Hugo Chávez moves into banking
May 10th 2007 | CARACAS AND SÃO PAULO
From The Economist print edition
Peter Schrank
Venezuela and Brazil battle quietly over the shape of a planned
regional development bank
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THERE have been few more assiduous customers of the International
Monetary Fund and the World Bank than Latin American governments.
Even as they privately welcomed the economic rationality that comes
with loans from the fund and the bank, the region's leaders often
blamed them for unpopular but needed measures. So it is not
surprising that many Latin Americans revile the two multilateral
institutions. They see them as dominated by the United States, and as
having imposed the "Washington consensus" of macroeconomic stability
at the expense of other priorities.
It is that sentiment that Hugo Chávez, Venezuela's leftist president,
is trying to tap with his plan for a Banco del Sur (Bank of the
South), a development bank funded and run by Latin American countries
themselves. If all goes to plan, it will be formally launched next
month, and could start operating next year. The preparatory talks
involve Argentina, Brazil, Bolivia, Ecuador and Paraguay as well as Venezuela.
But there is a big difference between Mr Chávez's vision for the bank
and that of others, especially Brazil. This will probably be papered
over at a meeting in Rio de Janeiro on May 11thbut it just might
develop into an open split between South America's two most powerful countries.
Mr Chávez sees his bank as part of a wider anti-American political
project and as an alternative to the IMF and the World Bank, from
which he says Venezuela will withdraw. He has re-nationalised
American-owned telecoms and electricity companies. He also threatens
to pull out of the Organisation of American States if its sister
body, the Inter-American Human Rights Court, condemns his government
in a pending media-freedom case.
It is one thing to badmouth the multilaterals but another to leave
them, even for oil-rich Venezuela. Pulling out of the IMF would
amount to a technical default on Venezuela's bonds and would raise
the cost of future borrowing. Leaving the World Bank would tear up
bilateral investment treaties that Venezuela has signed with other
countries (and which use the bank's investment-dispute machinery).
With the oil price high, Mr Chávez seems happy to alienate foreign
investors. Others are not. Both Argentina and Brazil have taken
advantage of economic growth and high commodity prices to pay off
their debts to the IMF. Neither talks of leaving the fund. Bolivia's
Evo Morales is one of Mr Chávez's closest disciples, but his finance
minister says that joining the Bank of the South would not mean
pulling out of the IMF.
Ecuador's Rafael Correa shares Mr Chávez's ideas for the new bank. At
a meeting of finance ministers in Quito earlier this month, he said
it should combine the emergency-aid functions of the IMF with the
project lending of the World Bank and the Inter-American Development Bank.
But the ministers did not approve that proposal. They decided that
the Bank of the South would be just a "development bank", adding that
a stronger regional reserve fund (a small one already exists) might
be created at a later stage. Brazil's finance minister, Guido
Mantega, had already rejected the idea that the new bank might
provide financial first-aid without the tough conditions the IMF
imposes. He called for "modesty and parsimony" in any new body.
After the meeting, Mr Mantega said that each country should
contribute between $300m and $500m to the bank's capital. If so, no
single country would dominate it, though a coalition of Mr Chávez's
closest allies might. Brazil's contribution, Mr Mantega suggested,
would come from the national development bank, the BNDES. The
development minister, who controls the BNDES, promptly rejected the
idea. Though Mr Mantega committed Brazil to the bank, the foreign
ministry says the government is still "analysing" the idea.
There are existing South American bodies that could serve as the
nucleus for the new bank, including the Andean Development
Corporation (CAF) and the Fund for the River Plate Basin (Fonplata).
They are not political vehicles. Last year CAF lent over $5 billion.
Its Bolivian chairman, Enrique García, has said he welcomes any fresh
initiatives along the same lines. But many within CAF doubt that the
Bank of the South is viable.
The debate over the bank reflects a broader struggle for influence in
South America between Brazil and Venezuela. Brazil's president, Luiz
Inácio Lula da Silva, has a good relationship with George Bush, whom
he has met twice in recent weeks. But he has always got along with Mr
Chávez too, doing little to challenge the Venezuelan's pretensions to
regional leadership. This friendship goes down well with many in
Lula's Workers' Party, but it has made Brazil look indifferent to Mr
Chávez's assaults on Venezuelan democracy.
Recently, Brazil has distanced itself from Venezuela on some issues.
In March its communications minister compared Venezuela's state
television to Cuba'sthe closest any Brazilian official has come to
criticising the anti-democratic drift of Mr Chávez's rule. The two
countries disagree about energy policy. Mr Chávez echoed Fidel Castro
in attacking ethanol, just when Lula and Mr Bush agreed to encourage
its production.
Brazil's testiness with Venezuela has been sharpened by Bolivia's
treatment of Petrobras, the state-owned energy firm. A year ago,
egged on by Mr Chávez, Mr Morales "nationalised" oil and gas, forcing
Petrobras to accept harsh new terms for its Bolivian operations. On
May 6th Mr Morales issued a decree giving Bolivia's state-owned YPFB
a monopoly of sales from Petrobras's two Bolivian refineries, in
effect expropriating their cash flow. This time Brazil's government
weighed in to condemn the property grab, giving warning that it could
hurt relations between the two countries. Petrobras has issued an
ultimatum: buy the two refineries for a fair price or face
international arbitration.
There is an "inflection" in Brazilian policy, with Lula drawing back
from Venezuela and moving towards pragmatic governments in Chile and
Peru, argues Sérgio Amaral, a former development minister. But, he
adds, there are "clear limits" to this.
These are defined partly by business interests. Brazil's exports to
Venezuela rose by 60% last year. Brazilian multinationals are
investing heavily. Odebrecht, a construction company, has built a new
metro line in Caracas and a bridge over the Orinoco, and is building
a $2.5 billion hydroelectric dam. Braskem, Odebrecht's petrochemicals
arm, has a $3 billion partnership with state-owned Pequiven, which
includes building two plants to produce plastic resins. Companhia
Vale do Rio Doce is eyeing Venezuela's mineral riches.
So although Brazil may either stall or moderate the plan for a Bank
of the South, it is unlikely to reject it outright. But next time a
financial crisis shakes Latin America, expect governments to turn
again to the IMF rather than to Caracas.
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