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César Muñoz Acebes

The economic crisis frustrates Latin America’s efforts to establish the Bank of the South

by César Muñoz Acebes

18 March 2009

The majority of the governing force in Latin America spoke, a year ago, about taking distance from the IMF and WB creating the Bank of the South, but the financial crisis has forced them to knock again at their doors.

The most dramatic case is Argentina, which after years of arguing and discussions, finally agreed that the IMF restart the annual revision of the country economy, said IMF representatives. This stage is a must if the country wants to be considered to get new loans. IMF experts are counseling the argentinian government in order to improve inflation.

In this context, IMF is not the most popular choice for the region, mainly because the situation is not so bad yet and the governments avoid to get too close to an entity which a majority of Latin American voters associate with the devil.

On the other hand, countries are seeking assistance from WB and IDB, two credit sources that have been given the role of an oasis in the middle of an acute scarcity of capital in the international level.

IDB will invest about 18.000 million dollars during this year, and is pondering to ask its members for an increase in capital with the purpose of making more disbursements.

WB will assist with 13.000 million dollars this fiscal year, concluding in June, said Marcelo Giugale, Director of the Economic Policy and Poverty Reduction Programmes in Latin America and the Caribean.

This funding is specially important for Central America, Bolivia and the Caribean, as “the poorest countries critically depend on this two entities”, explained Mauricio Cárdenas, director of Latin American Matters of the Brookings Institution and Colombian ex minister.

Another example is Ecuador, to which the decrease in petrol prices started a breach in the economy of about 1.500 million dollars this year.

Ecuador’s government pretends to counterpart it with loans from the Corporacion Andina de Fomento (CAF), IDB and Latinamerican Fund of Reserves. This country won’t contact IMF or WB, institutions that president Rafael Correa has demonized.

Enrique Álvarez, chief of research in Latin America of consultants Idea Global, said that “for the countries under the influence of (the Venezuelan president, Hugo) Chavez, is an impossible to seek help from the IMF. In his opinion, the others will do it as a last resort.

Big countries are not so worried, because they already have covered their financial needs, but not in 2010 when they need to obtain 280.000 million dollars to pay their debt, according to Giugale.

“The question is wether in 2010 global markets will be open or closed”, he said.

So the interest of the governments to start negotiations with multilateral organisms, which have responded with open credit lines for emergencies.

IDB has dedicated 6.000 million dollars for this purpose, and WB a bit more than 2.500 millions. IMF is still negotiating the conditions that will rule its own line of credit, which ascends to 100.000 million dollars for a global assistance, not only Latin America.

However, this funds would be insufficient if markets turn their backs on the region, alerted Cárdenas.

Joydeep Mukherji, director of the Evaluation Group of Sovereign Debt from Standard and Poor’s, see additional dangers. “The hidden risk is what the private companies ask from the public sector”, said Mukherji to EFE.

If governments yield to pressure, and deviate funds to rescue banks and subsidizes important industries, holes will be opened in their accounts which won’t be possible to cap with bond emissions as is done in the rich countries, mainly because aversion from investors to risk.

With emergency interventions or not, the financial autonomy from the organisms based in Washington with which founders of the Bank of the South fantasized, following the initiative of the Venezuelan president Hugo Chavez, is as far as ever.

Argentina, Brasil, Bolivia, Ecuador, Paraguay, Uruguay and Venezuela signed, at the end of 2007, the foundational act of the Bank of the South, but still continue working in a draft of the constitutive agreement.

Agencia EFE-
Translated by Arturo Gonzalez for IFIWatchnet

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