Why Banco del Sur Is a Bad Idea

Daniel Artana
AQ Web Exclusive
February 25, 2010

Photograph from http://www.flickr.com/photos/teban32/547351984/

Regional or multilateral banks help developing nations through different means. They are instrumental in redistributing funds from richer to poorer nations.  They provide liquidity in periods of stress in world capital markets.  And they provide financing for long-term projects that require financing at maturities that exceed what the country may obtain in the markets at low interest rates.

What is the role for a new institution like Banco del Sur? The very concept of Banco del Sur defies basic tenets of international lending and development. Should it ever come to pass, Banco del Sur will have a negative effect on the region’s development and credit worthiness and dearly cost its members.

There are other organizations that already provide lending support and services in Latin America based on much more sustainable and market-logical criteria. Simplifying, the International Monetary Fund (IMF) is there to provide liquidity (and those that do not like it can self-insure through the accumulation of foreign reserves), and the World Bank, the Inter-American Development Bank (IDB) and the Corporación Andina de Fomento (CAF) are there to finance social and infrastructure projects in the region.

Supporters of the Banco del Sur have argued that the dependence of these institutions on the international financial system and the market-based criteria for evaluating and distributing loans from traditional lenders exaggerates social and economic inequalities. What’s necessary, they argue, is a new institution that would focus more on achieving equity and justice. But these are just rhetoric arguments.

Read the full text of this web exclusive at www.AmericasQuarterly.org.

Daniel Artana is chief economist at FIEL in Buenos Aires, Argentina.

See more in:  Multilateral Organizations, Economics & Finance