Latin America is getting a new development bank – but not the Bank of the South inaugurated last year.
Venezuela and its partners in the fair-trade Bolivarian Alternative for the Americas (ALBA) – Bolivia, Cuba and Nicaragua – have formed ALBA Bank to make loans to national and local governments, and civil society groups, to fund development projects.
ALBA Bank has an initial capital of $2 billion. It is headquartered in Caracas and will inaugurate its first country office in Havana on April 9.
Gustavo Hernandez, Venezuela’s deputy finance minister, told Emerging Markets this weekend that ALBA’s first loans should flow by the end of this quarter. “The physical structure is in place and we have capital assigned. We are now organizing human capital.”
By contrast, the Bank of the South, formally inaugurated in December last year, has made little headway.
It missed its first target, a 60-day deadline period that expired in March for shareholders to agree on technical issues such as capital contributions and voting rights.
Guido Mantega, Brazil’s finance minister, told Emerging Markets he was confident the bank would eventually materialize, but it would take longer than expected.
“We are converging towards a common position,” Mantega said. “Some countries wanted to set up a bank that would be a development bank and a stabilization bank at the same time. We all came to the conclusion that this would be difficult. So it would be better to focus on the development bank.”
There is skepticism about both banks, and observers believe that differences between Venezuela and Brazil are impeding the Bank of the South’s progress.
Blasco Penaherrera, head of Quito Chamber of Commerce, said that the Bank of the South was a ploy by Venezuelan President Hugo Chavez to extend his reach into financing throughout the region. He said that the ALBA Bank has come
about because Chavez did not get his way with the Bank of the South.
“This is an extension of policies from the past that are destroying economies in countries with totalitarian regimes. Ecuador does not need funding for productive projects, but economic freedom,” Blasco said.
ALBA Bank hopes to authorize $40-50 million worth of loans in the first half of this year. Hernandez said that there are up to 40 projects in the pipeline, about half of which will be included in a first round of loans, to be announced in May.
Dominica, which joined ALBA this year, is in the process of becoming a shareholder of the bank.
Funding from each country has not been made public, and Hernandez said that the amount of capital contributed by each member was unimportant. The bank does not operate like traditional development banks, but allows the member countries and civil society groups to set the funding agenda, Hernandez added.
Bolivian finance minister Luis Arce, who was in Caracas in March for a meeting to finalize ALBA Bank’s statutes, said funding decisions will be consensual.
“The bank will emphasize social and productive projects. We believe that civil society should play a central role, because they are beneficiaries. This is what sets us apart,” said Arce.