Banco del Sur promises to raise $7 billion in paid-in capital from member countries that now number six (Venezuela, Bolivia, Argentina, Ecuador, Brazil and Paraguay, with Nicaragua, the Caribbean and possibly some Asian countries conveying interest). This is $2 billion more than the Latin American contributions to the Inter-American Development Bank, but a still tiny fraction of the IDB’s whopping $100 operating “callable” capital raised largely through non-regional member contributions and frequent bond issues on international markets. For Banco del Sur to begin to crowd out the lending flows to Latin America, particularly for middle income countries, the new Bank of the South would need to leverage these same international markets.
So far, Venezuela has offered to put in $1.4 billion and Argentina ($350 million (or 10% of its reserves). Brazil has announced that it will join the initiative, but more in the spirit of South American integration and to steer the process toward Mercosur than to access a new source of finance. Many pertinent questions top the new Bank of the South’s work agenda. These include the Bank’s governance structure, lending framework, membership criteria, the type of loan guarantees expected, the appointment of senior managers, and safeguard policies. Estimates for when the Bank will be operational have ranged from four months to three years. Beyond what has been announced, much will be learned in the coming 90 days – a deadline given to establish some basic internal operational rules.
Banco del Sur and other Funding Institutions lending in Latin America
Banco del Sur fills a gap created by the stagnant lending flows by the IDB to the region. Flat overall lending at about $6 billion has resulted in the IDB taking a net $5 billion out of Latin America last year. After facing a sustained public questioning of the IDB’s reaction to Banco del Sur as a measure of its own slipping relevance at the Guatemala Annual Meetings in March, President Moreno rushed to Buenos Aires to sign some $4 billion in new loans and reassure the Bank’s largest client in 2006.*
For most of 2006, internal jockeying between large borrowing and non-borrowing countries over the helm of the IDB effectively stalled the pace of the enthusiastically announced reorganization. Unveiled by incoming President, Luís Alberto Moreno over a year ago, most bank staff have been left in the dark, wondering whether their positions in Washington DC would survive. Uncertainty has reportedly contributed to an exodus of staff from the Washington headquarters compensated only in part by a rapid increase in consultants contracted in the country offices. Informally, the appointment of the first of four newly formed Vice-Presidencies to a Mexican, Carlos Hurtado, (relieving a Brazilian) has only intensified the competition by Brazil, Argentina and the U.S. for influence over the appointment of the other three VPs (Countries, Sectors and Knowledge and Private Sector/Non-Sovereign Lending) and the informal recruitment of staff. These appointments are expected by early June.
Others that view Banco del Sur less as a threat, also share the same paternalistic view of the IDB as the U.S. Treasury, arguing that the institution’s reluctant acceptance of modernizing reforms, slow to implement as they may be, would never have happen without the guidance by a firm U.S. hand and representation in some 400 of the Bank’s 2,000 total number of jobs. IDB officials quietly claim their superiority in terms of accountability, citizen participation and transparency to the CAF and Brazil’s BNDES. A similar U.S. criticism can be expected for Banco del Sur.
However, IFI directors are clearly responding to the share of the international development finance market lost to relatively newer institutions. For the five Andean countries, the CAF now lends over 50% of all multilateral development finance. IDB and World Bank have seen their combined of $5-$7 billion in MDB lending drop to $25% and 20% respectively. In 2007, the CAF is on track to eclipse as the region’s largest MDB lender.
*"Argentinean President Néstor Kirchner signed Thursday with the head of the Inter-American Development Bank, Luis Alberto Moreno, and a $3.85 billion credit for infrastructure projects in the north of Argentina." [Agencia Diarios y Noticias (Argentina)/Factiva]