The Bank of the South, which remains on hold after its flashy launch six years ago, could be getting a push as nations in the region look for new mechanisms to strengthen financial cooperation.
The bank, promoted mostly by Venezuelan President Hugo Chavez, was presented in 2006 as a $20 billion project that would be used to finance productive projects in member nations.
Its creation was formally signed in September 2009 by seven countries – Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay and Venezuela – but little has happened since.
Its charter was quickly approved by legislatures in Bolivia, Ecuador and Venezuela and by Argentina in September. None of the countries, however, have paid in the agreed $7 billion for the initial financing.
There are now signs other countries are looking at the bank even as original supporters are beginning to question its need.
Peruvian Finance Minister Luis Miguel Castilla said in an interview with Emerging Markets that his country could join the bank, which marks an about-face for the country. However he said a decision was probably not imminent.
“Building a regional bank takes time,” he said. “None of the current members have yet to pay in any capital, which has to be approved by national parliaments. We are watching the process and could join, but we feel that it is still maturing.”
Uruguay, which signed the original charter, is much closer to final approval. Finance Minister Fernando Lorenzo said his country would “with certainty take the required steps to implement the project in 2012 and 2013”.
Pedro Paez, Ecuador’s former coordinating minister for economic policy, said the Bank of the South was an opportunity for the new financial architecture required in the region to safeguard it against future international crises.
“The Bank of the South is designed to maximize local currencies. It would allow countries access to a basket of local countries to finance development without having to use the US dollar,” he said. “This will lead to productive integration at the public and private levels, changing the way transactions are done.”
He said the bank would replicate or replace existing development banks, but follow what countries need to foster development. Paez envisions the bank also operating with the sucre, a unit of compensation for international transactions that was also proposed by Venezuela’s Chavez as another mechanism to get the region away from using the U.S. dollar for trade settlements.
It has been used by Ecuador and Venezuela since 2010 and could be extended to the other countries that form the Bolivarian Alliance for the Peoples of Our America (ALBA), which includes nine member names and, as of this February, Saint Lucia and Suriname as guest members.
“The objective of the sucre is to create a stable reference to avoid problems caused by volatility with the dollar,” said Paez.
Pedro Delgado, Ecuador’s central bank governor, said the sucre was not a far-fetched idea. “These mechanisms exist in East Asia and Sub-Saharan Africa, and the euro, when it was first announced 50 years ago, was a unit of compensation,” he said.
There are numerous detractors to both the bank and the sucre, including early supporters.