[NYTr] 6 Presidents Inaugurate Bank of the South

[All the News That Doesn't Fit]

Venezuela Information Office (VIO)
http://www.rethinkvenezuela.com

excerpted from VIO Venezuela Daily News Roundup - Dec 10, 2007


[The Bank of the South was inaugurated by six presidents on Sunday in
Buenos Aires.  Member countries of the regional bank expect it will
reduce dependence on Washington-dominated international financial
institutions such as the IMF.  AFP reports that the Bank of the South
will begin operations in 2008 with an initial capital of $7 billion for
investment regional development and integration projects.  Bloomberg
reports that President Correa of Ecuador emphasized the autonomy that
the bank gives countries, saying, "The signing of the Bank of the South
agreement is going to help us establish our financial independence."
Meanwhile, Brazil's Lula da Silva highlighted inter-dependence: "Today
we have taken the first step toward the integration of South
America. ... We have the conviction that our futures are linked." -VIO]

South America set to launch bank to rival IMF

Agence France Presse - December 9, 2007
http://news.yahoo.com/s/afp/20071209/ts_afp/latamargentinabank_071209163650

BUENOS AIRES (AFP) - Latin American leaders on Sunday inaugurate the
Bank of the South, the brainchild of Venezuela's President Hugo Chavez,
who hopes it will help wean the region off institutions like the IMF.

Six South American presidents are scheduled to gather in Buenos Aires
on Sunday to formally launch the bank, which will be headquartered in
Caracas.

The creation of the regional bank comes amid a widespread perception in
South America that adjustment policies imposed by multinational credit
agencies have failed.

The bank, which will start operations in 2008 with an initial capital
of seven billion dollars, is designed to support regional development
and integration projects.

Venezuela's Finance Minister Rodrigo Cabezas acknowledged last week
there are still differences as to how much each member should
contribute to the bank.

"The discussion is whether the entity will take into account the
differences in economic weight of the nations," an Argentine official
said.

Cabezas said a number of other issues still had to be finetuned,
including the composition of the directors and how top executives will
be picked.

The initiative to create the bank was born in 2006, and the project
dreamed up by Chavez gradually gained popularity in the region.

Several of the governments that joined the project do not share the
ideology of the leftist Venezuelan president. What they do have in
common is the rejection of what they consider the negative influence by
the International Monetary Fund and the World Bank.

"The bank will finance public and private projects. It will not
participate in projects in countries outside the region. It is directed
to South America," said Brazil's Economy Minister Guido Mantega.

The ceremony for the founding of the bank will coincide with the
inauguration of Cristina Kirchner as president of Argentina.

Outgoing Argentine president Nestor Kirchner, who will hand over the
sash of office to his wife, will attend the ceremony alongside his
counterparts from Bolivia, Brazil, Ecuador, Paraguay and Venezuela.

The president of Uruguay will not attend the signing ceremony,
according to media reports.

                             ***


Latin American Leaders Form Regional Bank, Seeking Independence

By Bill Faries and Christopher Swann

Bloomberg - December 10, 2007
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a5wtQZeimbjE

South American presidents said the creation of a regional development
bank was the first step in lessening the continent's dependence on
existing international financial institutions and the U.S.

Leaders from six nations --- including Venezuela's Hugo Chavez,
Brazil's Luiz Inacio Lula da Silva and Argentina's Nestor Kirchner --
inaugurated the Bank of the South last night in Buenos Aires. The bank,
which Venezuelan officials say will have about $7 billion in capital,
will fund development projects in Latin America.

``The signing of the Bank of the South agreement is going to help us
establish our financial independence,'' Ecuador's President Rafael
Correa said to reporters upon arriving in Buenos Aires. ``We should
also create a fund, backed by our reserves, to help during financial
crises and we should have our own currency.''

The new bank represents a victory for Chavez, who campaigned for the
institution by arguing that decades of U.S.- backed economic policies
failed to lower poverty and improve the economies of the region. The
inauguration came one week after Chavez's plans for a new constitution
in Venezuela were defeated, his first electoral loss in nine years.

``Today we have taken the first step toward the integration of South
America,'' Brazil's Lula said after the ceremony at the presidential
palace. ``We have the conviction that our futures are linked.''

Brazilian Finance Minister Guido Mantega said before the ceremony that
the by-laws for the new institution, which will be based in Caracas and
have offices in La Paz, Bolivia and Buenos Aires, will be completed in
2008. Founding members include Venezuela, Argentina, Brazil, Bolivia,
Paraguay, Uruguay and Ecuador. Chile, the country with the region's
best credit rating, declined to join.

Regional Development Funds

The signing of the Bank of the South accord was one of the last
official acts for Kirchner, who leaves office today and will be
replaced by his wife, Cristina Fernandez de Kirchner.

The new bank will struggle to compete with existing regional
development funds should it fail to secure a strong credit rating,
analysts said. This year, the Inter-American Development Bank, based in
Washington, is on course to lend around $8 billion, according to the
Bank Information Center, a Washington-based research organization that
monitors international lenders.

``Their capital will quickly disappear if they do not leverage their
funds like other banks,'' said Vince McElhinny, a Latin American
analyst at the Bank Information Center.

Credit Ratings

None of the bank's supporters have an investment grade credit rating.
Both the World Bank and Inter-American Development Bank enjoy AAA
credit ratings because of the backing of the U.S. The Corporacion
Andina de Fomento has an A+ credit rating from Standard & Poor's.

The rating of any new multilateral lender would also hinge on the
commitment of its member countries, said John Chambers, managing
director of sovereign ratings at Standard & Poor's.

``It's important that the member countries provide strong backing for
the institution and that they support its priorities,'' Chambers said. 

                                 ***

Why South America wants a new bank

By Lourdes Heredia

BBC News - December 10, 2007
http://news.bbc.co.uk/2/hi/americas/7068124.stm

Leaders of several South American nations have signed a founding
document to create a new body, the Banco del Sur, as an alternative to
multilateral credit organisations such as the International Monetary
Fund and World Bank.

President Chavez sees the IMF and World Bank as tools of the US

The idea was first put forward by Venezuelan President Hugo Chavez in
December 2006 as part of his battle against the influence of the US and
the international financial institutions, which he has decried as
"tools of Washington".

Argentina, Brazil, Bolivia, Ecuador, Paraguay, Uruguay and Venezuela
have all joined the initiative.

Chile and Peru decided to remain on the sidelines, while Colombia,
which had expressed interest, has put its decision on hold following
recent disagreements between Colombian President Alvaro Uribe and Mr
Chavez.

According to Venezuelan finance minister Rodrigo Cabezas, the creation
of a new organisation is "a demonstration that times have changed".

The Banco del Sur, or Bank of the South, he explains, will be funded
and run by South American countries themselves.

Lack of reforms

Analysts believe the Banco del Sur initiative reflects the increased
unpopularity of the IMF and the World Bank among many South American
countries.

Venezuelan finance minister Rodrigo Cabezas
Venezuela's finance minister says the IMF is too hard on poor nations

Mark Weisbrot, co-director of the Center for Economic and Policy
Research in Washington, also sees it as one of many signs of a new
independence from institutions such as the IMF and its "unwanted
austerity measures".

"At the beginning of this decade, scepticism in Latin America was
sealed when Argentina disregarded IMF advice by defaulting on its debt
and then experienced robust economic recovery," Mr Weisbrot said.

Luis Maldonado, a presidential representative to the government body
that helps regulate Ecuador's banking sector, argues that "Latin
America has been impoverished and harassed long enough that we have no
other choice [but to] start Banco del Sur".

Venezuela has gone so far as to threaten to leave the IMF - although it
has not set any date for such a move.

"If the IMF does not abandon its record of implementing tough policies
with regards to emerging countries and being totally benevolent to
developed countries, as it was in the last US mortgage crisis, it will
struggle to regain its credibility," said Mr Cabezas.

Pulling out of the IMF would amount to a technical default on
Venezuela's bonds and would raise the cost of future borrowing in
global markets.

Other members of the Banco del Sur share many of Venezuela's concerns
about the IMF, but have made clear that they do not intend to leave it
or other international institutions.

Gustavo Guzman, Bolivia's ambassador to Washington, explained to the
BBC that the Banco del Sur would provide a much-needed "alternative
source" of funds.

He points out that it has been difficult for Bolivia to get loans from
the IMF and international markets since the government's recent moves
to renationalise its oil and natural gas industry.

Colombian finance minister Oscar Ivan Zuluaga said at a meeting in New
York that the Banco del Sur was seen as an effort to integrate the
countries of South America and "nothing more than that".

Obstacles

Venezuela hopes that the newly created Banco del Sur, which will be
based in Caracas, will begin to operate in 2008, but there are several
obstacles.

The amount each country will contribute to the bank and how it will
raise additional capital are details which have not been disclosed.

These issues may prove a major obstacle.

Brazil and Venezuela differ, for example, on how shares in the bank
should be distributed.

Venezuela also insists that the initial capital contribution should not
be mandatory, but rather a "donation" relating to each country's GDP.

Meanwhile, Ecuador wants each member country to make a contribution
"equal to or greater" than it makes to the Inter-American Development
Bank (IADB) and World Bank.

Mixed reactions

The Banco del Sur proposition has been greeted with caution by most
analysts, although they agree that having more options for countries
seeking funding is not a bad idea.

Bolivia's indigenous Quechua people at a gathering (file image)
In Bolivia, the government is keen to help indigenous communities

Former World Bank chief economist and Nobel-prize winning economist
Joseph Stiglitz has endorsed the Banco del Sur on those grounds.

"It's good to have competition in most markets, including the market
for development lending," he said.

Michael Shifter, Latin American expert at the Washington-based
Inter-American Dialogue, said that while it was "tempting to dismiss
the Banco del Sur because of the political agenda behind it", he would
advise sceptics to wait and see.

"Chavez's political agenda is undeniable, but so is the money he has at
his disposal right now," he said.

"Over the longer run, the initiative will have real problems because of
politicisation, but in the meantime it would be a mistake to
underestimate its possibilities."

Mr Shifter also feels the timing is fortunate.

"Banco del Sur is taking off precisely when traditional multilateral
institutions like the Inter-American Development Bank and World Bank
are struggling to redefine their missions and adapt to new
circumstances," he said.

"Everything is in flux, so anything can happen."

Good governance

Even the representatives of the multilateral credit organisations seem
reluctant to dismiss Banco del Sur.

The World Bank's vice president for Latin America, Pamela Cox, recently
said that there was enough scope for both agencies to work in the
region.

"The Banco del Sur is a complement, not a competitor," she said.

And the new president of the World Bank, Robert Zoellick, offered
advice to the Banco del Sur on transparency.

"One of the lessons we have learned on good development practices is
that they should be combined with good governance, proper respect for
the laws and firm practices against corruption," Mr Zoellick said.

                             ***

Chavez, Allies Launch Bank of the South

By Bill Cormier
The Associated Press

AP via Wash. Post - December 9, 2007
http://www.washingtonpost.com/wp-dyn/content/article/2007/12/09/AR2007120900568.html

BUENOS AIRES, Argentina -- Hugo Chavez and leaders of six other South
American nations launched a regional development bank that they tout as
the continent's answer to U.S.-influenced international lenders.

With as much as $7 billion in expected startup capital, backers say the
Banco del Sur, or Bank of the South, will offer Latin American
countries loans with fewer strings attached than those given by the
World Bank, the International Monetary Fund or the Inter-American
Development Bank.

The leaders signed the "founding act" Sunday at a ceremony at
Argentina's presidential palace hosted by President Nestor Kirchner and
his wife, President-elect Cristina Fernandez, who takes office Monday.

"Not long ago there was a general chorus singing the praises of
neoliberalism" in the region, Chavez said in a speech. "But we are now
hearing the great voice of our nations."

Bolivian President Evo Morales, whose country is the continent's
poorest, praised the bank as a new tool to fight poverty and ease
inequalities, and criticized what he characterized as the heavy-handed
practices of international lenders who demand austerity prescriptions
as conditions for extending credit.

"Only strong and united can South America occupy its rightful place
among nations," Brazilian President Luiz Inacio Lula da Silva said.
"This will be the first international bank truly controlled by the
nations of our continent."

The institution is one of several proposals under Chavez's ambitious
call to unite Latin American countries in a "confederation of
republics." His vision also includes a transcontinental natural gas
pipeline and trade alliances.

Venezuela, with South America's largest known oil reserves, is expected
to be a leading financier along with Brazil.

But critics note much remains to be determined about how the bank will
operate and say it might turn out to be a largely symbolic project used
by Chavez to spread his oil-financed influence.

"Chavez has very large resources at his disposal and will continue to
promote his vision for the hemisphere," said Peter DeShazo of the
Washington-based Center for Strategic and International Studies.

But he said it remains to be seen "whether it's going to be a
politically oriented gesture or if it's going to be a real regional
development bank."

Others call it a bold stroke for Latin America's financial independence.

"What you had in the past decade was the collapse of a very powerful
creditors' cartel headed by the IMF," said Mark Weisbrot of the
Washington-based Center for Economic and Policy Research. "This is the
first step in creating an alternative."

Finance ministers of Argentina, Bolivia, Brazil, Ecuador, Paraguay,
Uruguay and Venezuela will sit on the bank's board. Officials say it
will dispense loans for projects from road-building to anti-poverty
programs and regional integration plans.

Venezuelan officials say the bank's loans will be issued at interest
rates similar to those of other international lenders.

Rodolfo Sanz, a Venezuelan state bank official, said initial
capitalization is expected between $5 billion and $7 billion depending
on final pledges. The institution will be headquartered in Caracas.

"It's a very interesting initiative which I think expresses the desire
to find stronger cooperation between Latin American governments," the
World Bank's chief economist for Latin America, Augusto de la Torre,
said in a recent interview. "As far as the World Bank is concerned,
this new initiative is not perceived as a competitor."

IMF-watcher Paul Blustein at Washington's Brookings Institution said
the project highlights Latin America's yearning for greater autonomy
after decades of financial crises and imposed austerity measures.

"It's really emblematic of how Latin America has become disillusioned
with the model that the IMF and the World Bank and the U.S. Treasury
promotes _ the so-called Washington consensus," he said.

But he noted the IMF and World Bank have decades of know-how.

"I'm not so sure this institution is going to be any more successful,"
he said.

"I don't worry about the climate or shortages of oil in the world," Mr.
Guerrero said. "I just worry if gasoline prices go up."