Big fish eat littler fish. It might be a law of nature, but this makes it no less abusive. And this is exactly what could happen within the Bank of the South if an Argentine initiative, with Brazilian support, is successful.
The Bank of the South is supposedly the democratic alternative to the development banks based in Washington. Much of the criticism leveled against international financial institutions (IFIs), such as the Inter-American Bank (IDB), World Bank, and the International Monetary Fund (IMF), centers on how votes within these institutions are in effect determined by GDP-size. This means richer countries have more votes than poorer countries and in the extreme: the richest country in the world has absolute veto power in the boardroom. In this way, Washington and the G7 choose the presidents of these institutions.
The May 2007 Declaration of Quito railed against precisely this plutocratic form of governance. The declaration boasted that a new democratic regional financial architecture would take root in South America with the start of the Bank of the South. The new bank would be oriented toward more social projects and toward the most impoverished zones in an effort to close the breach of inequality among the region.
The Declaration of Quito was based on a proposal developed by the Venezuelan government with the support of Argentina to launch a regional development bank that would also serve as a monetary stabilization fund. The idea was objected to by Brazil because of the institution’s overt political thrust and—for jealous reasons—because the idea had not emerged in Brasília. After overcoming multilateral resentments, a structure for the Bank of the South was created, and after seven months of negotiations, the bank was launched last December from Buenos Aires by the presidents of the seven member-countries of South America. Chile, Colombia and Peru—three countries with either pending or ratified free trade agreements with the United States—have not joined the bank. Emir Sader, Brazilian sociologist and executive director of the Latin American Council on Social Sciences (CLACSO), claims South America is split in two between countries that seek integration among equals and those that prefer a subordinated integration with the United States.
After the launch of the bank in Buenos Aires, it was decided the seed capital for the bank would be $7 billion to be divided evenly between the seven member-states. With the backing of Brazil, Argentina has said this is unreasonable. It argues that funding by bigger countries should be proportionately larger and that, therefore, their power within the bank should also be extended. Obviously, this shatters the idea of a democratic development bank composed of a directorate by seven equal partners, each with one vote.
The dispute echoes discussions that established the European Economic Community in the 1950s. Lichtenstein, a city-state, had the same weight within the community as Germany, Europe’s economic motor. The issue was resolved over time and the small countries of Europe ended up working out the tensions with the larger countries. It was for this reason that the headquarters of the Economic Community were established in Brussels and, today, the city remains the capital of the European Union.
The solution to the impasse is within sight. If the government of Cristina Fernández wants to maintain the democratic character of the Declaration of Quito, then she would concede to a proposal that would permit smaller countries to pay their share of the $7 billion on a different timeframe than the larger countries. From there, financing for the bank would be generated through the issuing of bonds in the currency of member-countries, or in an index of currencies, or eventually in a South American currency that has not yet come into existence.
Perhaps it is an opportune moment for the big fish to consider not eating the little fish. Instead, they should join together with them, keeping in mind that in front of them is a shark that wants to eat all of them and would love nothing more than for this initiative to fail.
Oscar Ugarteche, a Peruvian economist, works for the Institute of Economic Research at the National Autonomous University of Mexico (UNAM) and forms part of the Red Latinoamericana de Deuda, Desarrollo y Derechos (Latindadd). He is president of ALAI, where this article was first published. Translated from the Spanish by NACLA.