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Chavez, Allies Launch Bank of the South

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BILL CORMIER | December 9, 2007 10:19 PM EST | AP

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BUENOS AIRES, Argentina — Hugo Chavez and leaders of six other South American nations launched a regional development bank that they tout as the continent's answer to U.S.-influenced international lenders.

With as much as $7 billion in expected startup capital, backers say the Banco del Sur, or Bank of the South, will offer Latin American countries loans with fewer strings attached than those given by the World Bank, the International Monetary Fund or the Inter-American Development Bank.

The leaders signed the "founding act" Sunday at a ceremony at Argentina's presidential palace hosted by President Nestor Kirchner and his wife, President-elect Cristina Fernandez, who takes office Monday.

"Not long ago there was a general chorus singing the praises of neoliberalism" in the region, Chavez said in a speech. "But we are now hearing the great voice of our nations."

Bolivian President Evo Morales, whose country is the continent's poorest, praised the bank as a new tool to fight poverty and ease inequalities, and criticized what he characterized as the heavy-handed practices of international lenders who demand austerity prescriptions as conditions for extending credit.

"Only strong and united can South America occupy its rightful place among nations," Brazilian President Luiz Inacio Lula da Silva said. "This will be the first international bank truly controlled by the nations of our continent."

The institution is one of several proposals under Chavez's ambitious call to unite Latin American countries in a "confederation of republics." His vision also includes a transcontinental natural gas pipeline and trade alliances.

Venezuela, with South America's largest known oil reserves, is expected to be a leading financier along with Brazil.

But critics note much remains to be determined about how the bank will operate and say it might turn out to be a largely symbolic project used by Chavez to spread his oil-financed influence.

"Chavez has very large resources at his disposal and will continue to promote his vision for the hemisphere," said Peter DeShazo of the Washington-based Center for Strategic and International Studies.

But he said it remains to be seen "whether it's going to be a politically oriented gesture or if it's going to be a real regional development bank."

Others call it a bold stroke for Latin America's financial independence.

"What you had in the past decade was the collapse of a very powerful creditors' cartel headed by the IMF," said Mark Weisbrot of the Washington-based Center for Economic and Policy Research. "This is the first step in creating an alternative."

Finance ministers of Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay and Venezuela will sit on the bank's board. Officials say it will dispense loans for projects from road-building to anti-poverty programs and regional integration plans.

Venezuelan officials say the bank's loans will be issued at interest rates similar to those of other international lenders.

Rodolfo Sanz, a Venezuelan state bank official, said initial capitalization is expected between $5 billion and $7 billion depending on final pledges. The institution will be headquartered in Caracas.

"It's a very interesting initiative which I think expresses the desire to find stronger cooperation between Latin American governments," the World Bank's chief economist for Latin America, Augusto de la Torre, said in a recent interview. "As far as the World Bank is concerned, this new initiative is not perceived as a competitor."

IMF-watcher Paul Blustein at Washington's Brookings Institution said the project highlights Latin America's yearning for greater autonomy after decades of financial crises and imposed austerity measures.

"It's really emblematic of how Latin America has become disillusioned with the model that the IMF and the World Bank and the U.S. Treasury promotes _ the so-called Washington consensus," he said.

But he noted the IMF and World Bank have decades of know-how.

"I'm not so sure this institution is going to be any more successful," he said.

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Associated Press writer Ian James in Caracas, Venezuela, contributed to this report.