Plans for a development bank for Mercosur, the South American customs union, have been under discussion during the Singapore meetings, officials told Emerging Markets on Tuesday.
The Argentine, Brazilian and Venezuelan delegations have talked about the bank’s functions in “broad brushstrokes”, Eudomar Tovar, Venezuela’s vice minister of finance in charge of financial operations, said.
The bank “would not only have a vision of investing in productive areas, but also of social investment to help alleviate poverty” in the region, where 240 million people live below the poverty line, Tovar said. How the bank would be capitalized is not yet decided.
The bank would help advance the process of integration among South American nations, and social investments would focus on health, education and mitigating natural disasters, Tovar added.
Among the versions of the plan under discussion are a Mercosur development bank, understood to be favoured by Brazil, that would cover the trading agreement’s member countries (Argentina, Brazil, Paraguay, Uruguay and Venezuela). Brazilian officials could not be immediately reached for comment.
This plan could involve changing the role of the Andean Development Corporation (known as CAF), which includes the five Andean countries plus 12 other Latin nations, Tovar said. But Argentina and Venezuela propose the creation of a new bank and leaving CAF as it is.
The participation of associate members of Mercosur, including Bolivia, Chile and Peru, remains to be defined in future discussions.
The development bank proposal was originally mooted by Venezuelan president Hugo Chavez, during whose six years in power the country has used its oil revenues to strengthen its political influence across south America.
Its most recent innovation is the so-called “South Bond,” a joint placement by Argentina and Venezuela that is expected to total $5 billion. The first tranche is set to be issued by October 15, and will be placed on the stock exchanges of both countries.
Venezuela previously pioneered regional capital markets operations by buying $3 billion in Argentine debt “which has allowed Argentina to strengthen its economy without turning to international organization that set conditions,” Tovar said.
The development bank now under discussion would also work along two other lines: as a reserve bank where countries could deposit some of their surplus drawn from fiscal surplus, trade surpluses and internal savings, and acting to promote the development of a regional capital market in South America.
“The purpose of depositing [reserves] in one bank is to finance projects in the region and get better compensation,” Tovar said.
The effort to design and launch the bank of the south or Mercosur bank will continue at the cyclical meetings of Mercosur financial and technical officials.