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Bank of the South

An alternative to the IMF World Bank
Eric Toussaint
Published by VAK, Mumbai, India in 2007
Preface by Ajit Muricken
Contrary to the common beliefs and ercei!ed notions, the IM", #orld $an%
&rou does not set out to reduce o!erty but rather it reroduces and ensla!es
the debtor nations' It is in fact the central force behind the neo(liberal offensi!e
to inte)rate the economies of the *outh by rofound chan)es in trade, e+ort(
oriented )ro,th model, finance and technolo)ies' The t,in institutions IM",
#orld $an% are the %ey instruments desi)ned to subordinated nations to the
interest of the ,orld-s most industriali.ed he)emonic o,er'
The ideolo)ical ,orld !ie, of the $an%s holds that the de!eloment of the
*outh has been delayed due to insufficient domestic caital' This formulation
actually meant that countries ,ishin) to accelerate economic )ro,th must firt
aeal to e+ternal aid, then attract forei)n in!estments and thirdly, increase
e+orts in order to rocure the hard currencies necessary for the urchase of
forei)n )oods that facilitate further )ro,th'
The ideolo)ical construct that underlies the ar)ument is fairly lo)ical ,ithin the
neo(liberal aradi)m and is based on the follo,in) rescritions /
( Micro(economic reform throu)h structural ad0ustment of the economy by the
remo!al of all barriers to in!estment and remo!al of any imediments' "ree
cometition, dere)ulation of the mar%et freedom leads to raid economic )ro,th
that in turn contributes to the reduction of o!erty1
( Ma+imisation of -Comarati!e Ad!anta)e- 2This theory ar)ues that a nation can
ma+imise efficiency in resource(use by roducin) and e+ortin) commodities in
,hich it is relati!ely efficient and by imortin) commodities in ,hich it is
relati!ely not so31
( *tate dere)ulation of the economy and ma+imisin) ri!atisation is the %ey to
enhancin) macro economic efficiency and consumer ,elfare1
( 4emo!al of all imediments leadin) to the free mobility of caital across the
)lobe1 and
( Con!ertin) e+orts into the main source of economic )ro,th'
The conse5uences of such a olicy ha!e been traumatic for the eole of the
*outh ,ith intensified o!erty and ine5uality' The debt reayment suc%s u art
of the social surlus roduced by the ,or%ers of the *outh 2,hether salary
earners, small indi!iduals or family roducers, or ,or%ers in the informal sector3
and directs this flo, of ,ealth to,ards the holders of caital in the 6orth, ,hile
the rulin) classes of the *outh ma%e their rofit'
7nder the sell of neo(liberal )ro,th model the ,hole ran)e of natural resources
is ri!ately aroriated ,hich oened u a natural resource bade for M6C-s to
lunder' This shameful illa)e of humanity-s collecti!e resources is commited
under the sell of the neo(liberal economic model' E!en those areas of life(
forms once considered sacred, li%e teh )enetic codes, flora, fauna, seeds and
e!en natural resources li%e ,ater once considered common herita)e of humanity
are no, con!erted into commodities and tradable items to be e+loited for
rofit'
The ,orld,ide flo, of caital follo,s its o,n oeratin) methods and creates its
o,n la,s, ,hich not only transcend but also o!errule national le)islations' In
fact, the )lobal trinity #$8IM"8#T9 dominated by the &(: countries mount
intense ressure on the olicies of the borro,er countries' This leads to
increasin) dere)ulation, that is, the abro)ation of le)al and social control on
financial and economic acti!ites by nation states' The urose is to accelerate
transactions ,ithout hindrance and lead to henomenal )ains'
The loan conditionalities attached to the #orld $an% are a ma0or art of the
roblem that the &lobal *outh is faced ,ith' *uch s,eein) economic reforms
induced by the #orld ban% are not ,ithout its olitical imlications'
There is a )ro,in) realisation that the conditions ( co!ert and o!ert( attached to
forei)n debt, secifically by multilateral financial institutions, threaten to
substanti!ely curb the democratic ri)hts of eole in all countries contractin)
such loans' This is also true of *outh Asia' 7nder one )arb or the other the
indeendence and ri)hts of e!en the elected reresentati!es to enact le)islations,
to frame olicies, to monitor and o!ersee forei)n firms contracted by these
financial institutions directly or indirectly are under serious threat' These curbs
ultimately affect the 5uality of life of eole and erode their control o!er their
o,n resources' Thus these conditions se!erely undermine any serious efforts to
eradicate o!erty' It is therefore necessary to form a broad eole-s alliance to
monitor the acti!ities of the )lobal financial institutions, to launch audits of the
debts incurred by the national 2or local3 )o!ernments, to critically e+amine all
deals'
The #orld $an% is mana)in) to be so o,erful throu)h its infiltration into the
bureaucracy and )ainin) access into the decision(ma%in) aaratus of the *tate,
effectin) a aradi)m shift ( from its earlier ro0ect(based role, it has no, )i!en
,ay to a much more o,erful olicy(based role ( influencin) substancial
decisions in fa!our of the ban%-s a)enda' Throu)h such strate)ies the #orl ban%
is effecti!ely infiltratin) the lo,er le!els of the Panchayats, ;illa Parishads and
municialities throu)h its ri!ate, ublic artnershi ro0ects and !arious other
schemes'
The structural reform romoted by the #orld $an% and I<$, ,hich laced
secial emhasis on brin)in) about stron) institutional chan)es, has deely
modified the institutional frame,or% and has dismantled state re)ulation
caacities, ,hile reinforcin) )rous and monoolies, and multilyin) the
e+istence of clientele net,or%s and ban%(aid ractices' These neo(liberal
structural reforms ha!e been so stron) that they ha!e e!en hindered the creation
of de!eloment alternati!es in the re)ion'
#ith the increased control of the ban% o!er hte bureaucratic aaratus it ahs
ac5uired le)itimacy and !oice in olicy ma%in) at both national and state le!el'
It no, commands and controls the entire macroeconomic olicy includin) future
direction' The entire olicy ac%a)e ma%es a si)nificant dearture from the ast'
The lon) cherished riciles of )ro,th ,ith 0ustice, social resonsability and
accountability, e5uity and self(reliance ha!e been rendered obsolete ,ith the
ne, slo)ans of -liberalisation-, -ri!atisation-, -)lobalisation-, =efficiency- and
-cometiti!eness-'
The mecanisms of debt cycle ha!e sub0ected the de!eloin) countries to the
demands of #ashin)ton 2,here IM", #orld ban% and 7* Treasury are all
located3' Most of the economic olicy is decided here, outside teh country
concerned' <ebt reayment suc%s u art of the social surlus roduced by the
,or%ers of the *outh 2 ,heter salary earners, small indi!idual or family
roducers, or ,or%ers in the informal sector> and direct this flo, to,ards the
holders of caital in the 6orth, ,hile the rulin) of the *outh ta%e their
commission'
*ince ?@@:, these institutions ha!e been under)oin) a rofound crisis of
le)itimacy' the economic, social and en!ironmental disasters due to olicies
imosed on Perihery countries by the IM" and the #orld $an% has ob!iously
cost these institutions their credibility on a massi!e scale ,ithin the countries
concerned' Trade re)ulation olicies conducted by T6C-s and attac%s on *tate
so!erei)nty ha!e also made ublic oinion in both the Center and the Perihery
,ary of the #T9' The structural ad0ustment olicies dictated by the IM" and
the #orld $an% are hated ,ith a !en)eance by the !ast ma0ority of countries
,here these are enforced and ha!e lost all credibility and uni!ersally
denounced, criticised and oosed' They ha!e been ,idely discredited, ,hich is
,hy they must be abandoned or dismantled' *ince their incetion, these
institutions ha!e sho,n a mar%et reluctance to consider the resect to human
ri)hts as an inte)ral art of hteir mandate' They ha!e systematically suorted
dictatorshis and their olicies ha!e often !iolated basic human ri)hts'
It ,as in this conte+t that the President Cha!e. of Vene.uela ad!ocated the
ossibility of settin) u financial institutions that ,ould ro!ide an alternati!e to
the #orld ban% and the International Monetary "und for all countries of the
*outh' The formation of the $an% of the *outh ,ould definitely alter the o,er
relations ,ithin multilateral de!eloment ban%in), and ,ould reroblematise
de!eloment ,ithin a conte+t in ,hich the liberal ideolo)y has bloc%ed the ,ay
to the ma0or )oals of human%ind, articularly to critical and alternati!es
discourses and roosals for ma%in) another ,orld ossible'
The collection of articles of Eric Toussaint and <amien Millet introduces ne,
debates o!er the need for a ne+ )lobal financial institution ( the ban% of the
*outh' The central ar)ument they osit is that the #orld $an% &rou has to be
relaced by other )lobal institutions based on democratic accountabibilty' The
ne, #orld $an% and the ne, International Monetary "unds, ,hate!er thier ne,
names may be, must ha!e radically different missions from those of the former
institutions1 they must ma%e sure that the international treatises on the 2olitical,
ci!ic, social, economic and cultural3 human ri)hts are actually carried out
throu)h their action in the field of international credit and international monetary
relations' These ne, )lobal institutions must be art of a )lobal institutional
system controlled by a thorou)hly reformed 7nited 6ations 9r)anisation' it is
an essential riority that the de!eloin) countries must )et to)ether into re)ional
entities as soon as ossible, ,ith a common $an% and a common Monetary
"und'
"rom the ersecti!e of the *outh, the idea of the ban% of the *outh oens
ossibilities for challen)in) neo(liberalism in re!ioulsy forbidden fields / on
the one side, de!eloment financin) ,ith due resect for the so!erei)nty and
inte)ration of eoles, and on the other hand, the theoretical thin%in) on a
e5uitable, intercultural, democratic, so!erei),n lane and de!eloin) a eole(
center de!eloment aradi)m'
The authors- critical analysis of the #orld ban% )rous as instrument desi)ned to
subordinate indebted nations to the interest of the industrialised 6orth and the
need for an alternati!e financial institution ( the -$an% of the *outh- ro!ides
)round for discussion amon) acti!ists, eole-s or)anisations, mo!ements and
olicy ma%ers' *uch !ie,s are not ,ithout otential elements of contro!ersy'
6ot all readers ,ill a)ree on all the oints made by the authors' That is a )round,
,e belie!e, for a healthy debate'
A0it Muric%en ( <irector VAK ( htt/88!a%india'or)8
Bank of the South,
international context and the alternatives
1
Eric Toussaint
2
!o i"#ortant o##osin$ trends at the international level
TodayAs o!erridin) trend, in e+istence for 2B to C0 years, has been the ursuit of
a neoliberal and imerialistic caitalist offensi!e' 9!er the last fe, years, this
trend has been e+ressed by more and more fre5uent recourse to imerialistic
,ars, the increase in arms by the suer o,ers, the ursuit of reinforcin) trade
oenin) of the dominated countries, the )eneralisation of ri!atisation, a
systematic attac% a)ainst ,a)es and collecti!e solidarity mechanisms ,on by
,or%ers' All these are art of the #ashin)ton Consensus'
A counter trend has been de!eloin) since the end of the ?@@0s' Its most
ad!anced form is e+ressed 2almost3 uni5uely in Datin America/ the election of
Presidents ad!ocatin) a brea% ,ith neoliberalism 2this round be)an ,ith the
election of Eu)o Cha!e. at the end of ?@@:3 or at least a !ariation of same1
Ar)entina susendin) ayment of its ublic e+ternal debt to ri!ate creditors
from the end of <ecember 200? to March 200B1 the onset of the state reclaimin)
control of lar)e ublic cororations 2P<V*A3
C
and of natural resources 2natural
)as in $oli!ia31 the failure of "TAA 2"ree Trade Area of the Americas3 and the
diminished isolation of Cuba'
This counter trend ,ould be inconcei!able ,ithout the o,erful social
resistance that has been oosed to the neoliberal offensi!e since the ?@:0s
2"ebruary ?@:@ in Caracas3 in different arts of the ,orld and that ha!e since
flared u eriodically'
The resistance that imerialism encounters in Ira5, Palestine and Af)hanistan
also lay a fundamental role'
he international econo"ic context %&&'(%&&)
The crisis ,hich struc% the 7* economy in 2000(200? has been o!ercome by a
!oluntary anti(cyclical olicy of the "ederal 4eser!e $an% 2the 7* Central
$an%3 ,hich drastically lo,ered its official interest rate brin)in) it to almost
.ero' The ob0ecti!e ,as to a!oid the ban%rutcy of Enron and #orldcom
e+tendin) to other lar)e hea!ily indebted cororations in the ri!ate sector' The
radical reduction in interest rates allo,ed cororations to refinance their debts in
?
Preli"inary docu"ent #re#ared on * Au$ust %&&) for the International +ebt ,bservatory conference
bein$ held in -aracas %%(%. Se#te"ber %&&)/ !!!/oid(ido/or$ and !!!/cadt"/or$
2
0ric oussaint ,ho holds a Ph< in Political *cience from the 7ni!ersities of DiF)e and Paris :, is resident of
CA<TM 2Committee for the Abolition of Third #orld <ebt3 $el)ium' Author of Your Money or Your Life: The
Tyranny of Global Finance, Eaymar%et $oo%s, Chica)o, 200B1 co(author ,ith <amien Millet of The Debt Scam,
VAK Publication, Mumbai, 200C and Who Owes Who? ! "uestions about Worl# Debt, ;edboo%s, Dondon,
200G1 co(author ,ith <amien Millet of Tsunami $i# or Debt %ancellation& The 'olitical (conomy of 'ost)
Tsunami *econstruction, VAK Publication, Mumbai, 200B' "or more information/ ,,,'cadtm'or)
C
PetrHleos de Vene.uela, *'A', Vene.uelaAs state(o,ned etroleum comany'
the least cost(effecti!e manner' It ,as the same for 6orth American households
,hose debt le!el ,as unrecedented 2?C0 er cent of annual income3' The total
sum of all debts in the 7*, both in the ri!ate and ublic sectors, is more than
IC7 trillion'
The 7* ,as able to o!ercome this crisis and re(established a le!el of )ro,th
suorted by domestic consumtion ,hich has been fed and financed e+ternally'
The economic reco!ery in the 7* too% lace ,hile Euroe and Jaan
e+erienced ,ea% )ro,th' The 7* has since then layed the role of bein) the
,orldAs economic en)ine in 2002(200C' 7* consumtion imlies a stron)
recourse to imorts, esecially Chinese roducts' The 7* en)ine has s,et
China alon) in its ,a%e' China has thus maintained a )ro,th rate close to ?0 er
cent' ChinaAs needs for combustibles and ra, materials ha!e boosted the ,orld
mar%et rices of these roducts'
Accordin) to the $an% for International *ettlements 2$I*/ ,,,'bis'or)3, in
200B, KChina accounted for more than B7L of the incremental demand for
aluminium, M0L of that for coer and o!er C0L of that for oilN 2$I* Annual
4eort 200M, ' G?3'
*ince 200C, ,e ha!e ,itnessed a !ery shar rise in the real rice of oil, other
ra, materials and certain a)ricultural roducts' At the same time, the rices of
manufactured roducts rose sli)htly'
This is ,hy ,e are li!in) in a ,orld characterised by an imro!ement in the
terms of trade in fa!our of de!eloin) countries e+ortin) ra, materials,
combustibles and se!eral a)ricultural roducts' This contrasts sharly ,ith more
than 20 years of de)radation of the terms of trade
G
to the detriment of de!eloin)
countries'
In the case of Datin America, since 200C, $ra.il, Chile, Columbia, Peru and
Vene.uela ha!e all benefited from a shar rise in the rices of their e+orts 2+,S
-!!., ' G03'
This us,in) in the terms of trade roduced an enormous increase in forei)n
e+chan)e reser!es of de!eloin) countries' In fact, more than ?C0 of them 2out
of ?MB3 sa, an increase in their reser!es'
$et,een 2000 and Aril 200M, the forei)n e+chan)e reser!es of de!eloin)
countries 2,hich include the countries of the former *o!iet bloc3 ha!e almost
triled 2from I@7C billion u to I2,M7@ billion3' The forei)n e+chan)e reser!es
of oil roducin) de!eloin) countries ha!e 5uadruled 2from ??0 to GGC3'
ChinaAs reser!es ha!e increased by more than fi!e times 2from ?MM to :7B3'
Datin AmericaAs forei)n e+chan)e reser!es increased at a more modest rate of G0
er cent durin) the same eriod'
The ,orldAs total outstandin) forei)n e+chan)e reser!e, accordin) to the $I*,
reached IG'?7 trillion in <ecember 200B 2of ,hich O is in 7* dollars, the
remainin) comrisin) euros, yens, ound sterlin) and *,iss francs3' 9f the
amount, only I?'2@2 trillion are in the ossession of the most industrialised
countries' *till, it must be noted that the 7* only ossesses the e5ui!alent of IC:
billion 2in different currencies3 and the Euro.one only I?M7 billion' As for
Jaan, it only holds I:2@ billion 2+,S -!!., ' :C3'
G
There has been a do,ns,in) in the terms of trade for de!eloin) countries durin) the ?@B0s and the ?@M0s'
This ,as follo,ed by an us,in) durin) the ?@70s' *ince the ?@:? oil crisis until 200C, ,e ha!e ,itnessed
another do,ns,in) in the terms of trade'
<e!eloin) counties ha!e ne!er %no,n such a situation/ they ha!e a sum
e5ui!alent to more than double the forei)n e+chan)e reser!es of the most
industrialised countries at their disosal' The comosition of the forei)n
e+chan)e reser!es of de!eloin) countries are as follo,s/ M0 er cent in 7*
<ollars, 2@ er cent in Euros and the rest in Pens, Pound *terlin) and *,iss
"rancs'
The IM", ,hich, since its incetion in ?@GG, has been officially in char)e of
assistin) countries ,ho face balance of ayment roblems, only has the
e5ui!alent of aro+imately I@ billion that are directly in circulation at its
disosal' Thou)h total contributions reresent IC00 billion, it must be noted that
the ?:G members of the IM" do not necessarily ma%e these sums a!ailable to the
"und' Its lendin) ortfolio is no more than ICB billion' It is loo%ed uon as a
d,arf ,ith resect to some 20 de!eloin) countries' Its situation is a))ra!ated
by the fact that its lendin) ortfolio is diminishin) 2and conse5uently its
re!enues3 due to ad!ance reayments by se!eral Asian countries, $ra.il and
Ar)entina, closely follo,ed by Me+ico and 7ru)uay'
<e!eloin) countries are, literally as ,ell as fi)urati!ely, net lenders to the most
industrialised countries'
It is so true that they lend money to the 7* treasury and to #estern Euroean
countries by buyin) their treasury bonds' <e!eloin) countries hold 7* treasury
bonds e+ceedin) se!eral hundred billion dollars'
The #orld $an% itself reco)nises that de!eloin) countries are net lenders to the
most industrialised countries' In its 200C Annual 4eort entitled Global
De/elo0ment Finance 2&<"3, the #orld $an% states that KDe/elo0in1
countries, as a whole, are net len#ers to #e/elo0e# countriesN'

In the 200B
edition of GDF, the #orld $an% ,rites/ KDe/elo0in1 countries are now net
e20orters of ca0ital to the rest of the worl#N 2#orld $an%, GDF -!!, ' BM3' In
GDF -!!., the #orld $an% states a)ain that KDe/elo0in1 countries e20ort
ca0ital to the rest of the worl#, 0articularly to the 3nite# StatesN 2#orld $an%,
GDF -!!., ' ?C@3'
There is nothin) that demonstrates the futility of the re!ailin) theory more than
in the area of de!eloment' In fact, accordin) to the re!ailin) thou)ht, one of
the rincial obstacles to de!eloment of the *outh,
B
is the lac% of caital'
Therefore, for de!eloment uroses, de!eloin) countries must loo% else,here
for the caital they lac%' They must be at the same time indebted and attract
forei)n caital'
The resent olicy ,ith resect to forei)n e+chan)e reser!es is, from all
ersecti!es, absurd because it conforms to the orthodo+y of international
financial institutions'
Instead of usin) a lar)e art of their forei)n e+chan)e reser!es for in!estment
and current sendin) 2for e+amle, on education and health3, the )o!ernments of
de!eloin) countries use it for reayin) their debts or for lendin) uroses to the
treasury of the 7nited *tates or to the treasuries of #estern Euroe'
$ut it does not end there' The )o!ernments of de!eloin) countries use their
forei)n e+chan)e reser!es as a )uarantee on future ayment and contract ne,
B
"or a criti5ue, see Qric Toussaint, R Des idSes de la $an5ue mondiale en matiFre de dS!eloement T UKThe
Concets of the #orld $an% on <e!elomentNV Chater ?0, +an4ue mon#iale, le %ou0 #56tat 0ermanent 7The
Worl# +an8, the 'ermanent %ou0 #56tat9, CA<TM(*yllese(Cetim, DiF)e(Paris(&enF!e, 200M'
debts ,ith ri!ate forei)n ban%s or financial mar%ets' It is absurd from the oint
of !ie, of )eneral interest'
Another absurd olicy from the oint of !ie, of the nation is that the ublic
treasuries of de!eloin) countries, in order to re!ent an inflationary effect
lin%ed to the hi)h le!el of forei)n e+chan)e reser!es, incur debt ,ith local ban%s
in order to ,ithdra, surlus money from circulation'
Det us ta%e another loo% at the different actions mentioned abo!e'
a) Advance payments to the IMF
"rom the end of 200B until the be)innin) of 200M, Ar)entina made ad!ance
reayments to the IM" by usin) art of its forei)n e+chan)e reser!es' The
country, ho,e!er, ,ould ha!e been erfectly entitled to challen)e the amounts
due to the IM" since the "und is resonsible for a series of actions ,hich ha!e
inflicted harm on its eole and economy' The IM" acti!ely suorted the
Ar)entine dictatorshi bet,een ?@7M and ?@:C, a re)ime that systematically
committed crimes a)ainst humanity and ut the country hea!ily into debt by
imlementin) an economic model re0udicial to the interests of the nation' The
IM" then demanded that the democratic )o!ernment, ,hich succeeded the
dictatorshi, reay the odious debt contracted by the military 0unta'
After,ards, it has continued, to this day, dictatin) an economic olicy a)ainst
the nationAs interests' Ar)entina ,as erfectly ,ithin its ri)ht to refuse to
continue reayin) its debt to the IM"'
The same could be said about $ra.il and its ad!ance reayments on its debt'
$y usin) their reser!es to reay the IM", Ar)entina and $ra.il ha!e ,asted a
art of their resources that could ha!e been utilised for more useful and ,orthy
ends'
9ne of the main reasons )i!en by the Ar)entine and $ra.ilian )o!ernments for
ad!ance reayment of their IM" debt ,as the desire to re)ain their freedom of
mo!ement'
It must be clearly stated that after reayment, these )o!ernments maintained an
economic olicy suorted by the IM"' "or e+amle, they did not re(establish
controls on the mo!ements of caital or on forei)n e+chan)e'
b) Loans to the US government by purchasing treasury bonds
Most de!eloin) countries urchase 7* treasury bonds' The e+act amounts are
un%no,n, but this amounts to se!eral hundred billion dollars bein) lent to the
7* )o!ernment' The ar)ument most commonly ad!anced is that 7* treasury
bonds are hi)hly con!ertible assets, i'e', they can be resold 5uic%ly and easily'
$esides, it is )enerally assumed that they are ris% free since it is inconcei!able
that 7* treasury ,ould be in default in the short or medium term' *imly ut,
de!eloin) countries are thus contributin) to the maintenance of 7* imerial
o,er' <e!eloin) countries are )i!in) the master the baton ,ith ,hich to beat
them u and rae them' In fact, the 7* has a !ital need for outside fundin) to
finance its enormous deficits and maintain its military, trade and financial mi)ht'
If it ,ere to be deri!ed of a si)nificant ortion of the loans from de!eloin)
countries, the 7* ,ould find its osition ,ea%ened'
Additionally, those ,ho ad!ocate urchasin) 7* treasury bonds )enerally omit
to mention the fact that the dollar is fallin)' The yield of those bonds is in
de!aluated dollars'
Det us immediately a)ree that the urchase of #est Euroean treasury bonds is
in no ,ay a !iable alternati!e, althou)h it may be a lesser e!il'
It ,ould be far better to use surlus reser!es roducti!ely or ma%e them
a!ailable to a Kban% of the *outhN'
c) The pursuit of public debt
In!estin) reser!es in 7* treasury bonds 2or any other treasury bonds3 )enerally
means in return ne, borro,in)s' This may seem surrisin), but in reality, this is
ho, thin)s ,or%' 9n the one hand, a art of forei)n currency reser!es is
in!ested in 7* 2or other3 treasury bonds1 on the other, all le!els of )o!ernment
borro, from domestic or international mar%ets in order to reay the national
debt' In any case, the interest earned from in!estin) in forei)n treasury bonds is
less than the interest aid to borro,' This amounts to a loss for the treasury of
the country concerned'
Dea!in) a si)nificant amount of reser!es in the hands of the central ban%
fre5uently leads to it bein) in debtW
To e+lain/ The massi!e influ+ of forei)n caital in the form of forei)n
e+chan)e ends u in the hands of local a)ents ,ho ,ill e+chan)e it at their o,n
ban%s for local currency' This results in an increased accumulation of the
domestic currency, a otential source of inflation' In order to a!oid this, the
central ban% erforms transactions desi)ned to Kfree.eN these reser!es so as to
re!ent the influ+ of forei)n e+chan)e from bein) transformed into the local
currency' There are t,o main ossibilities/
?' The central ban% can decide to increase the rates for reser!e assets of the
ban%in) system' This leads to additional costs for ban%s, ,hich ,ill
certainly be reflected in the interest rates on the loans they offer' This ,ill
ma%e credit more e+ensi!e and should thus slo, do,n the )eneration of
money 2since e!ery time credit is )i!en, money is )enerated, 0ust as there
is monetary KdestructionN e!ery time credit is reaid3'
2' The central ban% carries out o0en)mar8et transactions, i'e', it issues
securities, desi)ned to ta%e local currency out of circulation, thereby
limitin) the ris% of inflation'
The roblem ,ith this strate)y is that the central ban% has, on the one hand,
forei)n e+chan)e reser!es that it in!ests in international caital mar%ets 2,hich
earn a T? interest3 ,hile on the other, the earnin)s from the securities that it
issues is at T2, ,hich is )reater than T?, since the ris% remium has more
si)nificance ,ithin the domestic mar%ets of de!eloin) countries than in
international mar%ets'
It is for this reason that, in order to control inflation as ,ell as the rates of
e+chan)e 2this also deends on the e+chan)e modes, ,hether fle+ible or of the
fi+ed currency boar# tye3, both the central ban% and the state are forced to
incur debt simly to finance the discreancy bet,een the rates'
This is the combined result of a monetary olicy ,hose rincial ob0ecti!e is the
fi)ht a)ainst inflation 2accordin) to familiar liberal ersecti!es3 and a )eneral
economic olicy that limits the acti!e inter!ention of the state into roducti!e
acti!ity and considers social e+enditure to be non(roducti!e 2and a source of
inflation3'
A crushin) ma0ority of )o!ernments )i!e recedence to this olicy, )i!in) rise
to an increase in the national debt as a counter,ei)ht to the hi)h le!el of forei)n
e+chan)e reser!es'
M
This is true for China as ,ell as for Datin America'
Instead of creatin) mountains of reser!es, in articular to rotect them from
seculati!e assault, the )o!ernments of de!eloin) countries ,ould do better to/
?' Adot measures to control caital and currency mo!ement 2a far more
effecti!e ,ay of rotectin) oneself from seculators and fi)htin) caital
fli)ht31
2' 7se a si)nificant art of their reser!es for roducti!e in!estment in
industry, a)riculture 2a)rarian reform and so!erei)n control o!er food
resources3, infrastructures, en!ironmental rotection, urban de!eloment
2urban imro!ement, construction8reno!ation of homes, etc'3, health care
and education ser!ices, culture, research, social security, etc'1
C' 7se art of their reser!es for the creation of a ool of common financial
institutions 2$an% of the *outh, Monetary "und of the *outh, etc'31
G' Create a front of indebted countries for non(ayment1
B' Establish and stren)then cartels of countries roducin) essential )oods1
M' 6e)otiate barter a)reements such as those bet,een Vene.uela and Cuba,
recently e+tended to include $oli!ia'
These ,ill be de!eloed in the follo,in) t,o sections'
Potential Alternatives
Det us return to the fa!ourable economic situation in de!eloin) countries in
200M' As discussed abo!e, the situation is fa!orable for de!eloin) countries for
se!eral reasons/
• A si)nificant number of them ha!e an unrecedented le!el of international
reser!es at their disosal, ,hile the reser!es of the 7* and #estern
Euroe are at a historic lo, le!el,
• The terms of trade are fa!orable to them,
• Most de!eloin) countries ha!e a ositi!e balance of current accounts,
• The IM" is resently ,ea%'
9ne could add that in 200B the a!era)e )ro,th rate in de!eloin) countries ,as
t,ice that of the most industrialised nations, and international interest rates, e!en
thou)h they are risin), are relati!ely lo,' The remium on hi)h(ris% countries
that the de!eloin) countries ha!e to co!er has also reached a historically lo,
le!el'
9n the olitical le!el, in se!eral countries the Deft has achie!ed successes in
200B(200M/ the election of E!o Morales in 200B as President of $oli!ia1 and
imortant ro)ress made by the Deft in the elections in India and Me+ico'
9n the military le!el, #ashin)ton and its allies ha!e become bo))ed do,n in
Ira5 and Af)hanistan, ,hich ,ill ma%e it difficult for them to inter!ene directly
in another country'
#ith resect to the multilateral a)reements fa!orable to the bi) o,ers, the "ree
Trade Area of the Americas ,as abandoned in 200B and #T9 ne)otiations on
the <oha A)enda ha!e come to a standstill 2for the time bein), in any case3'
M
#orld $an%, Global De/elo0ment Finance -!!., ' ?BG
#ithin this conte+t, it is otentially ossible to imlement an alternati!e
strate)y' If the )o!ernments of de!eloin) countries ,anted to challen)e
reayment on their ublic debt, they ,ould be in a )ood osition to do so
because they ha!e ,hat is needed to stand u to the threats of retaliation by
multilateral, bilateral and ri!ate creditors' The le!el of their reser!es )i!es them
enormous room in ,hich to manoeu!re'
If Ar)entina ,as able to stand u to the ri!ate creditors on its o,n from the end
of 200? to the be)innin) of 200B 2they demanded it resume reayment of a debt
amountin) to about I?00 billion3 and to )ain si)nificant concessions, one can
easily ima)ine the stren)th that a united front of se!eral countries ,ould ha!e'
6o, is the time to set to ,or% on an audit of the debt'
A united front of countries for non(ayment ,ould also be able to further the
matter of restitution of the historical and ecolo)ical debt contracted by the most
industrialised nations'
Public oinion and social mo!ements ,ould lar)ely suort the )o!ernments of
the *outh in ta%in) this le)itimate osition'
• The )o!ernments of the de!eloin) countries could ta%e the initiati!e in
creatin) a $an% of the *outh and an international Monetary "und of the
*outh 2see further on3' They could ,ithdra, from the #orld $an% and the
IM", bodies that are totally controlled by a fe, of the bi))est and most
industrialised countries'
• They could ,or% on de!eloin) a strate)y to stabilise the rices of ra,
materials and a)ricultural roducts by formin) cartels bet,een roducin)
nations and by stren)thenin) 9PECAs osition'
• They could create and8or stren)then re)ional *outhern associations and,
,hy not, endo, themsel!es ,ith a common currency'
• They could reintroduce controls o!er the mo!ement of caital and forei)n
e+chan)e'
• They could ta%e bac% control of their countriesA natural resources'
• They could ursue audacious ublic olicies in the areas of education,
culture and research 2articularly in health care3 ,ith sufficient financial
means'
• They could be insired by the trade a)reements amon) the $oli!arian
4eublic of Vene.uela, Cuba and $oli!ia and ad!ocate ne, forms of
trade usin) barter 2for e+amle, oil in e+chan)e for health care and
education ser!ices3'
• *uch a strate)y ,ould resuose )i!in) riority to a radical
redistribution of ,ealth ,ithin the de!eloin) countries as ,ell as
bet,een the *outh and the 6orth of this lanet' The social content of an
alternati!e strate)y is fundamental' It is necessary to ro!ide it ,ith a
socialist content to a!oid the ossible ris% of it becomin) an alternati!e
KcaricatureN' The socialist content has nothin) to do ,ith a simle olicy
for reducin) o!erty, de!eloin) social ,elfare measures and a !a)ue
humanisation of caitalism' The socialist content imlies ma0or structural
reforms, be)innin) ,ith the 5uestion of o,nershi of the means of
roduction, natural resources and all common )oods' To arahrase Che/
7
it is either a socialist alternati!e or a caricature thereof'
• Any alternati!e must also essentially include the emanciation of ,omen
by establishin) a true e5uality bet,een the se+es'
he Bank of the South and the Monetary Fund of the South
A first choice ,ould be to create one or t,o institutions'
If t,o ,ere to be created, there ,ould be a ban% to finance de!eloment and a
monetary fund ,hose rimary function ,ould be to rotect countries from
seculati!e attac%s and assist them in resol!in) forei)n e+chan)e dilemmas
,here li5uidity is a roblem' There is also the ossibility of creatin) only one
institution ,hich ,ould be resonsible for these imortant functions'
In articular, the $an% of the *outh rooses to try brea%in) the deendence of
de!eloin) countries on international financial mar%ets, channel their o,n
caacity for sa!in), sto the caital fli)ht, channel central resources to riorities
for indeendent social and economic de!eloment, chan)e in!estment riorities,
etc'
It is about a ublic ban% as an alternati!e to the Inter American <e!eloment
$an% and the #orld $an%'
The $an% of the *outh can )rant credits ,ith or ,ithout interest, as it can
rocure non(reimbursable aid in the form of donations'
The $an% ,ill be rincially financed by contributions from member countries
in the form of contributions and donations' Ta+ re!enues throu)h
re)ional8international ta+es can also be considered'
Those recei!in) riority credits and donations must be ublic entities 2state,
ro!ince, municiality, ublic cororations in the areas of roduction and
ser!ices3' Additionally, it is essential to clearly define ri!ate a)ents ,ho can
recei!e credits and donations from the $an% so as to e+clude the stren)thenin)
of bi) business interests from its acti!ity' Eistory from the last t,o centuries is
relete ,ith e+amles of ublic and oular ban%s ,hich essentially ser!ed to
stren)then caitalistic accumulation ,ithout any actual benefit )oin) to the
eole'
The $an% of the *outh cannot be dissociated from the debt situation' It is
essential that the $an% a!oid mana)in) ublic debt for the benefit of financial
caital'
Another imortant asect is the necessity of oular and democratic control in
tandem ,ith auditin) initiati!es of the debt' The acti!e articiation of
arliaments in suer!isin) the $an%As function must also be encoura)ed'
The fore)oin) only constitutes a fe, a!enues ,hich re5uire collecti!e and
ri)orous lannin)'
7
*ocialist re!olution or caricature of re!olution'
Future #ers#ectives for the econo"y
"or economic as ,ell as olitical reasons, imro!in) the terms of trade for
e+orters of basic commodities does not aeal to most industrialised countries'
This is because it stimulates initiati!es in countries in the *outh' *imilarly, the
current le!el of reser!es held by countries in the *outh are causin) concern in
the caitals of the most industrialised countries as ,ell as in the boardrooms of
the bi) multinationals'
The decisions ta%en by the )o!ernments of the most industrialised countries are
aimed at chan)in) the situation in their fa!our' Mean,hile, the economic cycle
follo,s its o,n lo)ic 2see further do,n3' The lac% of ,ill on the art of the
)o!ernments of the Perihery could ,ell see those )o!ernments miss out on an
historic oortunity'
The central ban%s of the three economic o,erhouses of the most industrialised
countries are increasin) their official mar%et rate ,ith resect to interest rates'
*ince 200G this has been the case ,ith the "ederal 4eser!e of the 7nited *tates
and the Euroean Central $an%' The same can be said about the $an% of Jaan
since the be)innin) of 200M'
An imortant art of seculati!e caital ,hich mo!ed to,ards the countries of
the *outh bet,een 2002 and 200M in the ursuit of )reater returns to those
offered by the countries of the 6orth is comin) bac% to the 6orth' The fall of the
stoc% mar%ets in emer)in) countries in May 200M is robably a harbin)er of
,hat is about to haen'
"or the "ederal 4eser!e of 7nited *tates it is !ital to attract as much caital as
ossible so as to ay off the enormous trade deficit' A ermanent flo, of caital
to,ards the 7*A is a first(ran% necessity' $ecause of this, it is necessary to
increase the interest rates in order to offer forei)n in!estors a sufficient return'
This is e!en more imortant since the !alue of the dollar droed articularly
,ith resect to the Euro and the Pen, and that the interest rates increase e5ually
in the Euro ;one, the 7nited Kin)dom and Jaan'
It is ossible that the current increase in interest rates ,ill le!el off' The 7*
monetary authorities %no, that if they raise interest rates too much, they ris%
ro!o%in) an e+losion in the seculati!e real(estate bubble and a dramatic
reduction in household consumtion because 7* householders are in a lot of
debt 2totallin) ??,B00 billion dollars3' Too much of an increase in interest rates
also ris%s causin) roblems for bi) businesses in the 7*, startin) ,ith the
automoti!e and a!iation sectors' 6e!ertheless, e!en if 6orthern interest rates no
lon)er rise sharly in the last 5uarter of 200M, they ha!e already reached a
sufficiently hi)h le!el to attract a )ood art of the caital ,hich had re!iously
been di!erted to the *outh in recent years'
The rice trend for basic commodities has been ob!iously influenced by the
le!el of economic acti!ity' It is necessary to be cautious ,ith the forecasts of
)ro,th for 2007(200:' Ea!in) said this, a reduction of )ro,th in the 7nited
*tates cannot be e+cluded' If it haens, it ,ill be interestin) to see the imact
on )ro,th in #estern Euroe and Jaan' If it also slo,s do,n in these t,o
re)ions, there is li%ely to be a decrease in the sale of ra, materials as ,ell as in
rices, unless ChinaAs acti!ity is maintained o!er an e+tended eriod of time,
,hich ,ould be surrisin)'
E!idently, China is )oin) throu)h a sta)e of o!er(in!estment' The rate of return
is )enerally 5uite lo,' Its acti!ity is lar)ely deendent uon its e+orts' The
consumtion of Chinese households is )ro,in) but only a small minority is
benefitin) from this domestic consumtion' In short, the domestic mar%et is
unli%ely to relace the e+ternal mar%et as the outlet for Chinese roduction
unless the Chinese authorities ma%e a radical turnaround in their model of
de!eloment 2increase in salaries, a radical stren)thenin) of the domestic
mar%et, loo%in) for real constructi!e cooeration ,ith other countries of the
*outh3, ,hich, unfortunately, aears to be !ery unli%ely' The stru))les in
,hich the Chinese ,or%ers are en)a)ed X an imro!ement in salaries, better
,or%in) conditions and a ri)ht to or)anisation X oint ob0ecti!ely in the
direction of a radical chan)e in the model of de!eloment, but it is difficult to
see ho, they could obtain satisfaction in the short term'
There is a ris% that the e!olution of the Chinese economy ,ill lead in the
oosite direction' Det me e+lain' If a reduction in economic acti!ity in the
7nited *tates is not counterbalanced ,ith sufficiently stron) )ro,th in Euroe
and Jaan, the economic acti!ity in China ,ill certainly slo, do,n' &i!en that
the rate of return is lo, and the cororate debt le!el is 5uite hi)h, it is robable
that a reduction in acti!ity ,ill ro!o%e si)nificant reductions in ersonnel and
business failure' *uch a situation ,ould not create conditions fa!ourable to the
Chinese ,or%ers'
#hat I ha!e 0ust described is lar)ely hyothetical and the time factor has not
been secified/ this e!olution mi)ht lay out o!er se!eral years' 6umerous
!ariables are at lay'
"or e+amle, ,hat is )oin) to haen to the rice of oil and )asY #hat ,ill
9PEC doY My imression is that the rice is )oin) to remain hi)h, ,hich is a
)ood thin)' $ut nothin) is )uaranteed'
#hat is )oin) to haen to other essential roductsY The rice of certain
roducts is such that ,e are ,itnessin) a classic henomenon in the e!olution of
caitalist economies, mines ,hich ,ere no lon)er rofitable are bein) e+loited
a)ain' *ome ha!e 5uite ele!ated in!estment costs' There is o!er(in!estment'
This ,ill roduce a rise in suly, ,hich ,ill e+ceed demand, ,hich ,ill in turn
result in rice dereciation and cororate ban%rutcy'
#hat can sto thisY Either an acceleration in the ,orld economic )ro,th, ,hich
is !ery unli%ely1 or the creation of a cartel made u of roducin) countries to
lan roduction and limit )ro,th in order to stabilise ele!ated rice le!els' This
brin)s us to the need for an alternati!e' If )o!ernments of the *outh do not rise
to the challen)e, the situation ,ill e!ol!e unfa!ourably' 9ne can only fear ,hat
mi)ht haen'
#hat has 0ust been described may also haen ,ith the rice of oil and )as' If
there is a shar decrease in the rice of )as and oil, that ,ould be disastrous for
many countries of the *outh'
Det us return to the !ariable Kdebt reaymentN'
*ince 200C(200G, most indebted countries ,ith middle incomes no lon)er find it
difficult to ser!ice their debt' This is the conse5uence of se!eral economic
factors/ )ro,in) estimated returns than%s to the ele!ated rice of ra, materials
,hich they e+ort, the arri!al of seculati!e caital in search of short(term
rofits notably in the stoc% e+chan)es of emer)in) countries, relati!ely lo,
interest rates and e+tremely lo,(ris% remiums in 200G(200M'
All this can chan)e ,ithin a year or a fe, years'
The cash re!enue and reser!e le!els can diminish, the interest rates at their
hei)ht in the 6orth can increase the ser!icin) of the debt on the loans contracted
at a !ariable rate, the cost of the ne, loans to refinance old debts is )oin) to
)ro, because it ,ill be alied to a more ele!ated interest rate, the ris%
remiums can rise a)ain'
A si)nificant number of indebted countries ris% findin) themsel!es in the
situation of the cicada in the fable of Da "ontaine' At the end of the summer,
,hen the economic en!ironment deteriorates, they ris% findin) themsel!es in
ayment difficulties and their e+chan)e reser!es ris% meltin) li%e sno, in the
sun'
It is a further ar)ument for uttin) an alternati!e olicy ,ith resect to
establishin) a common front of indebted countries for the non(ayment of the
debt 2see oints C and G3 into ractice'
$efore arri!in) at conclusions, I ,ould li%e to lea!e you some imressions and
additional information'
• "or the last 20 years, the 7nited *tates has succeeded in o!ercomin) their
crisis by alyin) a !ery inter!entionist olicy and in ma%in) other
countries ay a art of the cost for e+tricatin) itself out of the crisis' Det
us not for)et that the ,or%in) classes of the 7*A ha!e )one to )reat
e+ense in e+tricatin) themsel!es out of the crisis 2for e+amle, throu)h
massi!e layoffs in 200?(2002, a !ery stron) )ro,th in the casualisation of
labour, and a )ro,th in the number of the ,or%in) oor, a reduction in
real salaries and their share in the national re!enue3' 6e!ertheless, the 7*
economy has not been cleaned u from the caitalist oint of !ie, 2it has
a relati!ely ,ea% )ro,th rate, a relati!ely lo, rofit rate3' It ,ill certainly
ha!e to )o throu)h a deeer ur)e, ,hich imlies a
de!aluation8destruction of caital 2a si)nificant number of ban%rutcies3'
#hen ,ill this ur)e haenY 6o(one can reasonably redict a date, but it
is unli%ely to be a!oidable from the oint of !ie, of the caitalist lo)ic
itself' I ,ant to ma%e it clear that a ur)e is not synonymous ,ith a
collase' 9n the contrary, it is ar)uably the best mechanism that
caitalism has at its disosal to re)ain a durable ele!ated rate of rofit and
stron) )ro,th'
• The domestic debt of de!eloin) countries has )ro,n sharly durin) the
last three years in absolute fi)ures' The soar of the national debt is
articularly hi)h and dis5uietin) in a lar)e number of middle(income
countries' Accordin) to the #orld $an%, the national debt of indebted
countries ,ent from I?'C trillion in ?@@7 to IC'B trillion in *etember
200B'
:
• The ri!ate ban%s of the 6orth, after ceasin) to )i!e ban% loans to the
indebted countries in 200?(2002, ha!e resumed issuin) loans as of 200C'
:
#orld $an%, Global De/elo0ment Finance -!!., ' GG
In 200B, the number of issued loans increased from 7G er cent in relation
to 200G' Alto)ether ?,2M? loan contracts ha!e been si)ned, rincially in
the areas of oil and )as'
• In 200B, aro+imately G0 de!eloin) countries issued ne, bonds on the
international financial mar%ets' The bonds issued by ?0 of those countries
2$ra.il, China, Eun)ary, India, Indonesia, Me+ico, Poland, 4ussia,
Tur%ey and Vene.uela3 reresent M@ er cent of the total issued by the
G0 countries' Det us loo% at bonds issued in Euros and ho, sharly they
ha!e )ro,n at the )lobal le!el durin) recent years' In 2000 the securities
issued in Euros reresented 2@': er cent of all bonds issued' In 200B they
reresented GB'G er cent' $onds issued in dollars, ,hich reresented B?'@
er cent in 2000, reresented nothin) more than C:'C er cent in 200B'
@
• In 200B, a lar)e art of forei)n direct in!estment ,as lin%ed to
ri!atisations8ac5uisitions8mer)ers ,hich created no additional
emloyment' In certain cases !alue and emloyment ,ere destroyed'
• A ne, tye of deri!ati!e has been launched in the mar%et in recent years'
It is %no,n as %re#it Default Swa0s: The buyer of the bonds issued by
comanies or states ays an insurance a)ainst the ris% of non(ayment'
This mar%et ,hich has literally e+loded o!er the recent years on the
)lobal scale reresents a notional 2!irtual3 !alue of I7'C trillioa, of ,hich
less than B er cent in!ol!es de!eloin) countries' Accordin) to the
#orld $an% and the financial ress, it is difficult to measure the stren)th
of this tye of deri!ati!e' #here there is a )eneral difficulty ,ith the
reayment of debt, it ,ill be difficult for the insurers to %ee their
commitment ,ithout ris%in) ban%rutcy'
?0
• The institutional in!estors, namely, the ension funds of the most
industrialised countries, ha!e in!ested a total of IGM trillion 2i'e', an
amount lar)ely )reater than the sum total of the entire ,orldAs &<P3, of
,hich I20'7 trillion is controlled by 7* comanies'
??
It ,ould be enou)h
that they dedicate a tiny fraction of these in!estments to buyin) shares in
the stoc% mar%ets of the emer)in) countries or to buyin) currency, to
increase their !alue 2,hich is ,hat haened in 200B3' It ,ould be enou)h
for this same tiny fraction to be ,ithdra,n to ro!o%e a dro in the stoc%
mar%et in *ao Paulo or in Mumbai 2,hich is ,hat haened in May
200M3, or e!en a reduction in the !alue of the currency of Thailand or
Ar)entina' If )o!ernments do not ta%e measures to control the mo!ement
of caital as ,ell as forei)n e+chan)e, they are at the mercy of seculati!e
attac%s of the amlitude of those in the second half of the ?@@0s'
• The caitalists of the *outh increased caital fli)ht in 200B' E!en thou)h
the fli)ht reresented I?72 billion in 200G, they rose to IC?: billion in
200B'
?2
• 9!er the last fe, years, the *outh(*outh flo, ,as de!eloed rincially
under the mana)ement of caitalist firms of the *outh' "or e+amle, the
flo, in forei)n direct in!estments bet,een countries of the *outh ,ent
@
#orld $an%, Global De/elo0ment Finance -!!., ' B@
?0
#orld $an%, Global De/elo0ment Finance -!!., ' M2
??
#orld $an%, Global De/elo0ment Finance -!!., ' BC
?2
#orld $an%, Global De/elo0ment Finance -!!., ' ?B?
from I?G billion in ?@@B to IG7 billion in 200C' In 200C, these flo,s in
*outh(*outh in!estment reresented CM'M er cent of the total forei)n
in!estment flo,s )oin) to the *outh' $an% loans from the ri!ate ban%s of
the *outh to other countries and businesses of the *outh ,ent from
I0'7 billion in ?@:B to IM'2 billion in 200B' "or the first time in its history,
the #orld $an% dedicated an entire chater in its annual reort Global
De/elo0ment Finance to the flo, of *outh(*outh caital
?C
' That deser!es
a secific contribution on the sub0ect' The *outh(*outh flo, 2,ith some
e+cetions lin%ed to Vene.uelan initiati!es3 comletely follo,s the lo)ic
of caitalist )lobalisation' Chinese firms in!est lar)ely in Africa and in
Datin America to ensure control of the source of ra, materials' Petrobras
is doin) e+actly the same thin) in $oli!ia, 6i)eria and An)ola' It is the
same for the 4ussian firms' Else,here, the #orld $an% is roosin) to
the )o!ernments of the *outh to recycle a art of its enormous forei)n
e+chan)e reser!es in lendin) them to ri!ate local in!estors' In short, the
#orld $an% is itself on the offensi!e on the theme of the $an% of the
*outh by ro!idin) it ,ith content in accordance ,ith stren)thenin)
caitalism at the )lobal le!el' 4ather than roosin) to the )o!ernments
of the *outh that they e5ui themsel!es ,ith *outh(*outh ublic
instruments for financin) their needs 2and those, as a riority, of their
eole3, the #orld $an% rooses to entrust the reser!es to ri!ate caital
of the *outh' That )oes ,ithout sayin) but that brin)s us to the contents of
the roosed the $an% of the *outh, ,hich is discussed else,here in this
te+t'
-onclusion
A ne, historical oortunity is bein) resented to eole and )o!ernments in
so(called de!eloin) countries to adot a liberatin) initiati!e ,ith international
scoe' The economic situation fa!ourin) stron) initiati!es ,ill not be e+tended'
Inaction or strate)ic errors ,ill lead to an unfa!ourable re!ersal'
If the oortunity is not sei.ed 2and it is !ery robable that it ,ill not be sei.ed3,
history ,ill follo, its course and eole ,ill be stru))lin) under e!en more
se!ere conditions than no,' The battle ,ill continue and faced ,ith the cynical
olicies of their )o!ernments, citi.ens ,ill become radical and cla, their ,ay to
the to of freedom ,ithout &od or *ureme *a!iour' This is called re!olution'
Translated by &illian *loane(*eale, Karin $aasch, Mi%e #illiams and Jean(
Pierre *chermann, Coorditrad !olunteers'
?C
#orld $an%, Global De/elo0ment Finance -!!., chater G, ' ?07(?CM
he Bank of the South1
a revie! of !hat is at stake
1.
Eric Toussaint
!o o##osite tendencies at #lay in 2atin A"erica
9n one hand, the 7nited *tates )o!ernment and the E7 countries ma%e bilateral
free(trade a)reements ,ith the countries of the re)ion X an arran)ement ,hich
benefits their o,n comanies' These comanies ha!e ta%en ad!anta)e of the
massi!e ri!atisations of the ?@:0s and ?@@0s to ta%e control of numerous
economic sectors that are !ital for de!eloment' Caital flo,s )o out of the
re)ion to the most industrialised countries !ia debt ser!icin), reatriation of
rofits made by the trans(national cororations of the 6orth, and fli)ht of caital
or)anised by Datin(American caitalists' The internal ublic debt is on the rise,
li!in) conditions are sta)natin) and the eole most e+loited are further
imo!erished, desite the miti)atin) effect of certain ublic aid ro)rammes 2in
$ra.il, Ar)entina, Vene.uela, Ecuador3'
9n the other hand, a number of oular mobilisations in the last fe, years has
led to the election of ne, )o!ernments, some of ,hich are tryin) to re!erse the
course of the last C0 years and counteract the first tendency described abo!e by
re(establishin) ublic control o!er the countryAs natural resources 2Vene.uela,
$oli!ia, Ecuador3, o!er other %ey sectors of the economy 2Vene.uela3 and by
foilin) certain strate)ic ro0ects of the 7nited *tates 2failure of the "TAA in
6o!ember 200B and difficulty in imlementin) Plan Colombia due to the
oosition of Vene.uela, Ecuador
?B
and $oli!ia3' Certain )o!ernments
underta%e social reforms by follo,in) a re(distributi!e olicy' Vene.uela since
?@@@, $oli!ia since 200M, and shortly after,ards Ecuador, decided to modify
their constitutions in a democratic direction' The $oli!arian Alternati!e for
Datin America and the Caribbean 2AD$A3 brin)s to)ether Vene.uela, $oli!ia,
Cuba, Eaiti, 6icara)ua and, as an obser!er, Ecuador'
The creation of a $an% of the *outh scheduled for the end of 2007 is the %in)in
of this counter(tendency'
Pre#arations for the Bank of the South
$y "ebruary 2007, Ar)entina and Vene.uela, 0oined by $oli!ia, had reached an
a)reement for creatin) the $an% of the *outh' Very soon Ecuador, Para)uay, and
more recently, $ra.il 2since C May3 officially 0oined these three countries' The
te+t submitted for ministerial discussion, before Ecuador inter!ened ,ith an
ori)inal roosal, ,as dated 2@ March and too% the form of a roosal ut
for,ard by Ar)entina and Vene.uela' 4icardo PatiZo, the finance minister of
Ecuador, and four members of his Cabinet dre, u the Ecuadorian roosal'
?G
#ritten in May 2007'
?B
4afael Correa, the Ecuadorian President, has announced that he ,ill not rene, the lease on the 7* military
base at Manta in 200@ ,hen the resent one runs out'
Three non(Ecuadorians, Jor)e Marchini
?M
, 9scar 7)arteche
?7
and myself, ,ere
in!ol!ed in the rocess' 9n C0 Aril, the finance minister, accomanied by his
Cabinet and myself, submitted this roosal 2roduced o!er some ?B hours on
27, 2: and 2@

Aril3 to President Correa' Ee ratified this roosal, ,hich ,as
immediately sent to the reresentati!es of the other countries' The ministerial
meetin), held on C May in [uito and chaired by the President of Ecuador, lasted
some four to fi!e hours' I ,as in!ited to be a art of the Ecuadorian dele)ation'
The other countries ,ere reresented by their finance ministers, and, as a )eneral
rule, by a deuty minister or a Cabinet member'
The focus is no, on a residential summit, due to ta%e lace before the end of
June as er the [uito <eclaration' This summit ,ill adot a te+t definin) the
$an% of the *outh and roclaimin) the final creation of this institution'
What !as the orientation of the text drafted by Ar$entina and
3ene4uela 5
The initial te+t dra,n u by Ar)entina and Vene.uela is in its ,ay both
surrisin) and shoc%in) since the initial dia)nosis includes considerations that
are comletely in line ,ith the neo(liberal !ie,, the !ie, of the #orld $an%
2#$3, the !ie, of dominant economic thin%in), and the !ie, of the caitalist
class re)ardin) the reasons for Datin AmericaAs deficiencies' The te+t obser!es
that under(de!eloment of the financial mar%ets is the main cause of Datin
AmericaAs roblems' In its )eneral considerations, it secifies the need to
romote the establishment of multinational cororations ,ith re)ional caital,
,ithout mentionin) that they must also be ublic' Kno,in) Ar)entinaAs
leanin)s, the fact that nothin) is said about the cororations bein) ublic is as
)ood as sayin) that they are ri!ate, or that they are mi+ed' The )eneral
considerations also ma%e it clear that this means romotin) the de!eloment of
caital mar%ets and re)ional financial mar%ets'
*econd element/ the ro0ect rooses the creation of a $an% of the *outh, ,hich
,ould oerate both as a de!eloment ban% and a monetary stabilisation fund' A
monetary stabilisation fund means a re)ional or)anisation that comes to the aid
of the countries of the re)ion ,hen they are faced, for e+amle, ,ith hostile
ta%eo!ers' They need imortant e+chan)e reser!es in order to rotect themsel!es
from these seculati!e attac%s' The 0oint Ar)entine(Vene.uelan ro0ect roosed
only a sin)le or)anisation called the $an% of the *outh, ,hich can oerate li%e a
de!eloment ban% and a monetary fund at the same time' There is nothin)
shoc%in) about this' #hat is shoc%in) is that once a)ain the declared urose is
to de!elo caital mar%ets, to romote industry, and to encoura)e the
de!eloment of infrastructure, ener)y and trade' En!ironmental rotection or
cultural and educational olicies are left out of the icture' Considerin) the
initial dia)nosis, it is to be feared that the recommended macro(economic
olicies ,ill remain ,ithin the lo)ic of structural ad0ustment and orthodo+
?M
Member of the Deftist Economists of Ar)entina 2E<I3, member of the International <ebt 9bser!atory 29I<3
and Professor of Economics at the 7ni!ersity of $uenos Aires 27$A3'
?7
Professor of Economics at the 7ni!ersity of Me+ico, member of Datindadd and 9I<'
monetarist olicies' It is also said that the $an% ,ill borro, on the financial
mar%ets'
The imortant and shoc%in) third element/ the roosal from Ar)entina and
Vene.uela en!isa)es !otin) ri)hts accordin) to each countryAs contribution'
Thus, if Ar)entina contributes three times more than Ecuador or Para)uay,
Ar)entinaAs !otin) ri)hts ,ill be three times more' This is recisely the system
of !otin) ri)hts re!ailin) in the #$, the IM" and the IA$< 2Inter(American
$an% of <e!eloment3' An anti(democratic criterion is roosed for this ne,
institution, thus creatin), at the oerational le!el, an e+act relica of ,hat is
se!erely criticised else,here' As re)ards membershi, the Ar)entine and
Vene.uelan roosal e!o%es the ossibility of articiation in the $an% by
African and Asian states, ,hich ,ill en0oy obser!er status' This is ositi!e
because it e+ands the scoe of the *outh' $ut, ,hile it has not been e+licitly
stated, there is a li%elihood that a lace ,ill also be )ranted to multilateral
financial institutions' It has been learned from other sources that in the
discussions of March and Aril 2007, certain members of the Cabinet,
articularly from Ar)entina, en!isa)ed that the #$ and the IA$< could be
shareholders 2,ithout !otin) ri)hts3 of the $an% of the *outh' And to cro,n it
all, the last art, chater :, entitled =Immunity, E+emtion and Pri!ile)e=, is
e+actly based on the statutes of the #$, the IM" and the IA$<' Article G2 of
this ro0ect states that records are in!iolable, that is to say that audits of the
$an% of the *outh ,ill not be ossible' It is also stated that the ban%As ersonnel,
directors, officials and emloyees are ta+(e+emt' Article GB states X and here
,e ha!e a simle coy(aste of #$ and IM" statutes X that there is total
immunity re)ardin) the le)al and administrati!e rocedures relatin) to acts
committed by ci!il ser!ants in the conte+t of their mission'
This ro0ect came out of the meetin)s of a technical commission and ,ould ha!e
been the only ro0ect submitted for discussion had Ecuador not decided to
roduce a ne, roosal' The te+t roosed by Ar)entina and Vene.uela is
comletely consistent ,ith the re!ailin) direction and olicy of the Kirchner
)o!ernment in Ar)entina1 on the other hand it is comletely inconsistent ,ith
the ositions adoted by Vene.uela' A lausible e+lanation/ the Ar)entine and
Vene.uelans sher0as ,ho created this te+t are technicians trained in An)lo(
*a+on uni!ersities, and ,ho are fa!ourable to the dominant neo(liberal
economy' 9ne can only hoe that this te+t ,as not really read, aro!ed and
adoted by the Vene.uelan President'
What does 0cuador6s #ro#osal contain, co"#ared to the
Ar$entine(3ene4uelan text 5
Ecuador rooses three instruments/ a 4e)ional Monetary "und, a $an% of the
*outh and creation of a common currency of the *outh' Ecuador rooses a shift
to,ards a *outh American currency, ,hich ,ould allo, the countries to trade
bet,een themsel!es in their o,n currency, ,hereas today trade bet,een Datin
American countries is conducted rimarily in dollars' This third instrument ,as
immediately acceted by Ar)entina, Vene.uela, $ra.il, Para)uay and $oli!ia'
The te+t roosed by Ecuador starts ,ith some imortant )eneral considerations'
The first consideration states that the t,o or)anisations ( the *outhern Monetary
"und and the $an% of the *outh, or the sin)le or)anisation if there is only a
$an% of the *outh, must )uarantee the effecti!e alication of human ri)hts and
must allo, for the alication of international a)reements, criteria and treaties
,hich relate to economic, social and cultural ri)hts' It is an aroach e+ressed
in terms of human ri)hts' It means settin) u economic tools to be used for
ensurin) the alication of fundamental human ri)hts' Another basic
consideration is that neo(liberal olicies of the #$ and the IM" tye 2and this is
said imlicitly3 ha!e led to a deterioration in the li!in) conditions of lar)e
sections of oulations, to an increase in ine5ualities in the distribution of
income and resources, to a loss of control by the countries of the re)ion o!er
their natural resources, and to a stren)thenin) of the mi)ratory trend' To counter
all this, ublic olicies must be imlemented to reinforce ublic structures,
enablin) countries to re)ain control of their natural resources and their re)ional
roducti!e aaratus, a lar)e art of ,hich has assed into the hands of trans(
national comanies in the 6orth'
What other ori$inal #ro#osals have been "ade by 0cuador
re$ardin$ the Bank of the South 5
It is imortant that these t,o or)anisations should not be indebted to the caital
mar%ets, as the #orld $an% and the IA$< are' It should be noted that the #$,
,hich is indebted to the caital mar%ets, !ery often 0ustifies its neo(liberal olicy
by e+lainin) that it is fundamental to maintainin) its AAA ratin) as a
borro,in) ban% in the caital mar%et, allo,in) it to borro, at the lo,est rate' If
,e ,ant to follo, olicies ,here rofitability is not the first concern, ,e must
not deend on this ratin)' This is ,hy the caital of the $an% of the *outh,
,hich enables it to )rant loans, must come from four sources/ ?3 a caital
contribution from the member countries1 23 the $an%As borro,in) from member
countries 2contracts that do not deend uon bonds issued on re)ional or
6orthern caital mar%ets31 C3 common )lobal ta+es, namely !arious tyes of
)lobal ta+es to be alied by the member countries, ,ith receits bein)
transmitted to the de!eloment ban%, li%e a Tobin ta+, a ta+ on income
reatriated by the trans(national comanies, a ta+ for en!ironmental rotection,
etc1 G3 donations'
If a *outhern Monetary "und is set u, it is lanned that the money used to aid
needy countries ,ould be art of the reser!es of each member state ,hich are
ut at the "undAs disosal in case of need' #hen necessary, the "und can call on
20 er cent of the e+chan)e reser!es of all the member countries' "or e+amle, if
$oli!ia is attac%ed by seculators, immediately the "und as%s the central ban%s
of $ra.il, Ar)entina, Vene.uela, Para)uay and Ecuador to transfer, in a fe,
hours, 20 er cent of their reser!es to defend $oli!ia' It is imortant to note that
the funds are not ermanently bloc%ed1 they are ooled only in the e!ent of
need'
Another ma0or element in the )eneral rinciles of the Ecuadorian roosal is
that the interlocutors of the $an% of the *outh or the "und should be member
states' The idea is to )rant loans to ublic comanies, small roducers, the co(
oerati!e sector, indi)enous communities, etc' Theoretically, it should not )rant
loans to lar)e trans(national comanies of the *outh, such as those that e+ist in
*outh America/ Petrobras, the lar)e ri!ate(ublic $ra.ilian comany1 P<V*A,
the Vene.uelan oil comany1 Techint, an Ar)entine ri!ate comany\'
Theoretically, a loan cannot be )ranted to these comanies1 it has to be to the
ublic sector, the small roducers, the local communities, municialities,
ro!inces, etc' The money should be lent to them !ia the member states' The
idea is to sto the $an% of the *outh from becomin) a KmastodonN' 9ne must
a!oid ,hat haens ,ith the #$/ it has nearly ?C,000 emloyees, ,ho byass
central )o!ernment ,ith multile missions in e!ery corner of the countries in the
*outh' These missions urosely ,ea%en the authorities' The idea is to ha!e a
$an% of the *outh structure, ,ith lean staffin) and ,ith the states as the
reresentati!es8ne)otiators' The ob0ecti!e is that the states, in accordance ,ith
the $an%As orientation, lend mainly to those ,ho re5uire it, ,ith a !ie, to
findin) an alternati!e model, resectful of the en!ironment, see%in) to romote
social 0ustice and assistin) those ,ho do not ha!e easy access to caital,
therefore by definition not rimarily to lar)e ri!ate comanies'
,ther differences bet!een 0cuador6s #roject and the Ar$entine(
3ene4uelan text
The Ecuadorian ro0ect en!isa)es that each member state ,ill set u a
mechanism so that, each year, it ,ill be accountable for the oeration and the
acti!ity of the $an% and the "und' This mechanism must include a ublic
arliamentary discussion'
Instead of statin) that records are in!iolable, the rincile is that these records
are art of the ublic domain' There can be temorary e+cetions, certain
decisions of the "und bein) ro!isionally classified as confidential ,hen
relatin) to hostile bids'
The officials of the $an% of the *outh and the "und are sub0ect to ta+'
There is no immunity/ it is stated that the officials of the $an% and the "und ,ill
be ans,erable to la, for their actions' The $an% and the "und are defined as
moral identities, and can be rosecuted'
What can be assessed fro" the "inisterial "eetin$ of ' May 5
"irst of all, the outstandin) fact is that $ra.il, ,hich u to then had been
reluctant to 0oin the $an%, affirmed that it adhered to the idea of a $an% of the
*outh' It should ho,e!er be noted that $ra.il, in accordance ,ith the economic
and social olicy and the forei)n olicies of the Dula )o!ernment, sees this $an%
of the *outh essentially as an instrument of commercial olicy, sea%s rimarily
in terms of economic bloc and uncritically accets the Euroean 7nion 2E73 as
its model' "or the CA<TM and for a series of social mo!ements X Euroean or
other,ise X the E7 in its resent state is absolutely not a model' 9f course, there
are imortant ositi!e asects/ the fact of ha!in) a common currency, a sace
,here internal borders ha!e been remo!ed and ,here eole can mo!e
e+tensi!ely' $ut it is certain that the current model of the E7 suorts the
alication of neo(liberal olicies, and uholds the mo!ement of caital more
than the mo!ement of eole, since amon) the ne, member states, in the east,
there are certain restrictions on the mo!ement of citi.ens' The E7 maintains
fierce cometition amon) ,or%ers' #ithin the E7 frame,or%, ,or%in)
conditions and emloyersA obli)ations to ,or%ers ha!e not been standardised
u,ards' #here fa!ourable systems of social security are still to be found, for
e+amle in Eun)ary, the tendency is to ri!atise in e+chan)e for articiation in
the E7'
This uncritical !ision of the E7, as e+ressed by $ra.il, is undoubtedly shared
by other Datin American )o!ernments/ either they ha!e illusions about the E7,
or, more robably, and in full %no,led)e of the facts, they find that Euroe is
doin) !ery ,ell in its current state, and therefore refer a model ,hich remains
,ell ali)ned to neo(liberal olicies'
What to think of Bra4il6s accession to the Bank of the South 5
&i!en the stren)th of the $ra.ilian economy in Datin America, $ra.ilAs
articiation )i!es the $an% far )reater initial imetus' The roblem ,ith $ra.il
is the orientation of the Dula )o!ernment and the economic and social model
that it ractises' It is clear that $ra.ilAs inte)ration into the $an% of the *outh
,ill lead the $an% to adot a much more traditional attern, not too far remo!ed
from neo(liberalism, ,hile if $ra.il did not articiate, it ,ould be easier to
reach a definition closer to the alternati!e model that ,e ad!ocate' $ra.il has
0oined the $an% of the *outh because it cannot be absent from it/ if the
foundations of the $an% of the *outh had not been laid on the initiati!e of
Vene.uela and Ar)entina, $ra.il ,ould ne!er ha!e )i!en it any thou)ht' $ut to
maintain its re)ional economic dominance $ra.il cannot stay a,ay from the
$an% of the *outh' If ,e loo% at it from the !ie,oint of Ecuador, Vene.uela
and $oli!ia, it is easy to understand ,hy these )o!ernments are interested in
ha!in) $ra.il in the $an% of the *outh, because it is an imortant economic
o,er and because a series of ro)ressi!e )o!ernments in the re)ion ,ish to
maintain )ood relations ,ith $ra.il so that it does not stren)then its ties ,ith the
7nited *tates, ,hich ,ould ,ea%en the re)ion !is(>(!is American
a))ressi!eness' A truly dilomatic and )eo(strate)ic )ame is bein) layed' In a
more ideal ,orld, the $ra.ilian )o!ernment ,ould adot a truly leftist olicy X
an alternati!e to its alliance ,ith the 7* and its suort for the a)ro(e+ortin)
industry and for an e+ort(based olicy ,hich is set on con5uerin) the mar%ets
of the re)ion' $ut that is a far cry from reality'
Which trend !ill #redo"inate on the re$ional scale 5
The current )o!ernment of Para)uay is a ri)ht(,in) one, and this )o!ernment
could be relaced after this yearAs residential elections' A Deft(,in) riest may
be the ,inner in these elections' As for Ar)entina, there is anti(IM" and anti(
neo(liberal rhetoric but the Ar)entine )o!ernment is oriented to,ards
stren)thenin) caitalism in Ar)entina' In fact, t,o )reat initiati!es are at ,or%
today in Datin America' 9n the one hand ,e ha!e the $an% of the *outh and
ME4C9*74 ,hich is e+andin)' It initially included $ra.il, Ar)entina,
Para)uay and 7ru)uay' Vene.uela, ,hich ,ants a stron)er re)ional alliance in
oosition to the 7* roosal of "TAA, has 0oined ME4C9*74' $oli!ia did so
too, ,hile Ecuador is there as an obser!er' This ma%es an economic bloc defined
mainly by commercial and economic relations and dominated by a caitalist
model' This bloc facilitates trade and romotes a certain tye of re)ional
inte)ration'
Then there is another initiati!e, AD$A, or the $oli!arian Alternati!e for Datin
America and the Caribbean, in ,hich Vene.uela and $oli!ia are members'
Cuba, Eaiti and 6icara)ua ha!e also 0oined, ,ith Ecuador as an obser!er' A
meetin) of AD$A ,as held in Vene.uela fi!e days rior to the [uito meetin) on
the $an% of the *outh' AD$A is a olitical )rou ,ith Cuba(Vene.uela($oli!ia
as its central a+is' The )o!ernments of these three countries state e+licitly that
their ob0ecti!e is a K*ocialism of the 2?st centuryN X an anti(caitalist and anti(
imerialist orientation, aimin) at solidarity amon) the eole'
*o here ,e ha!e a hi)hly secific situation in Datin America and the Caribbean
re)ion, ,ith t,o tyes of ro0ects, artly cometin) ,ith each other, but ,hich
ne!ertheless coe+ist, since se!eral countries are members of both' Vene.uela
and $oli!ia are in ME4C9*74 and AD$A1 on the other hand $ra.il is not in
AD$A, because AD$A clearly has a more Deft(,in) orientation than
ME4C9*74, and also because Cuba is in it' $ra.il, ,ithout bein) oosed to
Cuba, clearly affirms its friendshi ,ith the #ashin)ton )o!ernment'
The $an% of the *outh is laced bet,een the t,o, thou)h it is closer to an
e+tended ME4C9*74 than to AD$A' It does not include %ey members of
AD$A, startin) ,ith Cuba, but also Eaiti and 6icara)ua' 9f course, it ,ould be
lo)ical for the $an% of the *outh to e+tend to the Caribbean re)ion and Central
America in future, and ,hy not to Me+ico if there is a chan)e of )o!ernment,
and to de!elo ri!ile)ed relations ,ith the other continents of de!eloin)
countries, namely Africa and Asia' ME4C9*74 is rimarily an economic bloc,
lar)ely dominated by $ra.il' In fact $ra.il is a Ksub(imerialisticN o,er, an
economic o,erhouse in the area, ,hich dominates its economic artners' As
for Ar)entina, Vene.uela, Ecuador or Para)uay, these countries ha!e a ne)ati!e
trade balance ,ith $ra.il, because $ra.il e+orts to them much more than they
e+ort to $ra.il' $ra.il is endo,ed ,ith trans(national cororations li%e
Petrobras, ,hich dominate the %ey economic sectors of its nei)hbours'
Petrobras, to)ether ,ith other trans(national comanies, dominates $oli!ian )as
and oil1 other $ra.ilian comanies dominate Para)uay' ME4C9*74,
dominated by $ra.il and Ar)entina, some,hat resembles the E7 dominated by
the "ranco(&erman($ritish trio, ,ith a dominant neo(liberal caitalistic strea%,
,hile AD$A is a ro0ect that is more olitical than economic, based more on
e+chan)es such as barters and donations' Vene.uela donates handsomely to
6icara)ua, $oli!ia and Eaiti' AD$A seems to me a really interestin) ro0ect'
#hat ,ill be the determinin) factorsY The ans,er lies in the olicy directions
ta%en by the )o!ernments and the stru))le of the social mo!ements'
Ecuador has a radical orientation, suortin) an income distribution olicy that
fa!ours the most oressed' Ecuador ,ill not rene, its lease for the 7* military
base in Manta as from 200@' Ecuador 5uestions the tye of oil oerations that is
destroyin) art of its territory in Ama.onia, for e+amle' #e can see that
EcuadorAs olicy, from this oint of !ie,, is closer to Vene.uela and $oli!ia
than to $ra.il' In Para)uay, there may be a chan)e of President to,ards the Deft'
#e should also not for)et the )reat mobilisations in $ra.il, articularly that of
the Mo!ement of Dandless Peasants 2M*T3, ,hich reinforces action for a true
land reform, in contradiction ,ith DulaAs olicy' In the comin) months and
years, ,e may see e!en stron)er social mo!ement and a reinforcement of the
AD$A ro0ect' The orientation of the $an% of the *outh ,ill deend on the
)o!ernments that suort its creation' E!en if there is reason to fear that the
orientation ad!anced by $ra.il and Ar)entina ,ill re!ail, the field is still oen'
It is no, that ,e must mobilise all our efforts so that the $an% of the *outh
ro0ect fulfils all the hoes ,e lace in it'
+ebt1 0cuador at a historic turnin$ #oint
Eric Toussaint ( <amien Millet
he res#onse of 7afael -orrea8s $overn"ent to the debt issue
Ecuador is the country in *outh America that has to dedicate the hi)hest
ercenta)e of its bud)et to ser!icin) its debt' The contribution e+ected in 2007
is unsustainable since the foreseeable reayments amount to about 7*I 2,:00
million 2i'e', C: er cent of its bud)et3'
?:
President 4afael Correa-s ne,
)o!ernment, established since early January, has already been forced to ay
substantial amounts to its creditors 2nearly 7*I ?,000 million3 and conse5uently
is attemtin) to staunch the haemorrha)e in order to be able to ser!e its eole'
The ne, )o!ernment intends to use the money ,hich thus becomes a!ailable in
order to imro!e the social conditions of the oulation, articularly in the area
of health care' Already some M00 ne, health ,or%ers ha!e been emloyed in
order to immediately imro!e the 5uality of health ser!ices to those members of
the oulation ,ho are most in need' It aims at imro!ements in other areas too'
This radical stance of President Correa and 4icardo Patino, his minister for
economy and finances, has led to !arious attemts at destabilisin) the current
)o!ernment by local and international financial )rous as ,ell as by 4i)ht(,in)
arties' Anythin) )oes in order to harm them'
A #rocess is bein$ set u# to cancel the debt
The ne, )o!ernment aims to identify those elements of the countryAs debt
,hich incontestably can be denounced and reudiated' *tartin) from the results
roduced by the audit commission of the former )o!ernment, a ne, audit
commission is bein) set u ,hich should ta%e in!esti)ations much further and
consists of both national and international e+erts' 4icardo Patino-s aim is to set
u a commission consistin) of at least si+ e+erts, three of them international
ersonalities'
?@
The commission ,ould rely on a research )rou of se!eral do.en
eole ,ho ,ould identify ille)itimate debts, ,hether to multilateral creditors
2such as the #$, the IM", the Inter American <e!eloment $an%3 or to bilateral
creditors 2mainly *ain, Jaan, $ra.il and Italy3' There are in fact o!er ?B
bilateral creditors for a total 7*I 2 billion, i'e', 20 er cent of Ecuador-s ublic
e+ternal debt' The )o!ernment ,ould also ,ish to audit debts held by ri!ate
creditors in the form of bonds so as to determine ,hich art is ille)itimate and
,arrants cancellation' The same alies to ublic internal debt for ,hich
cancellation measures are already bein) imlemented'
The current Ecuadorian )o!ernment ,ants to be 5uic% about it' This is ,hy
international e+erts on the debt issue are ready to )o bac% to Ecuador as soon as
ossible' Any,ay, se!eral ministers ha!e in(deth %no,led)e of the debt issue
?:
Total social sendin) is only 22 er cent of the country-s bud)et, unless the )o!ernment mana)es to radically
reduce the ercenta)e de!oted to the debt and chan)e the situation'
?@
Eric Toussaint mi)ht be one of them' Ee ,as in!ited, and he acceted' It still has to be confirmed by
residential decree' *ee the daily aer (l 3ni/erso, [uito, s]bado 2: abril 2007, ' B' ,,,'eluni!erso'com
and many citi.ensA associations ha!e been ,or%in) for years on auditin) the
debt' This is ,hy the Ecuadorian authorities are ready to ta%e measures based on
,ell(documented research'
Which !ay for!ard 5
7nilateral action is necessary because ,ere Ecuador to ,ait for the international
community to set u an international settlement court, it ,ould ta%e years before
any outcome ,as reached' The situation is critical' In so far as debt issues are
concerned, unilateral action is le)itimate and far more efficient' It is referable
to ta%e the so!erei)n decision to denounce and sto ser!icin) some debts e!en if
it ,ere subse5uently decided to ta%e u ne)otiations a)ain ,ith some creditors
on some of them' In this case the )o!ernment ,ould be in the fa!ourable
osition since it is the creditors ,ho ,ould be ,antin) ayment to be resumed
and ,ould be more inclined to tal% and tune do,n their demands' Ecuador thus
has e+cellent reasons to underta%e a unilateral action and decide on the basis of
an audit that a lar)e art of the e+ternal debt is ille)itimate' A so!erei)n decision
of the [uito authorities to sto ser!icin) debts ,ould be based on !arious
ar)uments of internal and international la,'
What are the ar$u"ents in favour of cancellin$ the debts 5
Many contracts include usurious interest rates' Ecuador has to ay for ro0ects
that ,ere ne!er carried out or the outcome of ,hich does not meet re5uirements'
<ebts ,ere contracted to ay bac% debts contracted by dictatorshis in the
?@70s' A detailed analysis of the ro0ects on ,hich those debts are based thus
yields se!eral reasons for cancellation' Actually this concerns most of Ecuador-s
debt'
#e should no, establish ,hich debts can be called off and mo!e on to the ne+t
sta)e, i'e', susendin) ayments' This could be done in the comin) months, as
early as summer 2007, the )o!ernment and the President ma%in) the final
decision'
9o! is the ne! audit co""ission $oin$ to #roceed 5
The transarency olicies of the ne, )o!ernment mean that this ne,ly created
auditin) commission ,ill ma%e all its results ublic' The auditin) commission-s
offices ,ill be oen, accessible to any member of the ublic ,ho ,ould li%e to
contribute to their ,or% or could testify in order to identify embe..lements,
ro0ects that ,ere not carried out or !arious tyes of fraud ,hich Ecuadorian
citi.ens ha!e been !ictim to ,hile bein) e+ected to ay the resultin) debt'
In accordance ,ith the transarency olicy the committee ,ill oen a ,ebsite on
,hich most contracts ,ill be dislayed' If this sta)e is carried out, CA<TM
alon) ,ith other associations demandin) the cancellation of the debt ,ill launch
an international call for ,itnesses' It is li%ely that some former #orld $an%,
I<$ or IM" consultants or officials, creditors, or a)ents of ri!ate creditors ,ill
be ready to brin) u dubious, ille)al or criminal ractices amon) creditors so as
to hel the Ecuadorian authorities not to ay their ille)itimate debt'
An i"#ortant testi"ony 1 :ohn Perkins
This is for instance the case of John Per%ins, ,hose boo%, The Confessions of an
Economic Eit Man,
20
has turned into an imortant e!ent' Ee clearly e+lains
,hat his mission ,as, namely Kencoura)e leaders of !arious countries to
become art of a ,ide net,or% romotin) the 7nited *tatesA trade interests' At
the end of the day, those leaders are riddled ,ith debts, ,hich ma%e sure that
they remain loyal' #e can call on them for our o,n olitical, economic or
military ro0ects ,hile they comfort their olitical osition as they create
industrial areas, o,er lants and airorts for their oulations' The
shareholders of 7* en)ineerin) and construction comanies thus become
incredibly richN' Ee haened to ,or% in Ecuador for President Jaime 4oldos/
KJaime 4oldos ,as mo!in) for,ard' Ee too% his camai)n romises seriously
and he ,as launchin) an all(out attac% on the oil comanies' U'''V The oil
comanies reacted redictably X they ulled out all the stos' U'''V They tried to
aint the first democratically elected resident of Ecuador in modern times as
another Castro' $ut 4oldos ,ould not ca!e in to intimidation' U'''V Ee deli!ered
a ma0or seech at the Atahuala 9lymic *tadium in [uito and then headed off
to a small community in southern Ecuador' Ee died there in a fiery airlane
crash, on May 2G, ?@:?'N An accident, really, as in the case of the President of
Panama, 9mar Torri0os, at the same timeY Per%ins ne!er belie!ed there ,as
anythin) accidental about it/ KThey ,ere assassinated because they oosed that
fraternity of cororate )o!ernment, and ban%in) heads ,hose )oal is )lobal
emire' #e Economic Eit Men failed to brin) 4oldos and Torri0os around, and
the other tye of hit men, the CIA(sanctioned 0ac%als ,ho ,ere al,ays ri)ht
behind us, steed in'N
The conclusion is ob!ious/ KEcuador is a,ash in forei)n debt and must de!ote
an inordinate share of its national bud)et to ayin) this off1 as a conse5uence the
only ,ay Ecuador can buy do,n its forei)n obli)ations is by sellin) its rain
forests to the oil comaniesN' This means that utterly disre)ardin) Ecuadorian
so!erei)nty Kthe )lobal emire demands its ound of flesh in the form of oil
concessions\'N John Per%ins ,as bac% in Ecuador on 22 May 2007 to aolo)ise
to the Ecuadorian eole' 9ther officials in!ol!ed in the country-s ille)itimate
debt mi)ht ,ish to follo, suit'
Action is also needed in the ;orth
In order to comlete the rocess, auditin) committees need to be created to
in!esti)ate the debt reayments claimed by the )o!ernments of the 6orth from
countries in the *outh' $el)ium for instance is demandin) 7*I ?M million from
Ecuador, most of ,hich ,as loaned ,ithin tied(aid ro0ects' E!en a cursory
analysis of those ro0ects sho,s that $el)ium-s loans to Ecuador ,ere
conditional uon Ecuador buyin) e5uiment, more secifically electrical
20
*an "rancisco, $errett(Koehler Publishers, 200G'
e5uiment, from $el)ian comanies' Eo,e!er, $el)ium itself claims that it
relin5uished any tied(aid olicies years a)o as bein) ille)itimate' #e the
CA<TM 2Committee for the Abolition of the Third #orld <ebt X
,,,'cadtm'or)3, alon) ,ith the C6C< 2Centre 6ational de CooSration au
<S!eloement3 and other 6&9s ,ill roduce a detailed analysis of the
contracts si)ned bet,een Ecuador and $el)ium so as to determine ,hether
$el)ium can still le)itimately demand any ayment or ,hether the debt should
be urely and simly cancelled, as 6or,ay did in 200M, notably for fi!e fishin)
shis it sold Ecuador o!er 20 years a)o at a time ,hen the transaction did more
)ood to the 6or,e)ian na!al industry than to Ecuador-s economy'
Translated by Christine Pa)noulle
he International Situation and the +ebt1
he ne! challen$es facin$ -A+M
Eric Toussaint
Increase in forei$n exchan$e reserves
*ince 200G, the economic situation has been characterised by the hi)h rice of
ra, materials and a number of a)ricultural roducts' This has allo,ed a lar)e
number of de!eloin) countries to increase their e+ort re!enues and
accumulate si)nificant forei)n e+chan)e reser!es, esecially countries ,hich
e+ort oil, natural )as and minerals' *ome a)ricultural e+orters ha!e also
benefited from this fa!ourable situation' Eo,e!er, not all the de!eloin)
countries are included in this scenario1 some sub(*aharan African *tates ha!e
seen their situation ta%e a turn for the ,orse'
In 2007, the de!eloin) countries to)ether hold o!er C trillion dollars
2?
in forei)n
e+chan)e reser!es ,hile the industrialised countries hold only half this sum'
This fa!ourable situation has been sei.ed by a si)nificant number of
)o!ernments to ay off in ad!ance all or art of their debts to the IM", the
#orld $an%, the Paris Club and ri!ate ban%s' *ome ha!e created de!eloment
funds, into ,hich they can lace some of their forei)n e+chan)e reser!es, for
financin) social and infrastructure ro0ects'
22
*e!en *outh American countries
2Ar)entina, $oli!ia, $ra.il, Ecuador, Para)uay, 7ru)uay and Vene.uela3 are
ne)otiatin) the creation of a $an% of the *outh to finance their re)ional
inte)ration and social ro0ects' *ome amon) them are also contemlatin) the
creation of the $an% of AD$A 2Cuba, Eaiti, 6icara)ua and Vene.uela3' The
si)ns of a di!orce from the #orld $an% and the IM" are increasin)/ Ecuador
e+elled the #orld $an% reresentati!e at the end of Aril 2007, Vene.uela is
thin%in) of lea!in) the #orld $an% and the IM", $oli!ia does not reco)nise the
authority of IC*I< 2International Centre for *ettlement of In!estment <isutes,
a subsidiary of the #orld $an%3 anymore'
-risis of le$iti"acy for the World Bank and the IMF
Mean,hile, the #orld $an% and the IM" are sufferin) a crisis of le)itimacy'
Paul #olfo,it., the resident of the #orld $an% since 200B, ,as forced to
resi)n in June 2007 on char)es of neotism' #hile many member countries of
the #orld $an% ar)ued for the aointment of a citi.en from the *outh to the
residency, the 7* President has chosen a 7* citi.en for the ele!enth time to
head the $an%' At the be)innin) of July, it ,as the turn of the mana)in) director
of the IM", the Euroean 4odri)o de 4ato, to une+ectedly announce his
2?
The !alue of forei)n e+chan)e reser!es is calculated in dollars, the main international currency of forei)n
e+chan)e reser!es, althou)h in fact, the reser!es are also made u of other currencies/ euros, yens, sterlin),
*,iss francs\' #orld,ide reser!es for 2007 are
2
8C in dollars, ^ in euros and the rest in other stron) currencies
2*ee $an% for International *ettlements, $nnual *e0ort -!!;, $ale, '@73'
22
This is the case of Vene.uela, 4ussia and China' The 6or,e)ian )o!ernment has done the same thin) to
ma+imise the returns on etroleum 2*ee $an% for International *ettlements, ibi#, ' ?0G3'
resi)nation' The Euroean states a)reed to relace him ,ith a "renchman,
<omini5ue *trauss Kahn' These recent e!ents confirm, in the eyes of the
oulation of de!eloin) countries, that the 7* and Euroean )o!ernments ,ant
to %ee total control of the t,o multilateral financial institutions, ,hile another
Euroean, Pascal Damy, resides o!er the #T9' In brief, both the circumstances
of #olfo,it.As resi)nation and the aointments of the ne, heads of the
financial institutions resonsible for the orientation of )lobalisation, demonstrate
to the )o!ernments and oulations of the ,hole ,orld that )ood )o!ernance
becomes relati!e ,hen it comes to the distribution of o,er at the international
le!el'
he ne! international architecture and the Southern banks
This adds ur)ency to the need to build a ne, international institutional
architecture ,hich ,ould lead to a thorou)h democratic reform of the 7nited
6ations and the substitution of the #orld $an% and the IM" by democratic
institutions' Achie!in) the construction of this ne, architecture ,ill re5uire the
creation and reinforcement of *outh(*outh re)ional inte)ration, the
establishment of one or se!eral *outhern $an%s ,hich ,ould ha!e to coordinate
their actions, and the settin) u of comensatory
2C
e+chan)e mechanisms ,hich
are mutually beneficial bet,een de!eloin) countries' *uch e+chan)e
mechanisms ha!e already yielded interestin) results articularly in Datin
America and the Caribbean/ imro!ed health care, ener)y security 2e')',
Petrocaribe3, education and information 2the de!eloment of Telesur3'
he debt crisis is not resolved
These ne, de!eloments, imortant as they are, must not blind us from the
reality of the debt/ each year, the )o!ernments of de!eloin) countries ay o!er
2G0 billion dollars to their debtors, ,hich is e5ui!alent to o!er three times the
amount they need to reach the Millennium <e!eloment &oals 2M<&s3'
<ebts to the IM" and the #orld $an% remain !ery hi)h and, realistically,
unsustainable for a considerable number of countries ,here the ma0ority of the
oulation li!e belo, the absolute o!erty line' These or)anisations, thou)h
,ea%ened and lac%in) le)itimacy, ursue olicies ,hich fa!our the ri!atisation
of ,ater, electricity, health, education and culture, e!en thou)h these olicies are
ma%in) the ,ea% economies e!en more !ulnerable'
Massive increase in do"estic #ublic debt
A recent de!eloment ,hich also has to be considered is that the domestic
ublic debt is increasin) raidly' In ?@@: the internal and e+ternal debts ,ere
2C
*ee the tyes of e+chan)es bet,een $oli!ia, Vene.uela and Cuba in 200M(2007 articularly in the area of
hydrocarbons, the transfer of technolo)y, health and education'
e5ual, in 200M the domestic ublic debt e+ceeded the e+ternal debt by a factor of
threeW
2G
This henomenon is !ery imortant/ from no, on, it is no lon)er ossible to
measure the le!el of debt of de!eloin) countries on the basis of the e+ternal
debt' Most of the measures of sustainability desi)ned by the financial
institutions are obsolete' The domestic ublic debt must be added to the e+ternal
debt to measure the imact of indebtedness on ublic finances and the economy'
It is e!en more imortant no, that an increasin) art of the domestic ublic debt
is bein) bou)ht by forei)n creditors'
2B
Increase in indebtedness of #rivate fir"s
#e must not lose si)ht of the increasin) indebtedness of ri!ate firms of
de!eloin) countries' *ince the ra, material(e+ortin) countries are ,itnessin)
an uturn in their fortunes, the ri!ate ban%s of the most industrialised countries
ha!e multilied the loans to the ri!ate comanies of de!eloin) countries' The
t,o ri!ate sectors ,hich are indebtin) themsel!es most in de!eloin) countries
are the ban%s and the firms dealin) ,ith hydrocarbons and ra, materials' #e
must ay articular attention to this de!eloment/ the ri!ate ban%s of the
de!eloin) countries are borro,in) from the 6orth at lo, interest rates in order
to lend this money on the domestic mar%et at a hi)her rate' If the economic
situation suffers a do,nturn 2,hich is li%ely in the comin) years3, ,e mi)ht
,itness a number of ban%rutcies of ri!ate ban%s of de!eloin) countries, 0ust
li%e the financial crises ,hich hit Me+ico in ?@@G(?@@B, the countries of *outh(
East Asia and *outh Korea in ?@@7(?@@:, Ecuador in ?@@:(?@@@ and Ar)entina
in 200?' TodayAs ri!ate debt of ban%s mi)ht become tomorro,As ublic debts,
hence the need for control of ri!ate sector indebtedness' The same alies to
the sector of hydrocarbons and minerals' Pri!ate etroleum, )as and mineral
comanies ta%e out loans to increase their roduction caacity in order to ta%e
ad!anta)e of the hi)h rice of ra, materials' If the rices dro, the in!estments
made throu)h borro,in) mi)ht turn out not to be rofit(ma%in) and the debt
,ould become imossible to reay' It is imerati!e to limit and control this
indebtedness'
;e! !ave of indebtedness in the areas of extractive industries,
ener$y "e$a(#rojects and the ex#loitation of tro#ical forests
Alon)side other actors, the #orld $an% lays an acti!e role in the de!eloment
of minin), etroleum and natural )as ro0ects, as ,ell as in ener)y me)a(
ro0ects 2massi!e dams3 and the e+loitation of forests' The CA<TM and other
citi.ensA mo!ements ha!e detected a number of offences in relation to these
ro0ects, from the non(resect of the ri)hts of oulations directly affected by
2G
#orld $an%, Global De/elo0ment Finance -!!;, #ashin)ton <C, ' GM'
2B
More and more forei)n in!estors are buyin) bonds issued on the ublic debt as they ha!e a hi)her yieldW In
200M, the _forei)nersA bou)ht I@ billion ,orth of domestic bonds of the de!eloin) countries' *ee #orld $an%,
Global De/elo0ment Finance -!!;, #ashin)ton <C, ' GM'
these de!eloments to crimes a)ainst humanity such as the massacre at Kil,a in
Katan)a in 200G'
2M
<ncontrollable $ro!th of -redit +efault S!a#s =-+S>
6e, financial roducts ha!e become more ,idesread, namely the Credit
<efault *,as 2C<*3' C<* are bou)ht to rotect a)ainst the ris% of the non(
ayment of a debt' The mar%et for C<* has multilied by a factor of ?? in the
last fi!e years'
27
The roblem is that these insurance contracts are sold ,ithout
any re)ulatory control from the ublic authorities' The e+istence of these C<* is
encoura)in) comanies to ta%e increasin) ris%s' $elie!in) that they are
rotected a)ainst non(ayment, the lenders )i!e out loans ,ithout !erifyin) the
ability of the borro,er to ay' Eo,e!er, if the international economic situation
deteriorates, tens or hundreds of borro,ers could suddenly become ban%rut, in
,hich case the C<* ,ould become !alueless ieces of aer as the insurers
,ould be incaable of honourin) their en)a)ements'
-a#ital fli$ht and #rofit re#atriation to!ards the ;orth versus the
"ove"ent of "i$rants6 re"ittances to!ards the South
Caital fli)ht and brain drain from the de!eloin) countries to the most
industrialised countries ha!e )ro,n o!er the last fe, years' The amount of
rofits reatriated to,ards the _arent comanyA has multilied by a factor of G'B
bet,een 2000 and 200M 2from 2: billion in 2000 to ?2B billion in 200M3'
2:
Mo!in) in the other direction are the remittances mi)rants send to their nati!e
countries, ,hich ha!e also increased' 4emittances, as the #orld $an% has
ac%no,led)ed, are much hi)her than de!eloment aid'
Increase in #rices of food
The rice of food is raidly increasin)' This is mainly due to t,o factors' "irstly,
there is the decision of many )o!ernments and multinational comanies to
de!elo the roduction of biofuels, such as ethanol ,hich is roduced from
su)arcane, mai.e, col.a or other lants' 6o,adays, 20 er cent of 7* mai.e is
used to roduce ethanol, and B0 er cent of the su)arcane in $ra.ilW
2@
The rise in
rice of mai.e had reercussions in Me+ico ,ith the increased cost of tortillas'
This is an e+amle of the de!astatin) effect of free(trade treaties' In fact, in
?@@G, a free trade a)reement bet,een the 7*, Canada and Me+ico 26A"TA3
,as si)ned' 9nce 6A"TA ,as in lace, 7* a)ro(business flooded the Me+ican
mar%et ,ith chea 7* mai.e, sellin) it at a rice that ,as belo, the cost of
roduction of the small Me+ican farmers, thousands of ,hom subse5uently lost
their 0obs 2and ha!e since tried to emi)rate to their rich 6orthern nei)hbour3'
2M
*ee Myriam $our)y, _De massacre de Kil,a/ An!il Minin) et lAA)ence MultilatSrale de )arantie des
in!estissements, comlices de crimes de )uerreA, in $ 4ui 0rofitent toutes les richesses #u 0eu0le con1olais ?
'our un au#it #e la #ette con1olaise, edited by the CA<TM, 2007, htt/88,,,'cadtm'or)8si'hYarticle2CG?
27
#orld $an%, Global De/elo0ment Finance -!!;, #ashin)ton <C, ' :C(:G'
2:
#orld $an%, Global De/elo0ment Finance -!!;, #ashin)ton <C, ' BC'
2@
#orld $an%, Global De/elo0ment Finance -!!;, #ashin)ton <C, ' 2B'
*ince 200M, the rice of mai.e e+orted by the 7* has lar)ely increased because
of the demands lin%ed to the roduction of ethanol' Conse5uently, the rice of
food ,ent u in Me+ico since mai.e is the main stale food' The Me+ican
easants ,ho used to roduce the mai.e are not there anymore to resond to the
demand' They ha!e either sold their land and emi)rated to the cities or the 7*,
or they are criled by debt and ha!e difficulties to start )ro,in) cros a)ain'
A second henomenon ,orsens the food situation of the oorest' The bi) )rain
comanies based in the most industrialised countries ,ith moderate climates
ha!e reduced, in 200M and in 2007, their area of culti!ation of cereals, thus
causin) a hi%e in cereal rices on the ,orld mar%et' This ,as a ris%y !enture as
it had the otential to cause se!ere food shorta)es in Africa and other continents
,hich ha!e alon) the years become net imorters of cereals, since institutions
such as the #orld $an% ha!e encoura)ed them to rioritise the culti!ation of
troical roducts 2cocoa, coffee, tea, nuts, etc'3' Today, the #orld $an% is
rin)in) the alarm bells ,hen it notices that cereal rices ha!e doubled in late
200M(early 2007' The #orld $an% redicts the continued increase in the rice of
mai.e, ,heat, rice and other stale foods as a conse5uence of the increase in the
roduction of biofuels'
C0
$ecause of this, the number of eole li!in) in absolute
o!erty is li%ely to increase and a se!ere food crisis mi)ht occur' Moreo!er, the
e+ternal debt of the oorest countries mi)ht e5ually rise due to the hi)her imort
bill for foodstuff'
Broken #ro"ises of the rich countries
The romises made by the rich countries in 2002 at the 76 conference in
Monterrey in terms of de!eloment ha!e been bro%en'
C?
It is imossible to see
ho, the rich countries, startin) ,ith &: members, ,ill be able to increase their
aid to Africa to IB0 billion before 20?0 2as romised by &: leaders at
&lenea)les in 200B3' To achie!e this tar)et, they ,ill ha!e to increase their aid
bud)et by ?M er cent each year'
Increase in South(South loans and the increasin$ #resence of
-hina
*ome ri!ate ban%s of some de!eloin) countries 2China, India, Malaysia,
*outh Africa3 are increasin)ly )rantin) loans to )o!ernments or other firms of
de!eloin) countries' The loans of Chinese ublic ban%s to Africa are risin)
sharly' $et,een 200G and 200M, the Chinese ban%s loaned 2 billion dollars to
de!eloin) countries for ,or% in the etroleum and natural )as sector'
C2
China,
as ,ell as India and *outh Africa, are in need of ra, materials, and see their
loans as )uaranteein) that sulies continue to flo,' The most !ulnerable
countries ris% e+chan)in) one sort of deendence on the most industrialised
countries to another, ,hich ,ill not be necessarily better' #e must also note the
C0
#orld $an%, Global De/elo0ment Finance -!!;, #ashin)ton <C, ' C0(C2'
C?
#orld $an%, Global De/elo0ment Finance -!!;, #ashin)ton <C, ' BB(BM'
C2
#orld $an%, Global De/elo0ment Finance -!!;, #ashin)ton <C, ' BB(BM'
rise of o,erful ri!ate or ublic firms of the *outh 2Petrobras, Petronas,
P<V*A, C699PC, to ta%e only oil comanies as e+amles3'
Increased s#endin$ on ar"s
A ne, arms race has started in the be)innin) of the 2?
st
century under the
imetus of the 7*' The amount sent on ,eaons by #ashin)ton is risin)
sharly and accounts for half the )lobal sendin)' China ,ill increase its
sendin) on arms by ?: er cent in 2007' The 7* has recently )i!en massi!e
bilateral loans to its allies to send on ,eaons' This threatens of a ne, rise in
e+ternal ublic debt lin%ed to buyin) arms'

What are the i"#lications of the ne! international situation for
-A+M5
The CA<TM has to adat its analysis to the ne, reality' "or e+amle, in the
boo% Who owes Who? ! 4uestions about Worl# Debt
CC
,ritten in 2002, the
authors ha!e deliberately left out the 5uestion of domestic ublic debt' #hen
they comletely re,rite this reference boo%,
CG
they ha!e to fully incororate the
)ro,th of domestic ublic debt and its imlications' E5ually, Eric $err and
"ran`ois Combarnous, the creators in 200B of alternati!e ratios to those of the
#orld $an% for the measurement of the imact of indebtedness, must ta%e note
of the ne, situation and adat their tools of measurement 2a!ailable on the site
of the I<9 X ,,,'oid(ido'or)3' This ,ill be addressed durin) the seminar of the
I<9 in 6amur on ?B(?7 9ctober 2007'
E5ually, all those ,ho ha!e in!ested themsel!es in the audit of the debt ,ill
ha!e to ta%e into account the imact of the domestic ublic debt' The Ecuadorian
authorities ha!e already )rased the issue' In July 2007, President 4ahael
Correa created a 0oint auditin) commission for both domestic and e+ternal
ublic debt' The CA<TM, Jubilee *outh, Eurodad and Datindadd ha!e been
directly in!ol!ed in the ,or% of this commission,
CB
to)ether ,ith si+
reresentati!es of the Ecuadorian social and citi.ensA mo!ements'
An analysis of the de!eloment of the debt of ri!ate comanies is also
imortant, because if ,e are not careful, ublic finances ,ill ha!e to ic% u the
tab for any ban%rutcies and non(reayments, creatin) an additional burden for
the oulation'
It is imerati!e to reudiate the idea that ublic debt is under control' 6e, forms
of indebtedness must be analysed as ,ell as the ne, lenders'
CC
<amien Millet and Eric Toussaint, Who owes Who? ! 4uestions about Worl# Debt, ;edboo%s, Dondon,
200G1 Debt Scam, 200C, Va%, Mumbai, htt/88,,,'cadtm'or)8te+te'hCYidaarticleb@G2
CG
It has been ublished in se!en lan)ua)es 2includin) Arabic, Korean and Jaanese3 in ?G editions' <amien
Millet and Eric Toussaint are currently ,ritin) a comletely ne, !ersion of the boo%, ,hich should be ublished
in "rench at the be)innin) of 200:'
CB
Eric Toussaint, ,ho ,as art of the commission, ,as in Ecuador to ,or% on the audit of the debt ,ith
Ecuadorian social mo!ements, the [uito authorities and his international collea)ues'
In 200:, CA<TM $el)ium ,ill continue ,ith its ,or%, started in 2007, on the
audit of the debt of Ecuador,
CM
the <4C, Mali and other countries ,here the
social mo!ements ,ish to start such an audit'
Also in 200:, the CA<TM ,ill audit the reayments demanded by the most
industrialised countries to the countries of the *outh, namely to,ards Ecuador
and the <4C' The CA<TM ,ill ,or% on this ro0ect, in close collaboration ,ith
Eurodad, the 9bser!atory on <ebt and &lobalisation, ATTAC(CA<TM Jaan
and other mo!ements of the 6orth ,ho are ,illin) to ta%e on this tas%'
Considerin) the imortance of the ne, loans in the area of e+tracti!e industries,
of ener)y me)a(ro0ects and forest e+loitation and considerin) the numerous
offences obser!ed by the CA<TM and other citi.ensA mo!ements, offences in
,hich the #orld $an% is sometimes directly in!ol!ed, the CA<TM ,ill
continue its efforts to see that le)al actions are brou)ht about'
In relation to the ne, financial architecture that is bein) built, ,e must ma%e
sure that the roosed $an%s of the *outh resect democratic and transarent
criteria 2one country X one !ote, no le)islati!e immunity for the institution and
its officials, access to the archi!es for auditin)1 an obli)ation for accountability
to the arliaments and ublic oinion3, and that their actions hel to ma%e the
international treaties on fundamental human ri)hts alicable by means of their
contribution to imro!in) the li!in) conditions of their oulations' The
beneficiaries of loans or donations ha!e to be ublic bodies, small roducers and
communities' The ro0ects that the $an% ,ill suort must resect the
en!ironment' The $an% ,ill ha!e to a!oid, as far as ossible, financin) its
ro0ects on the caital mar%et' To)ether ,ith other debt camai)ns, in June
2007, the CA<TM sent an oen letter to the Presidents of *outh American
countries that are unitin) to create the $an% of the *outh'
C7
#e must ursue this
call and attenti!ely follo, the construction rocess of this ne, financial
institution'
The 0ob is enormous, and the challen)e )i)antic' To attain these lofty ambitions,
,e must reinforce collaboration and create a unified action of all the
or)anisations ,hich ,or% to,ards a 0ust solution for the roblem of debt' The
international CA<TM net,or% ,ill reinforce its collaboration ,ith the other
mo!ements that camai)n on the debt roblem/ Jubilee *outh, Eurodad,
Datindadd, Afrodad and all the national or)anisations, ,hether or not they are
art of an international net,or%' The CA<TM ,ill continue to hel to,ards the
consolidation of the International <ebt 9bser!atory, ,hich ro!ides a common
frame,or% of reflection for all these mo!ements'
The CA<TM ,ill continue its actions in the conte+t of the #orld *ocial "orum
and the )lobal coordination of social mo!ements so as to )uide the action of the
)lobal 0ustice mo!ement to,ard real alternati!es and means of actions that are
adated to resond to the challen)e of the debt and all forms of oression'
Translated by <iren Valayden
CM
*ee (cua#or at the cross)roa#s, For an inte1ral au#it of 0ublic in#ebte#ness, -A+M,
htt/88,,,'cadtm'or)8si'hYarticle27M7
C7
*ee htt/88,,,'cadtm'or)8si'hYarticle2720

B7I-S Bank 1
Is it an alternative for develo#"ent finance 5
<aniel Mune!ar 2CA<TM84M"3 27 July 20?G
9n July ?Bth, the )o!ernments of $ra.il, 4ussia, China, India and *outh
Africa announced the creation of a 6e, <e!eloment $an% 26<$3' Accordin)
to the official ress release, the main ob0ecti!e of the ne, multilateral institution
is to establish an alternati!e to the current set of multilateral institutions as a
source of de!eloment finance for emer)in) and de!eloin) countries 2India,
20?G3' "or this urose, the foundin) members ha!e committed to subscribe an
initial contribution of 7*< ?0 billion each, for an initial total caital of 7*< B0
billion' $ased on this caital subscrition, it is estimated that the 6<$ could
lend u to 7*< CB billion er year o!er the ne+t t,o decades 2&riffith(Jones,
20?G3' To lace that number in ersecti!e, the #orld $an% has lent on a!era)e
7*< C?,M billion er year o!er the last B years 2#orld $an%, 20?Ga3' This
ma%es it clear that the initial lan of the $4IC* is not only to establish an
alternati!e, but indeed a stron) challen)e to the #orld $an%'
It is recisely this otential that allo,s to understand the o!er,helmin)ly
ositi!e recetion that the 6<$ roosal has achie!ed 2&riffith(Jones, 20?G1
*ti)lit., 20?G1 #eisbrot, 20?G3' 6onetheless, a comrehensi!e loo% at the
conte+t of the initiati!e ro!ides a healthy dose of s%eticism' Indeed, an
analysis of the economic and olitic realities faced by the $4IC* raises serious
concerns re)ardin) the !iability of the 6$<' "urthermore, )i!en their similar
structure, is not unli%ely that the 6$< ,ill end u e+eriencin) the same
roblems, and fate, of the $an% of the *outh
C:
' #hen it ,as established in 2007,
this institution ,as heralded as a ne, model of de!eloment finance 2Toussaint,
200:3' Pet to this date it hasn-t made its first official loan 2Mune!ar, 20?C3'
Thus, at least three troublin) arallels can be established bet,een the
6$< and the $an% of the *outh' "irst, the economic cycles of the member
countries are closely ali)ned' As such, the institution is ill suited to face an
economic do,nturn' *econd, the economic disarities that e+ist bet,een the
countries ,ill ine!itably lead to stru))les o!er the control of the resources of the
ban%' Third, and last, the ultimate issue has to do ,ith the real )oals that each
artner assi)ns to the institution' As the !ision re)ardin) the role that a
de!eloment ban% fits ,ithin the lar)er olicy )oals of each country differs, it
becomes increasin)ly comle+ to establish a unifyin) urose for it' #ithout it
is simly not ossible to establish an oerational institution'
4e)ardin) the first issue, the relati!e economic success of the $4IC*
countries o!er the last decade has been closely associated ,ith the economic
C:
Institution created in 2007 by the governments of Argentina, Brazil, Venezuela, Bolivia,
Ecuador, Uruguay and araguay! Its stated "ur"ose is to finance "ro#ects that strengthen
regional integration $hile reducing the de"endence of the member countries to the %orld
Ban& and I'(!
)ro,th of China and its imact on commodity mar%ets' <urin) this eriod, the
reliance on commodity e+orts in )eneral, and on Chinese demand in articular,
is a %ey factor that allo,s e+lainin) an imortant share of the economic )ro,th
e+erienced by $ra.il, 4ussia, India and *outh Africa' 9n the first account, all
of the countries e+erienced a si)nificant increase in the articiation of
commodities in total e+orts 2Table ?3' 9n the second account, there has been a
steady )ro,th in the articiation of China as a destination of e+orts, esecially
in the cases of $ra.il and *outh Africa 2Table ?3' In addition, the economic
imact of the increase in commodities demand ,as au)mented by a ositi!e
terms of trade shoc% 2Table ?3'
Table ? X "orei)n Trade *tatistics $4IC* Countries
*ource/ #orld $an% 220?Gb3, 76 Commtrade'
&i!en this conte+t, is ,orth onderin) on the lon)(term imact of an
economic slo,do,n in China o!er the erformance of the $4IC* countries'
*ince 20??, &<P )ro,th rates in $ra.il, 4ussia, India and *outh Africa has
reduced 5uite si)nificantly' This de!eloment has been associated ,ith a
reduction on both e+ort demand and commodity rices, ,hich has been in turn
caused by lo,er )ro,th in China 2IM", 20?C, ' G?XGG3' As a result, domestic
economic ressures ha!e started to build' As these countries turn their attention
to deal ,ith these issues, is unli%ely they ,ill de!ote the resources re5uired for a
6<$' The synchrony in the economic cycle of the $4IC* is a limitation as it
lea!es the institution ,ithout a country that can suort it durin) an economic
do,nturn'
The effect that this tye of limitation can ha!e on the establishment of a
ne, multilateral institution is clearly reflected on the difficult situation faced by
the $an% of the *outh' As it is the case ,ith the $4IC*, the economic cycle of
the foundin) members of the $an% of *outh ,as closely ali)ned and deended
on the rise of commodity rices' The initial lan of the $an% ,as to ha!e an
oerational institution by the end of 200:' 6onetheless, as the financial crisis of
200: hit the re)ion, those lans ,here shel!ed' As their economies came under
ressure, the )o!ernments behind the $an% of the *outh delayed and scaled
do,n their commitment to the inte)ration a)enda' This hels to artially e+lain
,hy it too% M years since the foundation of the $an% to ha!e its first Council of
Ministers, and 7 years for its first Council of Administration 2El Pais, 20?C1
6odal, 20?G3' In addition, as the forei)n e+chan)e stru))les of Vene.uela and
Ar)entina deeen, there is still no date for the transference of the a)reed initial
caital contribution to the $an%' #ith this recedent, is not unrealistic to thin%
the 6<$ could e+erience the same difficulties'
A second obstacle, ,hich the 6<$ ,ill ha!e to o!ercome, is the o,er
stru))le o!er the control of the $an%' E!en thou)h each of the $4IC* has
committed to an e5ual subscrition of caital it is e!ident that there is a
si)nificant disarity in terms of their otential contribution' "or e+amle,
,hereas the initial contribution for the 6<$ reresents 20'?L of the forei)n
reser!es of *outh Africa, it only e5uals to 0'CL of the reser!es of China
C@
' This
disarity e+lains ,hy desite the lar)e scale of the initiati!e, the countries ha!e
only committed to transfer their contribution to the ban% o!er a eriod of 7
years, ,ith annual a!era)e ayments of 7*< 2:B million 2Chac%o, 20?G3'
6onetheless, )i!en these differences, e!entually China ,ill start e+ertin) their
economic o,er in return for a )reater de)ree of control o!er the acti!ities of the
6<$'
The roblem is then, that instead of creatin) a ne, structure of o,er,
,here countries are )i!en e5ual reresentation desite the differences in their
economic contributions, the 6<$ ,ill end u emulatin) the current structure of
the #orld $an%' The difference ,ould be that ,hereas the former or)ani.ation
,ould be controlled by China, the latter ,ould remain under the control of the
7*' As a conse5uence, the roblems in terms of accountability and olitical
influence that ha!e la)ued the history of the #orld $an% ,ould simly be
relicated by the 6$<'
The $an% of the *outh faced a similar roblem re)ardin) the control of
the institution' 9n the one hand, Vene.uela suorted a Kone country, one !oteN
rincile, in order to ensure that the smaller members of the institution ,ould
ha!e a say in its oerations' 9n the other, both Ar)entina and $ra.il suorted a
traditional multilateral ban% model, ,here the control o!er the acti!ities of the
ban% increased ,ith the amount of resources de!oted to it 29rti. c 7)arteche,
200:3' As the discussions on the $an% stalled, $ra.il )radually increased the
resources de!oted to its o,n de!eloment ban%, the $6<E*' Indeed, since
200:, $ra.il has used the $6<E* as a strate)ic tool to suort the e+ansion of
$ra.ilian cororations in the Datin America re)ion 2;ibechi, 20?2, ' ?7MX
?:C3' Thus, faced ,ith the choice of suortin) an or)ani.ation in ,hich its
artners could challen)e its control of the resources or fundin) its o,n
de!eloment ban%, $ra.il end u choosin) the latter' It ,ouldn-t be a surrise
then if either $ra.il or China simly retort to the use of their o,n de!eloment
ban%s in case they become disleased ,ith the distribution of o,er ,ithin the
6<$'
The third and final issue has to do ,ith an a)reement on the ultimate )oal
of the 6<$' Is it simly a tool to mobili.e resources for infrastructure and
sustainable de!eloment ro0ects as it ,as officially announcedY 9r do the
foundin) members ha!e ulterior ob0ecti!es behind the 6<$Y 4ecent e+erience
sho,s that both China and $ra.il ha!e learned that a de!eloment ban%s can be
a o,erful tool to romote in!estment at the same time that it ad!ances their
economic a)endas abroad' In the case of China, the China <e!eloment $an%
C@
)alculated on the basis of the foreign reserves, including gold, at the end of 20*+
,%orld Ban&, 20*-b.!
2C<$3 has become an inte)ral art of the country strate)y to stren)then its
economic ties ,ith Datin America' The ob0ecti!e of this olicy is to oen
mar%ets to Chinese manufactured )oods and secure lon)(term access to ra,
materials in fa!orable conditions' Thus, bet,een 200B and 20?C, the C<$ has
lent 7*< 7:'C billion to the countries of the re)ion 2Inter(American <ialo)ue,
20?G3' "or countries li%e Ar)entina, Ecuador and Vene.uela, ,hich ha!e been
shunned by both international caital mar%ets and multilateral institutions, these
funds are a ,elcomed source of fundin)' 6onetheless, the costs are also
si)nificant' The interest rates of C<$ are hi)her than those of multilateral
institutions, include re5uirements to contract ,ith Chinese comanies, ha!e
inade5uate en!ironmental standards, and re5uire ayments in the form of
commodities 2&alla)her, Ir,in, c Koles%i, 20?C3' "urthermore, there is little to
no transarency on the secifics of the a)reements 2El Pais, 20?G3'
The loans of the $6<E* of $ra.il follo, a similar attern to those of the
C<$' Throu)hout the last decade, lendin) for infrastructure ro0ects made by
the $6<E* in Datin America and Africa rose steadily from 7*< 22: million in
200G to 7*< ?'C billion in 20?C 2Valor International, 20?G3' Accordin) to a
recent sur!ey, the socio(economic and en!ironmental imact of $6<E* ro0ects
in the Datin America re)ion is a source of )reat concern' It is estimated that G2L
of the ro0ects fail to directly imro!e the economic conditions of the reciient
country' Also, M7L of the ro)rams in!ol!e the relocation of communities1 at
least B:L of them affect the li!in) conditions of those communities1 and 7BL of
the ro0ects affect in a ne)ati!e ,ay the en!ironment 2<A4, 20?G3' "inally, the
reort raises the issue of the comlete lac% of transarency re)ardin) the
conditions in ,hich the ro0ects are underta%en' The resemblance ,ith the
record of the C<$ is not a coincidence'
To ma%e the situation of the 6<$ more comle+, add to this dossier of
lac% of transarency and disre)ard of social and en!ironmental issues, the
ossible moti!ations of 4ussia, India and *outh Africa' "or 4ussia, it seems that
the main moti!ation to articiate in the 6<$ re!ol!es around the issue of
rotectin) itself from 7* imosed sanctions 2The Mosco, Times, 20?G3' In the
cases of India and *outh Africa, their main interest seem to lie in increasin)
a!ailable fundin) for infrastructure in!estment in their o,n countries 2*ector,
20?G3' #ith such a lar)e !ariety of a)endas it is !ery hard to belie!e that a
minimum common denominator can be achie!ed in order for the 6<$ to
become oerati!e' #hen faced ,ith the same imasse, the countries behind the
$an% of the *outh simly could not achie!e the basic commitment re5uired to
breath life into the ne, institution'
<esite the comle+ity of the situation, the lar)er oint that shouldn-t be
missed is that initiati!es li%e the 6<$ and the $an% of the *outh reresent the
clearest si)n that the current model of de!eloment finance and )o!ernance of
multilateral institutions is outdated' "rom this ersecti!e, the roblem ,ith
6<$ is that instead of aimin) to establish a ne, set of )uidelines for
de!eloment finance, it is simly relicatin) the established structure of
multilateral institutions' As such, it is bound to e+erience the same tye of
roblems and disaointin) outcomes' Thus, there is still a clear need for ne,
thin%in) and ractices in de!eloment finance in ,hich reciient communities
and countries ha!e a )reater say in the conditions in ,hich ro0ects are
underta%en as ,ell as ho, their benefits are distributed' 9n that re)ard, the
e+erience of the $an% of the *outh sho,s ho, hard it is to brea% ,ith
established con!entions' That doesn-t mean that countries in the *outh shouldn-t
%ee tryin)'
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<A4' 220?G3' CA*9* PA4A<I&MdTIC9* <e in!ersiHn del $anco 6acional
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6odal' 220?G3' 4eali.an I Conse0o de AdministraciHn del $anco del *ur y afinan
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del(sur(y(afinan(los(detalles(de(su(uesta(en(funcionamiento8
9rti., I', c 7)arteche, 9' 2200:3' $an% of the *outh/ Pro)ress and Challen)es'
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htt/88aers'ssrn'com8abstractb?CBCGB0
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Ma!eric%' 4etrie!ed July 2C, 20?G, from
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ne,(brics(ban%8g'7:@7IVb0scG
*ti)lit., J' 220?G3' 6obel Economist Joseh *ti)lit. Eails 6e, $4IC* $an%
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