Financial Crisis Jumpstarts Integration

As stock markets tumble, plans for an alternative, regional financial framework gained new momentum among South American leaders. At a recent Summit, presidents from Bolivia, Brazil, Ecuador, and Venezuela agreed to bring the stalled Bank of the South online. They also drew up a series of integration projects and cooperation agreements.

October 13, 2008

Amid increasingly destructive financial turbulence, South American leaders discussed ongoing plans to create an alternative fiscal architecture for the region. Brazilian President Luiz Inácio Lula da Silva hosted his counterparts from Bolivia, Ecuador, and Venezuela in Manaus, the cosmopolitan capital of Amazonas State, near several key tributaries of the Amazon riverine system. Besides the world economic crisis, the September 30 meeting focused on key integration and cooperation accords.

The rhetoric emerging from Manaus was not muted. Venezuela’s Hugo Chávez said the financial chaos would wreak the devastation of “one-hundred hurricanes.” He predicted, “The world will never be the same after this crisis. A new world has to emerge, and it's a multipolar world.” Chávez likened the Summit’s purpose to South America’s “decoupling from the wagon of death.”

The other heads-of-state were slightly more hushed. Bolivia’s Evo Morales offered an incisive and populist critique of the $700 billion Wall Street bailout: “In Bolivia we nationalized [gas] for the people to have money, while the United States nationalizes the crisis of the wealthy,” said Morales. “The poor should not have to pay the price of a mess made by the rich.”

Even Lula, far more parsimonious in doling out criticism to the United States, lashed out. Citing the neoliberal austerity measures that Washington and its proxies pushed on Latin American countries for years, Lula said, “Those who spent the past three decades telling us what to do didn't do it themselves.” Despite Lula’s admission that no country is “bulletproof” from the crisis, analysts still suggest that Brazil will suffer far less in the twilight of neoliberalism, and predict a decent 3.5% growth rate for Brazil in 2009 (although they have revised this number downward, weekly, for over a month).

Mark Weisbrot, an economist with the Center for Economic and Policy Research (CEPR) in Washington, notes that some regional governments have amassed huge foreign exchange reserves, making them well equipped to muddle through the meltdown. (Brazil has some $200 billion saved, while Venezuela has roughly $40 billion.) A recent report published by CEPR explains that the hardest-hit countries in the region will be those that have hitched themselves onto the U.S. economy through “free trade” agreements.

In the context of this global financial maelstrom, the consummation of the quiescent Bank of the South project has gained increasing importance. The Bank of the South was designed as a cooperative, regional banking institution. With initial reserves of $7 billion, seven countries have signed on to the Bank so far: Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay, and Venezuela.

In Manaus, Ecuadorian President Rafael Correa called the Bank a potential “long-term structural solution” that would help “make our regional economy more independent [and] pool reserves to have a regional backup in the case of a crisis.” Correa, an economist by training, suggested buttressing South America’s economic system by creating a regional financial node—a clear allusion to Chávez’s “multipolar world” backed by regional banking structures.

The Bank of the South was in fact signed into law ten months ago in Buenos Aires, but has not yet come into operation. Chávez has said the holdups have been largely “technical and bureaucratic,” but outside analysts have demurred, citing political obstacles. Brazilian economist Marcos Arruda points out that Brazil wants—or wanted—the Bank of the South to play a merely “supplementary” role to the region’s other banks, while countries like Ecuador want the Bank of the South to attain a commanding “position within continental finance.”

Indeed, Lula has had to confront a recalcitrant, right-wing congress, with social goals far different than the legislative branches of the other Bank of the South member countries.

Negotiations on the Bank have also stalled on whether voting power for each member-state should be determined by the size of its investment. Smaller countries prefer a system in which it is not the gross amount of each country’s investment that counts, but rather the size of the investment in proportion to that country’s economy.

As stock markets descended, President Chávez declared, “We cannot lose even one day more in the creation of the Bank of the South.” Ecuadorian Minister of Foreign Affairs Maria Isabel Salvador also called on regional finance ministers to act rapidly to make the Bank operational. Though vague, she noted progress had been made: “What was blocking the advance of the Bank of the South has been transcended.”

Despite the delays, Weisbrot points out that when juxtaposed with the decades-long process of European economic integration, the Bank of the South has emerged in a “highly accelerated process.”

The financial crisis did not prevent the presidents from discussing the issues originally billed for the summit: cooperation and integration.

Building on previous agreements, Lula and Chávez signed a series of bilateral cooperation accords, including the construction of an iron and steel plant to be built by a Brazilian manufacturer and operated by a local company in Venezuela’s Bolívar state.

The two leaders also made headway in finalizing the terms of a joint refinery in the northeastern Brazilian state of Pernambuco. Brazil’s Petrobras and PDVSA, Venezuela’s state oil company, will jointly own and, perhaps, operate the new refinery. Brazil also agreed to help Venezuela with increased food imports and with improving low-income housing. Chávez thanked Brazil for its “disinterested cooperation.”

The four presidents also discussed ongoing plans for regional transportation infrastructure. Lula and Correa discussed an ongoing plan to build a trans-oceanic river and highway system connecting Ecuador’s Pacific port of Manta with the cities of Manaus and Belém in Brazil. Work is slated to start in 2009 and be complete in 2011. The new route will help both countries’ products circumvent the Panama Canal, which Correa called “expensive and very slow.”

Some environmental and indigenous groups oppose the highway construction, observing that the roads and fluvial channels will almost inevitably lead to environmental degradation in untouched parts of the Amazon, as ranchers, loggers, and other extractive industries converge on theretofore relatively pristine wilderness.

According to tentative plans made at the conference, the Manta-Manaus highway would be intersected by a similar system of highways on a north-south axis, connecting Caracas and La Paz. Correa explained the regional “crossroads” of this Amazonian system would be Manaus, which would become the “epicenter” of the two highways—and, indeed, the region.

It is unclear whether the proposed Bank of the South will be financing these infrastructure projects.

Max Ajl is a NACLA Research Associate.

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