorian economic policy, has been increasingly important in legislation beginning with the 2008 constitution and the development plan for living well (Escobar, 2010).
Thus, for Ecuador, at least during Banco del Sur negotiations, the environmental issue went beyond the mere statement of principles. One line of action proposed dealt with “environmental remediation” that included environmental, social, and labor standards (Páez, 2009). In this proposal, the environmental issue was clearly set against ideas such as the IIRSA. In fact, an alternative plan that Páez called “different spatial organization” emerged with the Camino del Inca (Inca Way). The proposal also envisioned joining in efforts to eliminate dependence on the dollar, making loans available in local as well as foreign currencies. At the same time, it attempted to create regional production chains that might facilitate productive integration.
Once again, the Ecuadorian proposal emphasized the absolute necessity for coordination between the Banco del Sur and other institutions to establish commercial dynamics and financial flows in harmony with a regionally complementary production scheme. For Páez (2009: 170), It is impossible to separate the dynamics of trade and financial flows in the productive activity of the economy’s operation. . . . If a common currency or a regional account currency is to be sustainable, it must have institutional structures that allow it to strengthen connections. This does not mean imposing unsuitable trade relations; we must make changes in the structures of production so that they complement one another.
The Ecuadorian strategy was to advocate a new regional financial architecture while establishing institutions such as the Banco del Sur and strengthening mechanisms such as the Sistema Unitario de Compensación Regional (Unitary System of Regional Compensation—SUCRE).
Venezuela
The Venezuelan position also reflected the importance of a new regional financial architecture. Its official spokespersons promoted the idea, although less actively and publicly than the Ecuadorian representatives. In fact, in seminars, workshops, and private discussions the Venezuelan representatives spoke of the idea of a new regional financial architecture as their own. The crux of the Brazilian concerns was the use of international reserves for various ends, risking a loss of the efficiency and profitability that were the most important assurance for other nations. 2 While Venezuela supported the proposal of a new regional financial architecture, the alternative financial institutionality discussion in the framework of the Banco del Sur was not completely shared by the technical staff, which considered it necessary to strengthen the bank first as a development bank.
In Venezuelan President Hugo Chávez’s proposals, the main objective of the bank was the independence and sovereignty of states in the acquisition and control of their own or outside funds. As José Félix Rivas Alvarado (2007), director of Venezuela’s central bank, put it, “It is and should be part of a project for global change in the economic and financial power relations prevalent in Latin America as a way to overcome the deep production, trade, and social gaps.” For this high-level representative, the ultimate goal of the bank was “to close the open veins” and reverse the dependency dynamic with a project of independence for the region. In his view the considerable challenge for the bank was to create the conditions for South America’s financial and trade independence.
In a later discussion that led to the UNASUR’s Seminar on Economic and Financial Integration, Rivas Alvarado (2011: 23) explained that instruments such as the Banco del Sur, the Banco del ALBA, and the SUCRE were “measures that are shaped by a goal that is embodied in a development project.” According to this proposal, the development project advocated by Venezuela differed from the one then being financed by the international financial institutions. Efforts to construct a new regional financial architecture were aimed at resolving the region’s dependency and subordination. According to Rivas Alvarado, these efforts were “employed to unharness ourselves from dependent integration and achieve a connection between nations that allows for a more autonomous and independent development in the region” (27). Nevertheless, the debate continued over what kind of affirmative development the new institutional network would or should support (30): The financial architecture with a new face will struggle with key questions that mark its difference from or similarity to the inherited regional integration, inspired both by the European model and by the development paradigm promoted by the international financial institutions and particularly the integration-absorption plan proposed by the United States. In other words, would the financial resources that capitalize and make up the project portfolios continue to validate the current trend of refocusing economies?
The issue might be described in terms of certain diagnostic problems that remained after five decades of integrationist experiments: poorly integrated economic structures, little productive diversification, net export of capital, and a refocusing and deepening of asymmetries among the region’s economies. A bank solely for development could not deal with the simultaneity and complexity of these problems. If alternative and critical rationales on modernity and development were taken into account, grassroots participation and environmental and labor justice in the productive and reproductive spheres had to be considered.
In sum, the Venezuelan position was the result of critical reflection on dependent development, with scant attention to the formal rationale for decision making in the development of regional integration (beyond the mere defense of the equal sovereignty of states) and only a few critical statements about extractivism and the destruction of nature in the process of appropriating capital. A crucial point in the Venezuelan position, which met with resistance from the more technical perspectives of partners such as Brazil and Argentina, had to do with the use of international reserves in direct social and productive investment, which had been the driving force of the economic policies of Bolivarian socialism since the creation of the Fondo de Desarrollo Nacional (National Development Fund—FONDEN).
The link between social expenditures and the expansion of rentier policy is a key issue in understanding the Venezuelan economic phenomenon and the country’s interest in setting up a new type of regional development bloc. The primary-export feature of the Venezuelan economy is important here. In Venezuela “the state and society are sustained by a single product: hydrocarbons. It is precisely the essence of the energy model that threatens the survival of human life” (Lander, n.d.: 39). The rentier rationale permeates national policy and is transmitted to the population in the form of a vision of unlimited progress and consumption: “The aspirations and demands that we citizens place on the government assume the existence of a rich country with constantly expanding oil income.” This phenomenon extends to Bolivarian foreign policy and its view on support for development, which are sustained almost exclusively by the revenues derived from oil (Burges, 2007; Lander, n.d.).
Challenges and Prospects for the Banco Del Sur
At the start of the last quarter of 2011, the Banco del Sur was still not operational. After four years of negotiation, this institution, whose importance for the South American economic dynamic must not be underestimated, had a long way to go before it could begin to function. Among the major obstacles was the region’s inability to take on a common project as a bloc. The result was an abridgement of the initiative first proposed and the identification of some key points of consensus among the states.
The constituent agreement went into force in four of the seven countries in early 2012. The first three parliaments to approve it were Venezuela, Ecuador, and Bolivia, between late 2009 and mid-2010. For the agreement to take effect and launch any operation, the approval of a simple majority of the countries was required, along with a minimum of 66 percent of the capital contributions. This meant ratification by the parliaments of the three big countries or, alternatively, by two high-level countries and one mid-level country. This was the formula that finally prevailed with the approval by Argentina’s House of Representatives on September 7, 2011 (its Senate had already approved it on June 29). This was a considerable achievement, since it was reached with votes from the opposition in the midst of an electoral campaign (Jorquera, 2011). Argentina’s approval was added to that of Venezuela and Ecuador to reach 68.56 percent of the capital contributions, while Bolivia’s contribution was 1.42 percent, giving the green light to the start of the bank’s operations (BCV, 2011).
As final approval of the constituent agreement was awaited and operational details were being adjusted, a “downstream” process was carried out to design the operations and governance of the bank. Organizational charts and possible divisions of labor between headquarters and delegations began to emerge. All this, however, involved significant disagreements that needed to be promptly settled. According to the specialist team of Venezuela’s presidential commission on the Banco del Sur, it was expected that operations would begin with US$176 million of the bank’s own capital in the first year, operating with four countries, and US$260 million in the second year, with all seven countries (BCV, 2011). The same document stated that capital markets and loans from other multilateral institutions were included among the “consensus” funding sources. The bank would have to operate for several years using profitability criteria and only later meet the standards of the credit-rating agencies, which would allow it to issue joint bonds and risk offerings in international markets.
Regarding the division of labor within the institution, the Argentine proposal for organizing tasks placed emphasis on decentralization and located decision making and administration in the head office in Buenos Aires while leaving auditing activities in La Paz. Bolivia later proposed a division based on geographic-sectoral criteria (BCV, 2011). Venezuela opposed the Argentine proposal, preferring the distribution of finance department offices throughout the delegations. Institutional operations were controlled by a council of ministers of the economy and finance and a requirement of the support of three-quarters of the member countries for any decision. On the next level were the executive bodies—an administrative council, an auditing council, and a governing board, whose president would also preside over the bank. Decisions at this level required a simple majority vote by the countries with a quorum of three-quarters of the members. Ultimately, the operational levels would have risk control, finance, and operations managers as well as other ad hoc committees created by the board.
By Way of Conclusion
Despite the sluggish negotiations, which even led specialists and academics to announce the possible “death of the Banco del Sur,” this institution seems to be seeing the light of day as the twenty-first century unfolds. Consensus on the revival of some of the basic premises of Latin American developmentalism is clear, included renewed agreement on the importance of public financing in the use of resources to increase production, jobs, and economic diversification. This revival took place after decades of free-trade orthodoxy in the regional economic dynamic, which adopted the market as the appropriate mechanism for resource allocation. It is, in addition, a foundational element of a renewed regional consciousness. South America is making its way as an entity with its own identity that plans to go beyond obsolete mechanisms of economic integration mechanisms and move toward synchrony and greater political unity. However, the question remains whether the revival of developmentalism in South America will have as its sole or principal basis the physical integration, sustained by the IIRSA, that Brazil has proposed. This perspective may entail intensifying the region’s existing extractivist and even antidevelopmentalist dynamic if it is limited to creating commercial ties based on the sale of raw materials. A new developmentalism advanced as “sociocentric” proposes social participation in countries whose democracies are becoming stronger as new problems are considered. It is not enough to proclaim protection of the environment, meeting of social needs, or the reduction of asymmetries. A broad public debate is called for in which the state, using the “national interest” as a reductionist justification for the multiple interests in conflict today in South America, is not the only player in the discussion. Another point of contention of special significance is whether the Banco del Sur will satisfy the sovereign needs of individual nations or provide an opportunity for integration, an issue that has been largely abandoned by other development multilaterals in Latin America and globally.
Whatever its immediate institutional achievements, the idea of the Banco del Sur has placed questions and tasks on the table that are just beginning to be faced. The importance of these expressions must not be underestimated; they are significant inflection points in the region’s economic and political dynamics. First of all, the establishment of the bank has underlined the need to recover control over the region’s resources and place them at the service of the region. It has called into question the idea established by ECLAC in the mid-twentieth century that the region lacked internal savings to transform its productive system and therefore had to attract foreign capital. Secondly, it has exposed the fissures in the international financial institutions and used their crisis of legitimacy, governance, and policies to propose a possible regional alternative. Thirdly, it has shown that the proactive boldness of the idea of a new regional financial architecture was inversely proportional to the ability of the subregional leadership to achieve an extraordinarily visionary political objective. At the same time, the question of the purpose of a new integration has remained unresolved.
The establishment of the Banco del Sur has caused a revival of certain development ideas that flourished in the twentieth century and became dormant in recent decades because of the hegemony of free trade, which strongly promoted the return of traditional theories of international trade whose fullest expression was the Free Trade Area of the Americas. The Argentine position has been emphatic in advocating for the Banco del Sur as a traditional development bank. Other governments, such as Ecuador and to a lesser degree Venezuela, have questioned certain premises of the old developmentalism and sought to enrich it with other visions and perspectives. Ecuador has proposed requiring projects to include social and environmental protection and warned of the risks of increasing extractivism, ironically a source of further “underdevelopment” and environmental destruction. Many of its proposals have been supported by social movements and by the leftist academy throughout the region and beyond.
Footnotes
Notes
Antulio Rosales is a Ph.D. candidate in global governance at the University of Waterloo and the Balsillie School of International Affairs. He thanks Edgardo Lander, Rubén Alayón, and Masaya Llavaneras for their support in preparing this study and two referees for their substantial contributions to improving earlier versions of this article. Victoria J. Furio is a translator living in New York City.