1. The document discusses the need for an alternative to the IMF and World Bank called the Bank of the South. It argues that the twin institutions of the IMF and World Bank subordinate debtor nations to the interests of industrialized powers through structural adjustment policies.
2. These policies prioritize deregulation, privatization, and maximizing comparative advantage through export-led growth. However, they have led to increased poverty and inequality in debtor nations.
3. The document advocates for replacing the World Bank Group with democratic, accountable global institutions through establishing the Bank of the South that would have different missions focused on upholding human rights.
1. The document discusses the need for an alternative to the IMF and World Bank called the Bank of the South. It argues that the twin institutions of the IMF and World Bank subordinate debtor nations to the interests of industrialized powers through structural adjustment policies.
2. These policies prioritize deregulation, privatization, and maximizing comparative advantage through export-led growth. However, they have led to increased poverty and inequality in debtor nations.
3. The document advocates for replacing the World Bank Group with democratic, accountable global institutions through establishing the Bank of the South that would have different missions focused on upholding human rights.
Original Description:
Eric Toussaint
Comity for the abolition of the third world debt
Original Title
Bank of the South An alternative to the IMF World Bank
1. The document discusses the need for an alternative to the IMF and World Bank called the Bank of the South. It argues that the twin institutions of the IMF and World Bank subordinate debtor nations to the interests of industrialized powers through structural adjustment policies.
2. These policies prioritize deregulation, privatization, and maximizing comparative advantage through export-led growth. However, they have led to increased poverty and inequality in debtor nations.
3. The document advocates for replacing the World Bank Group with democratic, accountable global institutions through establishing the Bank of the South that would have different missions focused on upholding human rights.
1. The document discusses the need for an alternative to the IMF and World Bank called the Bank of the South. It argues that the twin institutions of the IMF and World Bank subordinate debtor nations to the interests of industrialized powers through structural adjustment policies.
2. These policies prioritize deregulation, privatization, and maximizing comparative advantage through export-led growth. However, they have led to increased poverty and inequality in debtor nations.
3. The document advocates for replacing the World Bank Group with democratic, accountable global institutions through establishing the Bank of the South that would have different missions focused on upholding human rights.
Eric Toussaint Published by VAK, Mumbai, India in 2007 Preface by Ajit Muricken Contrary to the common beliefs and ercei!ed notions, the IM", #orld $an% &rou does not set out to reduce o!erty but rather it reroduces and ensla!es the debtor nations' It is in fact the central force behind the neo(liberal offensi!e to inte)rate the economies of the *outh by rofound chan)es in trade, e+ort( oriented )ro,th model, finance and technolo)ies' The t,in institutions IM", #orld $an% are the %ey instruments desi)ned to subordinated nations to the interest of the ,orld-s most industriali.ed he)emonic o,er' The ideolo)ical ,orld !ie, of the $an%s holds that the de!eloment of the *outh has been delayed due to insufficient domestic caital' This formulation actually meant that countries ,ishin) to accelerate economic )ro,th must firt aeal to e+ternal aid, then attract forei)n in!estments and thirdly, increase e+orts in order to rocure the hard currencies necessary for the urchase of forei)n )oods that facilitate further )ro,th' The ideolo)ical construct that underlies the ar)ument is fairly lo)ical ,ithin the neo(liberal aradi)m and is based on the follo,in) rescritions / ( Micro(economic reform throu)h structural ad0ustment of the economy by the remo!al of all barriers to in!estment and remo!al of any imediments' "ree cometition, dere)ulation of the mar%et freedom leads to raid economic )ro,th that in turn contributes to the reduction of o!erty1 ( Ma+imisation of -Comarati!e Ad!anta)e- 2This theory ar)ues that a nation can ma+imise efficiency in resource(use by roducin) and e+ortin) commodities in ,hich it is relati!ely efficient and by imortin) commodities in ,hich it is relati!ely not so31 ( *tate dere)ulation of the economy and ma+imisin) ri!atisation is the %ey to enhancin) macro economic efficiency and consumer ,elfare1 ( 4emo!al of all imediments leadin) to the free mobility of caital across the )lobe1 and ( Con!ertin) e+orts into the main source of economic )ro,th' The conse5uences of such a olicy ha!e been traumatic for the eole of the *outh ,ith intensified o!erty and ine5uality' The debt reayment suc%s u art of the social surlus roduced by the ,or%ers of the *outh 2,hether salary earners, small indi!iduals or family roducers, or ,or%ers in the informal sector3 and directs this flo, of ,ealth to,ards the holders of caital in the 6orth, ,hile the rulin) classes of the *outh ma%e their rofit' 7nder the sell of neo(liberal )ro,th model the ,hole ran)e of natural resources is ri!ately aroriated ,hich oened u a natural resource bade for M6C-s to lunder' This shameful illa)e of humanity-s collecti!e resources is commited under the sell of the neo(liberal economic model' E!en those areas of life( forms once considered sacred, li%e teh )enetic codes, flora, fauna, seeds and e!en natural resources li%e ,ater once considered common herita)e of humanity are no, con!erted into commodities and tradable items to be e+loited for rofit' The ,orld,ide flo, of caital follo,s its o,n oeratin) methods and creates its o,n la,s, ,hich not only transcend but also o!errule national le)islations' In fact, the )lobal trinity #$8IM"8#T9 dominated by the &(: countries mount intense ressure on the olicies of the borro,er countries' This leads to increasin) dere)ulation, that is, the abro)ation of le)al and social control on financial and economic acti!ites by nation states' The urose is to accelerate transactions ,ithout hindrance and lead to henomenal )ains' The loan conditionalities attached to the #orld $an% are a ma0or art of the roblem that the &lobal *outh is faced ,ith' *uch s,eein) economic reforms induced by the #orld ban% are not ,ithout its olitical imlications' There is a )ro,in) realisation that the conditions ( co!ert and o!ert( attached to forei)n debt, secifically by multilateral financial institutions, threaten to substanti!ely curb the democratic ri)hts of eole in all countries contractin) such loans' This is also true of *outh Asia' 7nder one )arb or the other the indeendence and ri)hts of e!en the elected reresentati!es to enact le)islations, to frame olicies, to monitor and o!ersee forei)n firms contracted by these financial institutions directly or indirectly are under serious threat' These curbs ultimately affect the 5uality of life of eole and erode their control o!er their o,n resources' Thus these conditions se!erely undermine any serious efforts to eradicate o!erty' It is therefore necessary to form a broad eole-s alliance to monitor the acti!ities of the )lobal financial institutions, to launch audits of the debts incurred by the national 2or local3 )o!ernments, to critically e+amine all deals' The #orld $an% is mana)in) to be so o,erful throu)h its infiltration into the bureaucracy and )ainin) access into the decision(ma%in) aaratus of the *tate, effectin) a aradi)m shift ( from its earlier ro0ect(based role, it has no, )i!en ,ay to a much more o,erful olicy(based role ( influencin) substancial decisions in fa!our of the ban%-s a)enda' Throu)h such strate)ies the #orl ban% is effecti!ely infiltratin) the lo,er le!els of the Panchayats, ;illa Parishads and municialities throu)h its ri!ate, ublic artnershi ro0ects and !arious other schemes' The structural reform romoted by the #orld $an% and I<$, ,hich laced secial emhasis on brin)in) about stron) institutional chan)es, has deely modified the institutional frame,or% and has dismantled state re)ulation caacities, ,hile reinforcin) )rous and monoolies, and multilyin) the e+istence of clientele net,or%s and ban%(aid ractices' These neo(liberal structural reforms ha!e been so stron) that they ha!e e!en hindered the creation of de!eloment alternati!es in the re)ion' #ith the increased control of the ban% o!er hte bureaucratic aaratus it ahs ac5uired le)itimacy and !oice in olicy ma%in) at both national and state le!el' It no, commands and controls the entire macroeconomic olicy includin) future direction' The entire olicy ac%a)e ma%es a si)nificant dearture from the ast' The lon) cherished riciles of )ro,th ,ith 0ustice, social resonsability and accountability, e5uity and self(reliance ha!e been rendered obsolete ,ith the ne, slo)ans of -liberalisation-, -ri!atisation-, -)lobalisation-, =efficiency- and -cometiti!eness-' The mecanisms of debt cycle ha!e sub0ected the de!eloin) countries to the demands of #ashin)ton 2,here IM", #orld ban% and 7* Treasury are all located3' Most of the economic olicy is decided here, outside teh country concerned' <ebt reayment suc%s u art of the social surlus roduced by the ,or%ers of the *outh 2 ,heter salary earners, small indi!idual or family roducers, or ,or%ers in the informal sector> and direct this flo, to,ards the holders of caital in the 6orth, ,hile the rulin) of the *outh ta%e their commission' *ince ?@@:, these institutions ha!e been under)oin) a rofound crisis of le)itimacy' the economic, social and en!ironmental disasters due to olicies imosed on Perihery countries by the IM" and the #orld $an% has ob!iously cost these institutions their credibility on a massi!e scale ,ithin the countries concerned' Trade re)ulation olicies conducted by T6C-s and attac%s on *tate so!erei)nty ha!e also made ublic oinion in both the Center and the Perihery ,ary of the #T9' The structural ad0ustment olicies dictated by the IM" and the #orld $an% are hated ,ith a !en)eance by the !ast ma0ority of countries ,here these are enforced and ha!e lost all credibility and uni!ersally denounced, criticised and oosed' They ha!e been ,idely discredited, ,hich is ,hy they must be abandoned or dismantled' *ince their incetion, these institutions ha!e sho,n a mar%et reluctance to consider the resect to human ri)hts as an inte)ral art of hteir mandate' They ha!e systematically suorted dictatorshis and their olicies ha!e often !iolated basic human ri)hts' It ,as in this conte+t that the President Cha!e. of Vene.uela ad!ocated the ossibility of settin) u financial institutions that ,ould ro!ide an alternati!e to the #orld ban% and the International Monetary "und for all countries of the *outh' The formation of the $an% of the *outh ,ould definitely alter the o,er relations ,ithin multilateral de!eloment ban%in), and ,ould reroblematise de!eloment ,ithin a conte+t in ,hich the liberal ideolo)y has bloc%ed the ,ay to the ma0or )oals of human%ind, articularly to critical and alternati!es discourses and roosals for ma%in) another ,orld ossible' The collection of articles of Eric Toussaint and <amien Millet introduces ne, debates o!er the need for a ne+ )lobal financial institution ( the ban% of the *outh' The central ar)ument they osit is that the #orld $an% &rou has to be relaced by other )lobal institutions based on democratic accountabibilty' The ne, #orld $an% and the ne, International Monetary "unds, ,hate!er thier ne, names may be, must ha!e radically different missions from those of the former institutions1 they must ma%e sure that the international treatises on the 2olitical, ci!ic, social, economic and cultural3 human ri)hts are actually carried out throu)h their action in the field of international credit and international monetary relations' These ne, )lobal institutions must be art of a )lobal institutional system controlled by a thorou)hly reformed 7nited 6ations 9r)anisation' it is an essential riority that the de!eloin) countries must )et to)ether into re)ional entities as soon as ossible, ,ith a common $an% and a common Monetary "und' "rom the ersecti!e of the *outh, the idea of the ban% of the *outh oens ossibilities for challen)in) neo(liberalism in re!ioulsy forbidden fields / on the one side, de!eloment financin) ,ith due resect for the so!erei)nty and inte)ration of eoles, and on the other hand, the theoretical thin%in) on a e5uitable, intercultural, democratic, so!erei),n lane and de!eloin) a eole( center de!eloment aradi)m' The authors- critical analysis of the #orld ban% )rous as instrument desi)ned to subordinate indebted nations to the interest of the industrialised 6orth and the need for an alternati!e financial institution ( the -$an% of the *outh- ro!ides )round for discussion amon) acti!ists, eole-s or)anisations, mo!ements and olicy ma%ers' *uch !ie,s are not ,ithout otential elements of contro!ersy' 6ot all readers ,ill a)ree on all the oints made by the authors' That is a )round, ,e belie!e, for a healthy debate' A0it Muric%en ( <irector VAK ( htt/88!a%india'or)8 Bank of the South, international context and the alternatives 1 Eric Toussaint 2 !o i"#ortant o##osin$ trends at the international level TodayAs o!erridin) trend, in e+istence for 2B to C0 years, has been the ursuit of a neoliberal and imerialistic caitalist offensi!e' 9!er the last fe, years, this trend has been e+ressed by more and more fre5uent recourse to imerialistic ,ars, the increase in arms by the suer o,ers, the ursuit of reinforcin) trade oenin) of the dominated countries, the )eneralisation of ri!atisation, a systematic attac% a)ainst ,a)es and collecti!e solidarity mechanisms ,on by ,or%ers' All these are art of the #ashin)ton Consensus' A counter trend has been de!eloin) since the end of the ?@@0s' Its most ad!anced form is e+ressed 2almost3 uni5uely in Datin America/ the election of Presidents ad!ocatin) a brea% ,ith neoliberalism 2this round be)an ,ith the election of Eu)o Cha!e. at the end of ?@@:3 or at least a !ariation of same1 Ar)entina susendin) ayment of its ublic e+ternal debt to ri!ate creditors from the end of <ecember 200? to March 200B1 the onset of the state reclaimin) control of lar)e ublic cororations 2P<V*A3 C and of natural resources 2natural )as in $oli!ia31 the failure of "TAA 2"ree Trade Area of the Americas3 and the diminished isolation of Cuba' This counter trend ,ould be inconcei!able ,ithout the o,erful social resistance that has been oosed to the neoliberal offensi!e since the ?@:0s 2"ebruary ?@:@ in Caracas3 in different arts of the ,orld and that ha!e since flared u eriodically' The resistance that imerialism encounters in Ira5, Palestine and Af)hanistan also lay a fundamental role' he international econo"ic context %&&'(%&&) The crisis ,hich struc% the 7* economy in 2000(200? has been o!ercome by a !oluntary anti(cyclical olicy of the "ederal 4eser!e $an% 2the 7* Central $an%3 ,hich drastically lo,ered its official interest rate brin)in) it to almost .ero' The ob0ecti!e ,as to a!oid the ban%rutcy of Enron and #orldcom e+tendin) to other lar)e hea!ily indebted cororations in the ri!ate sector' The radical reduction in interest rates allo,ed cororations to refinance their debts in ? Preli"inary docu"ent #re#ared on * Au$ust %&&) for the International +ebt ,bservatory conference bein$ held in -aracas %%(%. Se#te"ber %&&)/ !!!/oid(ido/or$ and !!!/cadt"/or$ 2 0ric oussaint ,ho holds a Ph< in Political *cience from the 7ni!ersities of DiF)e and Paris :, is resident of CA<TM 2Committee for the Abolition of Third #orld <ebt3 $el)ium' Author of Your Money or Your Life: The Tyranny of Global Finance, Eaymar%et $oo%s, Chica)o, 200B1 co(author ,ith <amien Millet of The Debt Scam, VAK Publication, Mumbai, 200C and Who Owes Who? ! "uestions about Worl# Debt, ;edboo%s, Dondon, 200G1 co(author ,ith <amien Millet of Tsunami $i# or Debt %ancellation& The 'olitical (conomy of 'ost) Tsunami *econstruction, VAK Publication, Mumbai, 200B' "or more information/ ,,,'cadtm'or) C PetrHleos de Vene.uela, *'A', Vene.uelaAs state(o,ned etroleum comany' the least cost(effecti!e manner' It ,as the same for 6orth American households ,hose debt le!el ,as unrecedented 2?C0 er cent of annual income3' The total sum of all debts in the 7*, both in the ri!ate and ublic sectors, is more than IC7 trillion' The 7* ,as able to o!ercome this crisis and re(established a le!el of )ro,th suorted by domestic consumtion ,hich has been fed and financed e+ternally' The economic reco!ery in the 7* too% lace ,hile Euroe and Jaan e+erienced ,ea% )ro,th' The 7* has since then layed the role of bein) the ,orldAs economic en)ine in 2002(200C' 7* consumtion imlies a stron) recourse to imorts, esecially Chinese roducts' The 7* en)ine has s,et China alon) in its ,a%e' China has thus maintained a )ro,th rate close to ?0 er cent' ChinaAs needs for combustibles and ra, materials ha!e boosted the ,orld mar%et rices of these roducts' Accordin) to the $an% for International *ettlements 2$I*/ ,,,'bis'or)3, in 200B, KChina accounted for more than B7L of the incremental demand for aluminium, M0L of that for coer and o!er C0L of that for oilN 2$I* Annual 4eort 200M, ' G?3' *ince 200C, ,e ha!e ,itnessed a !ery shar rise in the real rice of oil, other ra, materials and certain a)ricultural roducts' At the same time, the rices of manufactured roducts rose sli)htly' This is ,hy ,e are li!in) in a ,orld characterised by an imro!ement in the terms of trade in fa!our of de!eloin) countries e+ortin) ra, materials, combustibles and se!eral a)ricultural roducts' This contrasts sharly ,ith more than 20 years of de)radation of the terms of trade G to the detriment of de!eloin) countries' In the case of Datin America, since 200C, $ra.il, Chile, Columbia, Peru and Vene.uela ha!e all benefited from a shar rise in the rices of their e+orts 2+,S -!!., ' G03' This us,in) in the terms of trade roduced an enormous increase in forei)n e+chan)e reser!es of de!eloin) countries' In fact, more than ?C0 of them 2out of ?MB3 sa, an increase in their reser!es' $et,een 2000 and Aril 200M, the forei)n e+chan)e reser!es of de!eloin) countries 2,hich include the countries of the former *o!iet bloc3 ha!e almost triled 2from I@7C billion u to I2,M7@ billion3' The forei)n e+chan)e reser!es of oil roducin) de!eloin) countries ha!e 5uadruled 2from ??0 to GGC3' ChinaAs reser!es ha!e increased by more than fi!e times 2from ?MM to :7B3' Datin AmericaAs forei)n e+chan)e reser!es increased at a more modest rate of G0 er cent durin) the same eriod' The ,orldAs total outstandin) forei)n e+chan)e reser!e, accordin) to the $I*, reached IG'?7 trillion in <ecember 200B 2of ,hich O is in 7* dollars, the remainin) comrisin) euros, yens, ound sterlin) and *,iss francs3' 9f the amount, only I?'2@2 trillion are in the ossession of the most industrialised countries' *till, it must be noted that the 7* only ossesses the e5ui!alent of IC: billion 2in different currencies3 and the Euro.one only I?M7 billion' As for Jaan, it only holds I:2@ billion 2+,S -!!., ' :C3' G There has been a do,ns,in) in the terms of trade for de!eloin) countries durin) the ?@B0s and the ?@M0s' This ,as follo,ed by an us,in) durin) the ?@70s' *ince the ?@:? oil crisis until 200C, ,e ha!e ,itnessed another do,ns,in) in the terms of trade' <e!eloin) counties ha!e ne!er %no,n such a situation/ they ha!e a sum e5ui!alent to more than double the forei)n e+chan)e reser!es of the most industrialised countries at their disosal' The comosition of the forei)n e+chan)e reser!es of de!eloin) countries are as follo,s/ M0 er cent in 7* <ollars, 2@ er cent in Euros and the rest in Pens, Pound *terlin) and *,iss "rancs' The IM", ,hich, since its incetion in ?@GG, has been officially in char)e of assistin) countries ,ho face balance of ayment roblems, only has the e5ui!alent of aro+imately I@ billion that are directly in circulation at its disosal' Thou)h total contributions reresent IC00 billion, it must be noted that the ?:G members of the IM" do not necessarily ma%e these sums a!ailable to the "und' Its lendin) ortfolio is no more than ICB billion' It is loo%ed uon as a d,arf ,ith resect to some 20 de!eloin) countries' Its situation is a))ra!ated by the fact that its lendin) ortfolio is diminishin) 2and conse5uently its re!enues3 due to ad!ance reayments by se!eral Asian countries, $ra.il and Ar)entina, closely follo,ed by Me+ico and 7ru)uay' <e!eloin) countries are, literally as ,ell as fi)urati!ely, net lenders to the most industrialised countries' It is so true that they lend money to the 7* treasury and to #estern Euroean countries by buyin) their treasury bonds' <e!eloin) countries hold 7* treasury bonds e+ceedin) se!eral hundred billion dollars' The #orld $an% itself reco)nises that de!eloin) countries are net lenders to the most industrialised countries' In its 200C Annual 4eort entitled Global De/elo0ment Finance 2&<"3, the #orld $an% states that KDe/elo0in1 countries, as a whole, are net len#ers to #e/elo0e# countriesN'
In the 200B edition of GDF, the #orld $an% ,rites/ KDe/elo0in1 countries are now net e20orters of ca0ital to the rest of the worl#N 2#orld $an%, GDF -!!, ' BM3' In GDF -!!., the #orld $an% states a)ain that KDe/elo0in1 countries e20ort ca0ital to the rest of the worl#, 0articularly to the 3nite# StatesN 2#orld $an%, GDF -!!., ' ?C@3' There is nothin) that demonstrates the futility of the re!ailin) theory more than in the area of de!eloment' In fact, accordin) to the re!ailin) thou)ht, one of the rincial obstacles to de!eloment of the *outh, B is the lac% of caital' Therefore, for de!eloment uroses, de!eloin) countries must loo% else,here for the caital they lac%' They must be at the same time indebted and attract forei)n caital' The resent olicy ,ith resect to forei)n e+chan)e reser!es is, from all ersecti!es, absurd because it conforms to the orthodo+y of international financial institutions' Instead of usin) a lar)e art of their forei)n e+chan)e reser!es for in!estment and current sendin) 2for e+amle, on education and health3, the )o!ernments of de!eloin) countries use it for reayin) their debts or for lendin) uroses to the treasury of the 7nited *tates or to the treasuries of #estern Euroe' $ut it does not end there' The )o!ernments of de!eloin) countries use their forei)n e+chan)e reser!es as a )uarantee on future ayment and contract ne, B "or a criti5ue, see Qric Toussaint, R Des idSes de la $an5ue mondiale en matiFre de dS!eloement T UKThe Concets of the #orld $an% on <e!elomentNV Chater ?0, +an4ue mon#iale, le %ou0 #56tat 0ermanent 7The Worl# +an8, the 'ermanent %ou0 #56tat9, CA<TM(*yllese(Cetim, DiF)e(Paris(&enF!e, 200M' debts ,ith ri!ate forei)n ban%s or financial mar%ets' It is absurd from the oint of !ie, of )eneral interest' Another absurd olicy from the oint of !ie, of the nation is that the ublic treasuries of de!eloin) countries, in order to re!ent an inflationary effect lin%ed to the hi)h le!el of forei)n e+chan)e reser!es, incur debt ,ith local ban%s in order to ,ithdra, surlus money from circulation' Det us ta%e another loo% at the different actions mentioned abo!e' a) Advance payments to the IMF "rom the end of 200B until the be)innin) of 200M, Ar)entina made ad!ance reayments to the IM" by usin) art of its forei)n e+chan)e reser!es' The country, ho,e!er, ,ould ha!e been erfectly entitled to challen)e the amounts due to the IM" since the "und is resonsible for a series of actions ,hich ha!e inflicted harm on its eole and economy' The IM" acti!ely suorted the Ar)entine dictatorshi bet,een ?@7M and ?@:C, a re)ime that systematically committed crimes a)ainst humanity and ut the country hea!ily into debt by imlementin) an economic model re0udicial to the interests of the nation' The IM" then demanded that the democratic )o!ernment, ,hich succeeded the dictatorshi, reay the odious debt contracted by the military 0unta' After,ards, it has continued, to this day, dictatin) an economic olicy a)ainst the nationAs interests' Ar)entina ,as erfectly ,ithin its ri)ht to refuse to continue reayin) its debt to the IM"' The same could be said about $ra.il and its ad!ance reayments on its debt' $y usin) their reser!es to reay the IM", Ar)entina and $ra.il ha!e ,asted a art of their resources that could ha!e been utilised for more useful and ,orthy ends' 9ne of the main reasons )i!en by the Ar)entine and $ra.ilian )o!ernments for ad!ance reayment of their IM" debt ,as the desire to re)ain their freedom of mo!ement' It must be clearly stated that after reayment, these )o!ernments maintained an economic olicy suorted by the IM"' "or e+amle, they did not re(establish controls on the mo!ements of caital or on forei)n e+chan)e' b) Loans to the US government by purchasing treasury bonds Most de!eloin) countries urchase 7* treasury bonds' The e+act amounts are un%no,n, but this amounts to se!eral hundred billion dollars bein) lent to the 7* )o!ernment' The ar)ument most commonly ad!anced is that 7* treasury bonds are hi)hly con!ertible assets, i'e', they can be resold 5uic%ly and easily' $esides, it is )enerally assumed that they are ris% free since it is inconcei!able that 7* treasury ,ould be in default in the short or medium term' *imly ut, de!eloin) countries are thus contributin) to the maintenance of 7* imerial o,er' <e!eloin) countries are )i!in) the master the baton ,ith ,hich to beat them u and rae them' In fact, the 7* has a !ital need for outside fundin) to finance its enormous deficits and maintain its military, trade and financial mi)ht' If it ,ere to be deri!ed of a si)nificant ortion of the loans from de!eloin) countries, the 7* ,ould find its osition ,ea%ened' Additionally, those ,ho ad!ocate urchasin) 7* treasury bonds )enerally omit to mention the fact that the dollar is fallin)' The yield of those bonds is in de!aluated dollars' Det us immediately a)ree that the urchase of #est Euroean treasury bonds is in no ,ay a !iable alternati!e, althou)h it may be a lesser e!il' It ,ould be far better to use surlus reser!es roducti!ely or ma%e them a!ailable to a Kban% of the *outhN' c) The pursuit of public debt In!estin) reser!es in 7* treasury bonds 2or any other treasury bonds3 )enerally means in return ne, borro,in)s' This may seem surrisin), but in reality, this is ho, thin)s ,or%' 9n the one hand, a art of forei)n currency reser!es is in!ested in 7* 2or other3 treasury bonds1 on the other, all le!els of )o!ernment borro, from domestic or international mar%ets in order to reay the national debt' In any case, the interest earned from in!estin) in forei)n treasury bonds is less than the interest aid to borro,' This amounts to a loss for the treasury of the country concerned' Dea!in) a si)nificant amount of reser!es in the hands of the central ban% fre5uently leads to it bein) in debtW To e+lain/ The massi!e influ+ of forei)n caital in the form of forei)n e+chan)e ends u in the hands of local a)ents ,ho ,ill e+chan)e it at their o,n ban%s for local currency' This results in an increased accumulation of the domestic currency, a otential source of inflation' In order to a!oid this, the central ban% erforms transactions desi)ned to Kfree.eN these reser!es so as to re!ent the influ+ of forei)n e+chan)e from bein) transformed into the local currency' There are t,o main ossibilities/ ?' The central ban% can decide to increase the rates for reser!e assets of the ban%in) system' This leads to additional costs for ban%s, ,hich ,ill certainly be reflected in the interest rates on the loans they offer' This ,ill ma%e credit more e+ensi!e and should thus slo, do,n the )eneration of money 2since e!ery time credit is )i!en, money is )enerated, 0ust as there is monetary KdestructionN e!ery time credit is reaid3' 2' The central ban% carries out o0en)mar8et transactions, i'e', it issues securities, desi)ned to ta%e local currency out of circulation, thereby limitin) the ris% of inflation' The roblem ,ith this strate)y is that the central ban% has, on the one hand, forei)n e+chan)e reser!es that it in!ests in international caital mar%ets 2,hich earn a T? interest3 ,hile on the other, the earnin)s from the securities that it issues is at T2, ,hich is )reater than T?, since the ris% remium has more si)nificance ,ithin the domestic mar%ets of de!eloin) countries than in international mar%ets' It is for this reason that, in order to control inflation as ,ell as the rates of e+chan)e 2this also deends on the e+chan)e modes, ,hether fle+ible or of the fi+ed currency boar# tye3, both the central ban% and the state are forced to incur debt simly to finance the discreancy bet,een the rates' This is the combined result of a monetary olicy ,hose rincial ob0ecti!e is the fi)ht a)ainst inflation 2accordin) to familiar liberal ersecti!es3 and a )eneral economic olicy that limits the acti!e inter!ention of the state into roducti!e acti!ity and considers social e+enditure to be non(roducti!e 2and a source of inflation3' A crushin) ma0ority of )o!ernments )i!e recedence to this olicy, )i!in) rise to an increase in the national debt as a counter,ei)ht to the hi)h le!el of forei)n e+chan)e reser!es' M This is true for China as ,ell as for Datin America' Instead of creatin) mountains of reser!es, in articular to rotect them from seculati!e assault, the )o!ernments of de!eloin) countries ,ould do better to/ ?' Adot measures to control caital and currency mo!ement 2a far more effecti!e ,ay of rotectin) oneself from seculators and fi)htin) caital fli)ht31 2' 7se a si)nificant art of their reser!es for roducti!e in!estment in industry, a)riculture 2a)rarian reform and so!erei)n control o!er food resources3, infrastructures, en!ironmental rotection, urban de!eloment 2urban imro!ement, construction8reno!ation of homes, etc'3, health care and education ser!ices, culture, research, social security, etc'1 C' 7se art of their reser!es for the creation of a ool of common financial institutions 2$an% of the *outh, Monetary "und of the *outh, etc'31 G' Create a front of indebted countries for non(ayment1 B' Establish and stren)then cartels of countries roducin) essential )oods1 M' 6e)otiate barter a)reements such as those bet,een Vene.uela and Cuba, recently e+tended to include $oli!ia' These ,ill be de!eloed in the follo,in) t,o sections' Potential Alternatives Det us return to the fa!ourable economic situation in de!eloin) countries in 200M' As discussed abo!e, the situation is fa!orable for de!eloin) countries for se!eral reasons/ A si)nificant number of them ha!e an unrecedented le!el of international reser!es at their disosal, ,hile the reser!es of the 7* and #estern Euroe are at a historic lo, le!el, The terms of trade are fa!orable to them, Most de!eloin) countries ha!e a ositi!e balance of current accounts, The IM" is resently ,ea%' 9ne could add that in 200B the a!era)e )ro,th rate in de!eloin) countries ,as t,ice that of the most industrialised nations, and international interest rates, e!en thou)h they are risin), are relati!ely lo,' The remium on hi)h(ris% countries that the de!eloin) countries ha!e to co!er has also reached a historically lo, le!el' 9n the olitical le!el, in se!eral countries the Deft has achie!ed successes in 200B(200M/ the election of E!o Morales in 200B as President of $oli!ia1 and imortant ro)ress made by the Deft in the elections in India and Me+ico' 9n the military le!el, #ashin)ton and its allies ha!e become bo))ed do,n in Ira5 and Af)hanistan, ,hich ,ill ma%e it difficult for them to inter!ene directly in another country' #ith resect to the multilateral a)reements fa!orable to the bi) o,ers, the "ree Trade Area of the Americas ,as abandoned in 200B and #T9 ne)otiations on the <oha A)enda ha!e come to a standstill 2for the time bein), in any case3' M #orld $an%, Global De/elo0ment Finance -!!., ' ?BG #ithin this conte+t, it is otentially ossible to imlement an alternati!e strate)y' If the )o!ernments of de!eloin) countries ,anted to challen)e reayment on their ublic debt, they ,ould be in a )ood osition to do so because they ha!e ,hat is needed to stand u to the threats of retaliation by multilateral, bilateral and ri!ate creditors' The le!el of their reser!es )i!es them enormous room in ,hich to manoeu!re' If Ar)entina ,as able to stand u to the ri!ate creditors on its o,n from the end of 200? to the be)innin) of 200B 2they demanded it resume reayment of a debt amountin) to about I?00 billion3 and to )ain si)nificant concessions, one can easily ima)ine the stren)th that a united front of se!eral countries ,ould ha!e' 6o, is the time to set to ,or% on an audit of the debt' A united front of countries for non(ayment ,ould also be able to further the matter of restitution of the historical and ecolo)ical debt contracted by the most industrialised nations' Public oinion and social mo!ements ,ould lar)ely suort the )o!ernments of the *outh in ta%in) this le)itimate osition' The )o!ernments of the de!eloin) countries could ta%e the initiati!e in creatin) a $an% of the *outh and an international Monetary "und of the *outh 2see further on3' They could ,ithdra, from the #orld $an% and the IM", bodies that are totally controlled by a fe, of the bi))est and most industrialised countries' They could ,or% on de!eloin) a strate)y to stabilise the rices of ra, materials and a)ricultural roducts by formin) cartels bet,een roducin) nations and by stren)thenin) 9PECAs osition' They could create and8or stren)then re)ional *outhern associations and, ,hy not, endo, themsel!es ,ith a common currency' They could reintroduce controls o!er the mo!ement of caital and forei)n e+chan)e' They could ta%e bac% control of their countriesA natural resources' They could ursue audacious ublic olicies in the areas of education, culture and research 2articularly in health care3 ,ith sufficient financial means' They could be insired by the trade a)reements amon) the $oli!arian 4eublic of Vene.uela, Cuba and $oli!ia and ad!ocate ne, forms of trade usin) barter 2for e+amle, oil in e+chan)e for health care and education ser!ices3' *uch a strate)y ,ould resuose )i!in) riority to a radical redistribution of ,ealth ,ithin the de!eloin) countries as ,ell as bet,een the *outh and the 6orth of this lanet' The social content of an alternati!e strate)y is fundamental' It is necessary to ro!ide it ,ith a socialist content to a!oid the ossible ris% of it becomin) an alternati!e KcaricatureN' The socialist content has nothin) to do ,ith a simle olicy for reducin) o!erty, de!eloin) social ,elfare measures and a !a)ue humanisation of caitalism' The socialist content imlies ma0or structural reforms, be)innin) ,ith the 5uestion of o,nershi of the means of roduction, natural resources and all common )oods' To arahrase Che/ 7 it is either a socialist alternati!e or a caricature thereof' Any alternati!e must also essentially include the emanciation of ,omen by establishin) a true e5uality bet,een the se+es' he Bank of the South and the Monetary Fund of the South A first choice ,ould be to create one or t,o institutions' If t,o ,ere to be created, there ,ould be a ban% to finance de!eloment and a monetary fund ,hose rimary function ,ould be to rotect countries from seculati!e attac%s and assist them in resol!in) forei)n e+chan)e dilemmas ,here li5uidity is a roblem' There is also the ossibility of creatin) only one institution ,hich ,ould be resonsible for these imortant functions' In articular, the $an% of the *outh rooses to try brea%in) the deendence of de!eloin) countries on international financial mar%ets, channel their o,n caacity for sa!in), sto the caital fli)ht, channel central resources to riorities for indeendent social and economic de!eloment, chan)e in!estment riorities, etc' It is about a ublic ban% as an alternati!e to the Inter American <e!eloment $an% and the #orld $an%' The $an% of the *outh can )rant credits ,ith or ,ithout interest, as it can rocure non(reimbursable aid in the form of donations' The $an% ,ill be rincially financed by contributions from member countries in the form of contributions and donations' Ta+ re!enues throu)h re)ional8international ta+es can also be considered' Those recei!in) riority credits and donations must be ublic entities 2state, ro!ince, municiality, ublic cororations in the areas of roduction and ser!ices3' Additionally, it is essential to clearly define ri!ate a)ents ,ho can recei!e credits and donations from the $an% so as to e+clude the stren)thenin) of bi) business interests from its acti!ity' Eistory from the last t,o centuries is relete ,ith e+amles of ublic and oular ban%s ,hich essentially ser!ed to stren)then caitalistic accumulation ,ithout any actual benefit )oin) to the eole' The $an% of the *outh cannot be dissociated from the debt situation' It is essential that the $an% a!oid mana)in) ublic debt for the benefit of financial caital' Another imortant asect is the necessity of oular and democratic control in tandem ,ith auditin) initiati!es of the debt' The acti!e articiation of arliaments in suer!isin) the $an%As function must also be encoura)ed' The fore)oin) only constitutes a fe, a!enues ,hich re5uire collecti!e and ri)orous lannin)' 7 *ocialist re!olution or caricature of re!olution' Future #ers#ectives for the econo"y "or economic as ,ell as olitical reasons, imro!in) the terms of trade for e+orters of basic commodities does not aeal to most industrialised countries' This is because it stimulates initiati!es in countries in the *outh' *imilarly, the current le!el of reser!es held by countries in the *outh are causin) concern in the caitals of the most industrialised countries as ,ell as in the boardrooms of the bi) multinationals' The decisions ta%en by the )o!ernments of the most industrialised countries are aimed at chan)in) the situation in their fa!our' Mean,hile, the economic cycle follo,s its o,n lo)ic 2see further do,n3' The lac% of ,ill on the art of the )o!ernments of the Perihery could ,ell see those )o!ernments miss out on an historic oortunity' The central ban%s of the three economic o,erhouses of the most industrialised countries are increasin) their official mar%et rate ,ith resect to interest rates' *ince 200G this has been the case ,ith the "ederal 4eser!e of the 7nited *tates and the Euroean Central $an%' The same can be said about the $an% of Jaan since the be)innin) of 200M' An imortant art of seculati!e caital ,hich mo!ed to,ards the countries of the *outh bet,een 2002 and 200M in the ursuit of )reater returns to those offered by the countries of the 6orth is comin) bac% to the 6orth' The fall of the stoc% mar%ets in emer)in) countries in May 200M is robably a harbin)er of ,hat is about to haen' "or the "ederal 4eser!e of 7nited *tates it is !ital to attract as much caital as ossible so as to ay off the enormous trade deficit' A ermanent flo, of caital to,ards the 7*A is a first(ran% necessity' $ecause of this, it is necessary to increase the interest rates in order to offer forei)n in!estors a sufficient return' This is e!en more imortant since the !alue of the dollar droed articularly ,ith resect to the Euro and the Pen, and that the interest rates increase e5ually in the Euro ;one, the 7nited Kin)dom and Jaan' It is ossible that the current increase in interest rates ,ill le!el off' The 7* monetary authorities %no, that if they raise interest rates too much, they ris% ro!o%in) an e+losion in the seculati!e real(estate bubble and a dramatic reduction in household consumtion because 7* householders are in a lot of debt 2totallin) ??,B00 billion dollars3' Too much of an increase in interest rates also ris%s causin) roblems for bi) businesses in the 7*, startin) ,ith the automoti!e and a!iation sectors' 6e!ertheless, e!en if 6orthern interest rates no lon)er rise sharly in the last 5uarter of 200M, they ha!e already reached a sufficiently hi)h le!el to attract a )ood art of the caital ,hich had re!iously been di!erted to the *outh in recent years' The rice trend for basic commodities has been ob!iously influenced by the le!el of economic acti!ity' It is necessary to be cautious ,ith the forecasts of )ro,th for 2007(200:' Ea!in) said this, a reduction of )ro,th in the 7nited *tates cannot be e+cluded' If it haens, it ,ill be interestin) to see the imact on )ro,th in #estern Euroe and Jaan' If it also slo,s do,n in these t,o re)ions, there is li%ely to be a decrease in the sale of ra, materials as ,ell as in rices, unless ChinaAs acti!ity is maintained o!er an e+tended eriod of time, ,hich ,ould be surrisin)' E!idently, China is )oin) throu)h a sta)e of o!er(in!estment' The rate of return is )enerally 5uite lo,' Its acti!ity is lar)ely deendent uon its e+orts' The consumtion of Chinese households is )ro,in) but only a small minority is benefitin) from this domestic consumtion' In short, the domestic mar%et is unli%ely to relace the e+ternal mar%et as the outlet for Chinese roduction unless the Chinese authorities ma%e a radical turnaround in their model of de!eloment 2increase in salaries, a radical stren)thenin) of the domestic mar%et, loo%in) for real constructi!e cooeration ,ith other countries of the *outh3, ,hich, unfortunately, aears to be !ery unli%ely' The stru))les in ,hich the Chinese ,or%ers are en)a)ed X an imro!ement in salaries, better ,or%in) conditions and a ri)ht to or)anisation X oint ob0ecti!ely in the direction of a radical chan)e in the model of de!eloment, but it is difficult to see ho, they could obtain satisfaction in the short term' There is a ris% that the e!olution of the Chinese economy ,ill lead in the oosite direction' Det me e+lain' If a reduction in economic acti!ity in the 7nited *tates is not counterbalanced ,ith sufficiently stron) )ro,th in Euroe and Jaan, the economic acti!ity in China ,ill certainly slo, do,n' &i!en that the rate of return is lo, and the cororate debt le!el is 5uite hi)h, it is robable that a reduction in acti!ity ,ill ro!o%e si)nificant reductions in ersonnel and business failure' *uch a situation ,ould not create conditions fa!ourable to the Chinese ,or%ers' #hat I ha!e 0ust described is lar)ely hyothetical and the time factor has not been secified/ this e!olution mi)ht lay out o!er se!eral years' 6umerous !ariables are at lay' "or e+amle, ,hat is )oin) to haen to the rice of oil and )asY #hat ,ill 9PEC doY My imression is that the rice is )oin) to remain hi)h, ,hich is a )ood thin)' $ut nothin) is )uaranteed' #hat is )oin) to haen to other essential roductsY The rice of certain roducts is such that ,e are ,itnessin) a classic henomenon in the e!olution of caitalist economies, mines ,hich ,ere no lon)er rofitable are bein) e+loited a)ain' *ome ha!e 5uite ele!ated in!estment costs' There is o!er(in!estment' This ,ill roduce a rise in suly, ,hich ,ill e+ceed demand, ,hich ,ill in turn result in rice dereciation and cororate ban%rutcy' #hat can sto thisY Either an acceleration in the ,orld economic )ro,th, ,hich is !ery unli%ely1 or the creation of a cartel made u of roducin) countries to lan roduction and limit )ro,th in order to stabilise ele!ated rice le!els' This brin)s us to the need for an alternati!e' If )o!ernments of the *outh do not rise to the challen)e, the situation ,ill e!ol!e unfa!ourably' 9ne can only fear ,hat mi)ht haen' #hat has 0ust been described may also haen ,ith the rice of oil and )as' If there is a shar decrease in the rice of )as and oil, that ,ould be disastrous for many countries of the *outh' Det us return to the !ariable Kdebt reaymentN' *ince 200C(200G, most indebted countries ,ith middle incomes no lon)er find it difficult to ser!ice their debt' This is the conse5uence of se!eral economic factors/ )ro,in) estimated returns than%s to the ele!ated rice of ra, materials ,hich they e+ort, the arri!al of seculati!e caital in search of short(term rofits notably in the stoc% e+chan)es of emer)in) countries, relati!ely lo, interest rates and e+tremely lo,(ris% remiums in 200G(200M' All this can chan)e ,ithin a year or a fe, years' The cash re!enue and reser!e le!els can diminish, the interest rates at their hei)ht in the 6orth can increase the ser!icin) of the debt on the loans contracted at a !ariable rate, the cost of the ne, loans to refinance old debts is )oin) to )ro, because it ,ill be alied to a more ele!ated interest rate, the ris% remiums can rise a)ain' A si)nificant number of indebted countries ris% findin) themsel!es in the situation of the cicada in the fable of Da "ontaine' At the end of the summer, ,hen the economic en!ironment deteriorates, they ris% findin) themsel!es in ayment difficulties and their e+chan)e reser!es ris% meltin) li%e sno, in the sun' It is a further ar)ument for uttin) an alternati!e olicy ,ith resect to establishin) a common front of indebted countries for the non(ayment of the debt 2see oints C and G3 into ractice' $efore arri!in) at conclusions, I ,ould li%e to lea!e you some imressions and additional information' "or the last 20 years, the 7nited *tates has succeeded in o!ercomin) their crisis by alyin) a !ery inter!entionist olicy and in ma%in) other countries ay a art of the cost for e+tricatin) itself out of the crisis' Det us not for)et that the ,or%in) classes of the 7*A ha!e )one to )reat e+ense in e+tricatin) themsel!es out of the crisis 2for e+amle, throu)h massi!e layoffs in 200?(2002, a !ery stron) )ro,th in the casualisation of labour, and a )ro,th in the number of the ,or%in) oor, a reduction in real salaries and their share in the national re!enue3' 6e!ertheless, the 7* economy has not been cleaned u from the caitalist oint of !ie, 2it has a relati!ely ,ea% )ro,th rate, a relati!ely lo, rofit rate3' It ,ill certainly ha!e to )o throu)h a deeer ur)e, ,hich imlies a de!aluation8destruction of caital 2a si)nificant number of ban%rutcies3' #hen ,ill this ur)e haenY 6o(one can reasonably redict a date, but it is unli%ely to be a!oidable from the oint of !ie, of the caitalist lo)ic itself' I ,ant to ma%e it clear that a ur)e is not synonymous ,ith a collase' 9n the contrary, it is ar)uably the best mechanism that caitalism has at its disosal to re)ain a durable ele!ated rate of rofit and stron) )ro,th' The domestic debt of de!eloin) countries has )ro,n sharly durin) the last three years in absolute fi)ures' The soar of the national debt is articularly hi)h and dis5uietin) in a lar)e number of middle(income countries' Accordin) to the #orld $an%, the national debt of indebted countries ,ent from I?'C trillion in ?@@7 to IC'B trillion in *etember 200B' : The ri!ate ban%s of the 6orth, after ceasin) to )i!e ban% loans to the indebted countries in 200?(2002, ha!e resumed issuin) loans as of 200C' : #orld $an%, Global De/elo0ment Finance -!!., ' GG In 200B, the number of issued loans increased from 7G er cent in relation to 200G' Alto)ether ?,2M? loan contracts ha!e been si)ned, rincially in the areas of oil and )as' In 200B, aro+imately G0 de!eloin) countries issued ne, bonds on the international financial mar%ets' The bonds issued by ?0 of those countries 2$ra.il, China, Eun)ary, India, Indonesia, Me+ico, Poland, 4ussia, Tur%ey and Vene.uela3 reresent M@ er cent of the total issued by the G0 countries' Det us loo% at bonds issued in Euros and ho, sharly they ha!e )ro,n at the )lobal le!el durin) recent years' In 2000 the securities issued in Euros reresented 2@': er cent of all bonds issued' In 200B they reresented GB'G er cent' $onds issued in dollars, ,hich reresented B?'@ er cent in 2000, reresented nothin) more than C:'C er cent in 200B' @ In 200B, a lar)e art of forei)n direct in!estment ,as lin%ed to ri!atisations8ac5uisitions8mer)ers ,hich created no additional emloyment' In certain cases !alue and emloyment ,ere destroyed' A ne, tye of deri!ati!e has been launched in the mar%et in recent years' It is %no,n as %re#it Default Swa0s: The buyer of the bonds issued by comanies or states ays an insurance a)ainst the ris% of non(ayment' This mar%et ,hich has literally e+loded o!er the recent years on the )lobal scale reresents a notional 2!irtual3 !alue of I7'C trillioa, of ,hich less than B er cent in!ol!es de!eloin) countries' Accordin) to the #orld $an% and the financial ress, it is difficult to measure the stren)th of this tye of deri!ati!e' #here there is a )eneral difficulty ,ith the reayment of debt, it ,ill be difficult for the insurers to %ee their commitment ,ithout ris%in) ban%rutcy' ?0 The institutional in!estors, namely, the ension funds of the most industrialised countries, ha!e in!ested a total of IGM trillion 2i'e', an amount lar)ely )reater than the sum total of the entire ,orldAs &<P3, of ,hich I20'7 trillion is controlled by 7* comanies' ?? It ,ould be enou)h that they dedicate a tiny fraction of these in!estments to buyin) shares in the stoc% mar%ets of the emer)in) countries or to buyin) currency, to increase their !alue 2,hich is ,hat haened in 200B3' It ,ould be enou)h for this same tiny fraction to be ,ithdra,n to ro!o%e a dro in the stoc% mar%et in *ao Paulo or in Mumbai 2,hich is ,hat haened in May 200M3, or e!en a reduction in the !alue of the currency of Thailand or Ar)entina' If )o!ernments do not ta%e measures to control the mo!ement of caital as ,ell as forei)n e+chan)e, they are at the mercy of seculati!e attac%s of the amlitude of those in the second half of the ?@@0s' The caitalists of the *outh increased caital fli)ht in 200B' E!en thou)h the fli)ht reresented I?72 billion in 200G, they rose to IC?: billion in 200B' ?2 9!er the last fe, years, the *outh(*outh flo, ,as de!eloed rincially under the mana)ement of caitalist firms of the *outh' "or e+amle, the flo, in forei)n direct in!estments bet,een countries of the *outh ,ent @ #orld $an%, Global De/elo0ment Finance -!!., ' B@ ?0 #orld $an%, Global De/elo0ment Finance -!!., ' M2 ?? #orld $an%, Global De/elo0ment Finance -!!., ' BC ?2 #orld $an%, Global De/elo0ment Finance -!!., ' ?B? from I?G billion in ?@@B to IG7 billion in 200C' In 200C, these flo,s in *outh(*outh in!estment reresented CM'M er cent of the total forei)n in!estment flo,s )oin) to the *outh' $an% loans from the ri!ate ban%s of the *outh to other countries and businesses of the *outh ,ent from I0'7 billion in ?@:B to IM'2 billion in 200B' "or the first time in its history, the #orld $an% dedicated an entire chater in its annual reort Global De/elo0ment Finance to the flo, of *outh(*outh caital ?C ' That deser!es a secific contribution on the sub0ect' The *outh(*outh flo, 2,ith some e+cetions lin%ed to Vene.uelan initiati!es3 comletely follo,s the lo)ic of caitalist )lobalisation' Chinese firms in!est lar)ely in Africa and in Datin America to ensure control of the source of ra, materials' Petrobras is doin) e+actly the same thin) in $oli!ia, 6i)eria and An)ola' It is the same for the 4ussian firms' Else,here, the #orld $an% is roosin) to the )o!ernments of the *outh to recycle a art of its enormous forei)n e+chan)e reser!es in lendin) them to ri!ate local in!estors' In short, the #orld $an% is itself on the offensi!e on the theme of the $an% of the *outh by ro!idin) it ,ith content in accordance ,ith stren)thenin) caitalism at the )lobal le!el' 4ather than roosin) to the )o!ernments of the *outh that they e5ui themsel!es ,ith *outh(*outh ublic instruments for financin) their needs 2and those, as a riority, of their eole3, the #orld $an% rooses to entrust the reser!es to ri!ate caital of the *outh' That )oes ,ithout sayin) but that brin)s us to the contents of the roosed the $an% of the *outh, ,hich is discussed else,here in this te+t' -onclusion A ne, historical oortunity is bein) resented to eole and )o!ernments in so(called de!eloin) countries to adot a liberatin) initiati!e ,ith international scoe' The economic situation fa!ourin) stron) initiati!es ,ill not be e+tended' Inaction or strate)ic errors ,ill lead to an unfa!ourable re!ersal' If the oortunity is not sei.ed 2and it is !ery robable that it ,ill not be sei.ed3, history ,ill follo, its course and eole ,ill be stru))lin) under e!en more se!ere conditions than no,' The battle ,ill continue and faced ,ith the cynical olicies of their )o!ernments, citi.ens ,ill become radical and cla, their ,ay to the to of freedom ,ithout &od or *ureme *a!iour' This is called re!olution' Translated by &illian *loane(*eale, Karin $aasch, Mi%e #illiams and Jean( Pierre *chermann, Coorditrad !olunteers' ?C #orld $an%, Global De/elo0ment Finance -!!., chater G, ' ?07(?CM he Bank of the South1 a revie! of !hat is at stake 1. Eric Toussaint !o o##osite tendencies at #lay in 2atin A"erica 9n one hand, the 7nited *tates )o!ernment and the E7 countries ma%e bilateral free(trade a)reements ,ith the countries of the re)ion X an arran)ement ,hich benefits their o,n comanies' These comanies ha!e ta%en ad!anta)e of the massi!e ri!atisations of the ?@:0s and ?@@0s to ta%e control of numerous economic sectors that are !ital for de!eloment' Caital flo,s )o out of the re)ion to the most industrialised countries !ia debt ser!icin), reatriation of rofits made by the trans(national cororations of the 6orth, and fli)ht of caital or)anised by Datin(American caitalists' The internal ublic debt is on the rise, li!in) conditions are sta)natin) and the eole most e+loited are further imo!erished, desite the miti)atin) effect of certain ublic aid ro)rammes 2in $ra.il, Ar)entina, Vene.uela, Ecuador3' 9n the other hand, a number of oular mobilisations in the last fe, years has led to the election of ne, )o!ernments, some of ,hich are tryin) to re!erse the course of the last C0 years and counteract the first tendency described abo!e by re(establishin) ublic control o!er the countryAs natural resources 2Vene.uela, $oli!ia, Ecuador3, o!er other %ey sectors of the economy 2Vene.uela3 and by foilin) certain strate)ic ro0ects of the 7nited *tates 2failure of the "TAA in 6o!ember 200B and difficulty in imlementin) Plan Colombia due to the oosition of Vene.uela, Ecuador ?B and $oli!ia3' Certain )o!ernments underta%e social reforms by follo,in) a re(distributi!e olicy' Vene.uela since ?@@@, $oli!ia since 200M, and shortly after,ards Ecuador, decided to modify their constitutions in a democratic direction' The $oli!arian Alternati!e for Datin America and the Caribbean 2AD$A3 brin)s to)ether Vene.uela, $oli!ia, Cuba, Eaiti, 6icara)ua and, as an obser!er, Ecuador' The creation of a $an% of the *outh scheduled for the end of 2007 is the %in)in of this counter(tendency' Pre#arations for the Bank of the South $y "ebruary 2007, Ar)entina and Vene.uela, 0oined by $oli!ia, had reached an a)reement for creatin) the $an% of the *outh' Very soon Ecuador, Para)uay, and more recently, $ra.il 2since C May3 officially 0oined these three countries' The te+t submitted for ministerial discussion, before Ecuador inter!ened ,ith an ori)inal roosal, ,as dated 2@ March and too% the form of a roosal ut for,ard by Ar)entina and Vene.uela' 4icardo PatiZo, the finance minister of Ecuador, and four members of his Cabinet dre, u the Ecuadorian roosal' ?G #ritten in May 2007' ?B 4afael Correa, the Ecuadorian President, has announced that he ,ill not rene, the lease on the 7* military base at Manta in 200@ ,hen the resent one runs out' Three non(Ecuadorians, Jor)e Marchini ?M , 9scar 7)arteche ?7 and myself, ,ere in!ol!ed in the rocess' 9n C0 Aril, the finance minister, accomanied by his Cabinet and myself, submitted this roosal 2roduced o!er some ?B hours on 27, 2: and 2@
Aril3 to President Correa' Ee ratified this roosal, ,hich ,as immediately sent to the reresentati!es of the other countries' The ministerial meetin), held on C May in [uito and chaired by the President of Ecuador, lasted some four to fi!e hours' I ,as in!ited to be a art of the Ecuadorian dele)ation' The other countries ,ere reresented by their finance ministers, and, as a )eneral rule, by a deuty minister or a Cabinet member' The focus is no, on a residential summit, due to ta%e lace before the end of June as er the [uito <eclaration' This summit ,ill adot a te+t definin) the $an% of the *outh and roclaimin) the final creation of this institution' What !as the orientation of the text drafted by Ar$entina and 3ene4uela 5 The initial te+t dra,n u by Ar)entina and Vene.uela is in its ,ay both surrisin) and shoc%in) since the initial dia)nosis includes considerations that are comletely in line ,ith the neo(liberal !ie,, the !ie, of the #orld $an% 2#$3, the !ie, of dominant economic thin%in), and the !ie, of the caitalist class re)ardin) the reasons for Datin AmericaAs deficiencies' The te+t obser!es that under(de!eloment of the financial mar%ets is the main cause of Datin AmericaAs roblems' In its )eneral considerations, it secifies the need to romote the establishment of multinational cororations ,ith re)ional caital, ,ithout mentionin) that they must also be ublic' Kno,in) Ar)entinaAs leanin)s, the fact that nothin) is said about the cororations bein) ublic is as )ood as sayin) that they are ri!ate, or that they are mi+ed' The )eneral considerations also ma%e it clear that this means romotin) the de!eloment of caital mar%ets and re)ional financial mar%ets' *econd element/ the ro0ect rooses the creation of a $an% of the *outh, ,hich ,ould oerate both as a de!eloment ban% and a monetary stabilisation fund' A monetary stabilisation fund means a re)ional or)anisation that comes to the aid of the countries of the re)ion ,hen they are faced, for e+amle, ,ith hostile ta%eo!ers' They need imortant e+chan)e reser!es in order to rotect themsel!es from these seculati!e attac%s' The 0oint Ar)entine(Vene.uelan ro0ect roosed only a sin)le or)anisation called the $an% of the *outh, ,hich can oerate li%e a de!eloment ban% and a monetary fund at the same time' There is nothin) shoc%in) about this' #hat is shoc%in) is that once a)ain the declared urose is to de!elo caital mar%ets, to romote industry, and to encoura)e the de!eloment of infrastructure, ener)y and trade' En!ironmental rotection or cultural and educational olicies are left out of the icture' Considerin) the initial dia)nosis, it is to be feared that the recommended macro(economic olicies ,ill remain ,ithin the lo)ic of structural ad0ustment and orthodo+ ?M Member of the Deftist Economists of Ar)entina 2E<I3, member of the International <ebt 9bser!atory 29I<3 and Professor of Economics at the 7ni!ersity of $uenos Aires 27$A3' ?7 Professor of Economics at the 7ni!ersity of Me+ico, member of Datindadd and 9I<' monetarist olicies' It is also said that the $an% ,ill borro, on the financial mar%ets' The imortant and shoc%in) third element/ the roosal from Ar)entina and Vene.uela en!isa)es !otin) ri)hts accordin) to each countryAs contribution' Thus, if Ar)entina contributes three times more than Ecuador or Para)uay, Ar)entinaAs !otin) ri)hts ,ill be three times more' This is recisely the system of !otin) ri)hts re!ailin) in the #$, the IM" and the IA$< 2Inter(American $an% of <e!eloment3' An anti(democratic criterion is roosed for this ne, institution, thus creatin), at the oerational le!el, an e+act relica of ,hat is se!erely criticised else,here' As re)ards membershi, the Ar)entine and Vene.uelan roosal e!o%es the ossibility of articiation in the $an% by African and Asian states, ,hich ,ill en0oy obser!er status' This is ositi!e because it e+ands the scoe of the *outh' $ut, ,hile it has not been e+licitly stated, there is a li%elihood that a lace ,ill also be )ranted to multilateral financial institutions' It has been learned from other sources that in the discussions of March and Aril 2007, certain members of the Cabinet, articularly from Ar)entina, en!isa)ed that the #$ and the IA$< could be shareholders 2,ithout !otin) ri)hts3 of the $an% of the *outh' And to cro,n it all, the last art, chater :, entitled =Immunity, E+emtion and Pri!ile)e=, is e+actly based on the statutes of the #$, the IM" and the IA$<' Article G2 of this ro0ect states that records are in!iolable, that is to say that audits of the $an% of the *outh ,ill not be ossible' It is also stated that the ban%As ersonnel, directors, officials and emloyees are ta+(e+emt' Article GB states X and here ,e ha!e a simle coy(aste of #$ and IM" statutes X that there is total immunity re)ardin) the le)al and administrati!e rocedures relatin) to acts committed by ci!il ser!ants in the conte+t of their mission' This ro0ect came out of the meetin)s of a technical commission and ,ould ha!e been the only ro0ect submitted for discussion had Ecuador not decided to roduce a ne, roosal' The te+t roosed by Ar)entina and Vene.uela is comletely consistent ,ith the re!ailin) direction and olicy of the Kirchner )o!ernment in Ar)entina1 on the other hand it is comletely inconsistent ,ith the ositions adoted by Vene.uela' A lausible e+lanation/ the Ar)entine and Vene.uelans sher0as ,ho created this te+t are technicians trained in An)lo( *a+on uni!ersities, and ,ho are fa!ourable to the dominant neo(liberal economy' 9ne can only hoe that this te+t ,as not really read, aro!ed and adoted by the Vene.uelan President' What does 0cuador6s #ro#osal contain, co"#ared to the Ar$entine(3ene4uelan text 5 Ecuador rooses three instruments/ a 4e)ional Monetary "und, a $an% of the *outh and creation of a common currency of the *outh' Ecuador rooses a shift to,ards a *outh American currency, ,hich ,ould allo, the countries to trade bet,een themsel!es in their o,n currency, ,hereas today trade bet,een Datin American countries is conducted rimarily in dollars' This third instrument ,as immediately acceted by Ar)entina, Vene.uela, $ra.il, Para)uay and $oli!ia' The te+t roosed by Ecuador starts ,ith some imortant )eneral considerations' The first consideration states that the t,o or)anisations ( the *outhern Monetary "und and the $an% of the *outh, or the sin)le or)anisation if there is only a $an% of the *outh, must )uarantee the effecti!e alication of human ri)hts and must allo, for the alication of international a)reements, criteria and treaties ,hich relate to economic, social and cultural ri)hts' It is an aroach e+ressed in terms of human ri)hts' It means settin) u economic tools to be used for ensurin) the alication of fundamental human ri)hts' Another basic consideration is that neo(liberal olicies of the #$ and the IM" tye 2and this is said imlicitly3 ha!e led to a deterioration in the li!in) conditions of lar)e sections of oulations, to an increase in ine5ualities in the distribution of income and resources, to a loss of control by the countries of the re)ion o!er their natural resources, and to a stren)thenin) of the mi)ratory trend' To counter all this, ublic olicies must be imlemented to reinforce ublic structures, enablin) countries to re)ain control of their natural resources and their re)ional roducti!e aaratus, a lar)e art of ,hich has assed into the hands of trans( national comanies in the 6orth' What other ori$inal #ro#osals have been "ade by 0cuador re$ardin$ the Bank of the South 5 It is imortant that these t,o or)anisations should not be indebted to the caital mar%ets, as the #orld $an% and the IA$< are' It should be noted that the #$, ,hich is indebted to the caital mar%ets, !ery often 0ustifies its neo(liberal olicy by e+lainin) that it is fundamental to maintainin) its AAA ratin) as a borro,in) ban% in the caital mar%et, allo,in) it to borro, at the lo,est rate' If ,e ,ant to follo, olicies ,here rofitability is not the first concern, ,e must not deend on this ratin)' This is ,hy the caital of the $an% of the *outh, ,hich enables it to )rant loans, must come from four sources/ ?3 a caital contribution from the member countries1 23 the $an%As borro,in) from member countries 2contracts that do not deend uon bonds issued on re)ional or 6orthern caital mar%ets31 C3 common )lobal ta+es, namely !arious tyes of )lobal ta+es to be alied by the member countries, ,ith receits bein) transmitted to the de!eloment ban%, li%e a Tobin ta+, a ta+ on income reatriated by the trans(national comanies, a ta+ for en!ironmental rotection, etc1 G3 donations' If a *outhern Monetary "und is set u, it is lanned that the money used to aid needy countries ,ould be art of the reser!es of each member state ,hich are ut at the "undAs disosal in case of need' #hen necessary, the "und can call on 20 er cent of the e+chan)e reser!es of all the member countries' "or e+amle, if $oli!ia is attac%ed by seculators, immediately the "und as%s the central ban%s of $ra.il, Ar)entina, Vene.uela, Para)uay and Ecuador to transfer, in a fe, hours, 20 er cent of their reser!es to defend $oli!ia' It is imortant to note that the funds are not ermanently bloc%ed1 they are ooled only in the e!ent of need' Another ma0or element in the )eneral rinciles of the Ecuadorian roosal is that the interlocutors of the $an% of the *outh or the "und should be member states' The idea is to )rant loans to ublic comanies, small roducers, the co( oerati!e sector, indi)enous communities, etc' Theoretically, it should not )rant loans to lar)e trans(national comanies of the *outh, such as those that e+ist in *outh America/ Petrobras, the lar)e ri!ate(ublic $ra.ilian comany1 P<V*A, the Vene.uelan oil comany1 Techint, an Ar)entine ri!ate comany\' Theoretically, a loan cannot be )ranted to these comanies1 it has to be to the ublic sector, the small roducers, the local communities, municialities, ro!inces, etc' The money should be lent to them !ia the member states' The idea is to sto the $an% of the *outh from becomin) a KmastodonN' 9ne must a!oid ,hat haens ,ith the #$/ it has nearly ?C,000 emloyees, ,ho byass central )o!ernment ,ith multile missions in e!ery corner of the countries in the *outh' These missions urosely ,ea%en the authorities' The idea is to ha!e a $an% of the *outh structure, ,ith lean staffin) and ,ith the states as the reresentati!es8ne)otiators' The ob0ecti!e is that the states, in accordance ,ith the $an%As orientation, lend mainly to those ,ho re5uire it, ,ith a !ie, to findin) an alternati!e model, resectful of the en!ironment, see%in) to romote social 0ustice and assistin) those ,ho do not ha!e easy access to caital, therefore by definition not rimarily to lar)e ri!ate comanies' ,ther differences bet!een 0cuador6s #roject and the Ar$entine( 3ene4uelan text The Ecuadorian ro0ect en!isa)es that each member state ,ill set u a mechanism so that, each year, it ,ill be accountable for the oeration and the acti!ity of the $an% and the "und' This mechanism must include a ublic arliamentary discussion' Instead of statin) that records are in!iolable, the rincile is that these records are art of the ublic domain' There can be temorary e+cetions, certain decisions of the "und bein) ro!isionally classified as confidential ,hen relatin) to hostile bids' The officials of the $an% of the *outh and the "und are sub0ect to ta+' There is no immunity/ it is stated that the officials of the $an% and the "und ,ill be ans,erable to la, for their actions' The $an% and the "und are defined as moral identities, and can be rosecuted' What can be assessed fro" the "inisterial "eetin$ of ' May 5 "irst of all, the outstandin) fact is that $ra.il, ,hich u to then had been reluctant to 0oin the $an%, affirmed that it adhered to the idea of a $an% of the *outh' It should ho,e!er be noted that $ra.il, in accordance ,ith the economic and social olicy and the forei)n olicies of the Dula )o!ernment, sees this $an% of the *outh essentially as an instrument of commercial olicy, sea%s rimarily in terms of economic bloc and uncritically accets the Euroean 7nion 2E73 as its model' "or the CA<TM and for a series of social mo!ements X Euroean or other,ise X the E7 in its resent state is absolutely not a model' 9f course, there are imortant ositi!e asects/ the fact of ha!in) a common currency, a sace ,here internal borders ha!e been remo!ed and ,here eole can mo!e e+tensi!ely' $ut it is certain that the current model of the E7 suorts the alication of neo(liberal olicies, and uholds the mo!ement of caital more than the mo!ement of eole, since amon) the ne, member states, in the east, there are certain restrictions on the mo!ement of citi.ens' The E7 maintains fierce cometition amon) ,or%ers' #ithin the E7 frame,or%, ,or%in) conditions and emloyersA obli)ations to ,or%ers ha!e not been standardised u,ards' #here fa!ourable systems of social security are still to be found, for e+amle in Eun)ary, the tendency is to ri!atise in e+chan)e for articiation in the E7' This uncritical !ision of the E7, as e+ressed by $ra.il, is undoubtedly shared by other Datin American )o!ernments/ either they ha!e illusions about the E7, or, more robably, and in full %no,led)e of the facts, they find that Euroe is doin) !ery ,ell in its current state, and therefore refer a model ,hich remains ,ell ali)ned to neo(liberal olicies' What to think of Bra4il6s accession to the Bank of the South 5 &i!en the stren)th of the $ra.ilian economy in Datin America, $ra.ilAs articiation )i!es the $an% far )reater initial imetus' The roblem ,ith $ra.il is the orientation of the Dula )o!ernment and the economic and social model that it ractises' It is clear that $ra.ilAs inte)ration into the $an% of the *outh ,ill lead the $an% to adot a much more traditional attern, not too far remo!ed from neo(liberalism, ,hile if $ra.il did not articiate, it ,ould be easier to reach a definition closer to the alternati!e model that ,e ad!ocate' $ra.il has 0oined the $an% of the *outh because it cannot be absent from it/ if the foundations of the $an% of the *outh had not been laid on the initiati!e of Vene.uela and Ar)entina, $ra.il ,ould ne!er ha!e )i!en it any thou)ht' $ut to maintain its re)ional economic dominance $ra.il cannot stay a,ay from the $an% of the *outh' If ,e loo% at it from the !ie,oint of Ecuador, Vene.uela and $oli!ia, it is easy to understand ,hy these )o!ernments are interested in ha!in) $ra.il in the $an% of the *outh, because it is an imortant economic o,er and because a series of ro)ressi!e )o!ernments in the re)ion ,ish to maintain )ood relations ,ith $ra.il so that it does not stren)then its ties ,ith the 7nited *tates, ,hich ,ould ,ea%en the re)ion !is(>(!is American a))ressi!eness' A truly dilomatic and )eo(strate)ic )ame is bein) layed' In a more ideal ,orld, the $ra.ilian )o!ernment ,ould adot a truly leftist olicy X an alternati!e to its alliance ,ith the 7* and its suort for the a)ro(e+ortin) industry and for an e+ort(based olicy ,hich is set on con5uerin) the mar%ets of the re)ion' $ut that is a far cry from reality' Which trend !ill #redo"inate on the re$ional scale 5 The current )o!ernment of Para)uay is a ri)ht(,in) one, and this )o!ernment could be relaced after this yearAs residential elections' A Deft(,in) riest may be the ,inner in these elections' As for Ar)entina, there is anti(IM" and anti( neo(liberal rhetoric but the Ar)entine )o!ernment is oriented to,ards stren)thenin) caitalism in Ar)entina' In fact, t,o )reat initiati!es are at ,or% today in Datin America' 9n the one hand ,e ha!e the $an% of the *outh and ME4C9*74 ,hich is e+andin)' It initially included $ra.il, Ar)entina, Para)uay and 7ru)uay' Vene.uela, ,hich ,ants a stron)er re)ional alliance in oosition to the 7* roosal of "TAA, has 0oined ME4C9*74' $oli!ia did so too, ,hile Ecuador is there as an obser!er' This ma%es an economic bloc defined mainly by commercial and economic relations and dominated by a caitalist model' This bloc facilitates trade and romotes a certain tye of re)ional inte)ration' Then there is another initiati!e, AD$A, or the $oli!arian Alternati!e for Datin America and the Caribbean, in ,hich Vene.uela and $oli!ia are members' Cuba, Eaiti and 6icara)ua ha!e also 0oined, ,ith Ecuador as an obser!er' A meetin) of AD$A ,as held in Vene.uela fi!e days rior to the [uito meetin) on the $an% of the *outh' AD$A is a olitical )rou ,ith Cuba(Vene.uela($oli!ia as its central a+is' The )o!ernments of these three countries state e+licitly that their ob0ecti!e is a K*ocialism of the 2?st centuryN X an anti(caitalist and anti( imerialist orientation, aimin) at solidarity amon) the eole' *o here ,e ha!e a hi)hly secific situation in Datin America and the Caribbean re)ion, ,ith t,o tyes of ro0ects, artly cometin) ,ith each other, but ,hich ne!ertheless coe+ist, since se!eral countries are members of both' Vene.uela and $oli!ia are in ME4C9*74 and AD$A1 on the other hand $ra.il is not in AD$A, because AD$A clearly has a more Deft(,in) orientation than ME4C9*74, and also because Cuba is in it' $ra.il, ,ithout bein) oosed to Cuba, clearly affirms its friendshi ,ith the #ashin)ton )o!ernment' The $an% of the *outh is laced bet,een the t,o, thou)h it is closer to an e+tended ME4C9*74 than to AD$A' It does not include %ey members of AD$A, startin) ,ith Cuba, but also Eaiti and 6icara)ua' 9f course, it ,ould be lo)ical for the $an% of the *outh to e+tend to the Caribbean re)ion and Central America in future, and ,hy not to Me+ico if there is a chan)e of )o!ernment, and to de!elo ri!ile)ed relations ,ith the other continents of de!eloin) countries, namely Africa and Asia' ME4C9*74 is rimarily an economic bloc, lar)ely dominated by $ra.il' In fact $ra.il is a Ksub(imerialisticN o,er, an economic o,erhouse in the area, ,hich dominates its economic artners' As for Ar)entina, Vene.uela, Ecuador or Para)uay, these countries ha!e a ne)ati!e trade balance ,ith $ra.il, because $ra.il e+orts to them much more than they e+ort to $ra.il' $ra.il is endo,ed ,ith trans(national cororations li%e Petrobras, ,hich dominate the %ey economic sectors of its nei)hbours' Petrobras, to)ether ,ith other trans(national comanies, dominates $oli!ian )as and oil1 other $ra.ilian comanies dominate Para)uay' ME4C9*74, dominated by $ra.il and Ar)entina, some,hat resembles the E7 dominated by the "ranco(&erman($ritish trio, ,ith a dominant neo(liberal caitalistic strea%, ,hile AD$A is a ro0ect that is more olitical than economic, based more on e+chan)es such as barters and donations' Vene.uela donates handsomely to 6icara)ua, $oli!ia and Eaiti' AD$A seems to me a really interestin) ro0ect' #hat ,ill be the determinin) factorsY The ans,er lies in the olicy directions ta%en by the )o!ernments and the stru))le of the social mo!ements' Ecuador has a radical orientation, suortin) an income distribution olicy that fa!ours the most oressed' Ecuador ,ill not rene, its lease for the 7* military base in Manta as from 200@' Ecuador 5uestions the tye of oil oerations that is destroyin) art of its territory in Ama.onia, for e+amle' #e can see that EcuadorAs olicy, from this oint of !ie,, is closer to Vene.uela and $oli!ia than to $ra.il' In Para)uay, there may be a chan)e of President to,ards the Deft' #e should also not for)et the )reat mobilisations in $ra.il, articularly that of the Mo!ement of Dandless Peasants 2M*T3, ,hich reinforces action for a true land reform, in contradiction ,ith DulaAs olicy' In the comin) months and years, ,e may see e!en stron)er social mo!ement and a reinforcement of the AD$A ro0ect' The orientation of the $an% of the *outh ,ill deend on the )o!ernments that suort its creation' E!en if there is reason to fear that the orientation ad!anced by $ra.il and Ar)entina ,ill re!ail, the field is still oen' It is no, that ,e must mobilise all our efforts so that the $an% of the *outh ro0ect fulfils all the hoes ,e lace in it' +ebt1 0cuador at a historic turnin$ #oint Eric Toussaint ( <amien Millet he res#onse of 7afael -orrea8s $overn"ent to the debt issue Ecuador is the country in *outh America that has to dedicate the hi)hest ercenta)e of its bud)et to ser!icin) its debt' The contribution e+ected in 2007 is unsustainable since the foreseeable reayments amount to about 7*I 2,:00 million 2i'e', C: er cent of its bud)et3' ?: President 4afael Correa-s ne, )o!ernment, established since early January, has already been forced to ay substantial amounts to its creditors 2nearly 7*I ?,000 million3 and conse5uently is attemtin) to staunch the haemorrha)e in order to be able to ser!e its eole' The ne, )o!ernment intends to use the money ,hich thus becomes a!ailable in order to imro!e the social conditions of the oulation, articularly in the area of health care' Already some M00 ne, health ,or%ers ha!e been emloyed in order to immediately imro!e the 5uality of health ser!ices to those members of the oulation ,ho are most in need' It aims at imro!ements in other areas too' This radical stance of President Correa and 4icardo Patino, his minister for economy and finances, has led to !arious attemts at destabilisin) the current )o!ernment by local and international financial )rous as ,ell as by 4i)ht(,in) arties' Anythin) )oes in order to harm them' A #rocess is bein$ set u# to cancel the debt The ne, )o!ernment aims to identify those elements of the countryAs debt ,hich incontestably can be denounced and reudiated' *tartin) from the results roduced by the audit commission of the former )o!ernment, a ne, audit commission is bein) set u ,hich should ta%e in!esti)ations much further and consists of both national and international e+erts' 4icardo Patino-s aim is to set u a commission consistin) of at least si+ e+erts, three of them international ersonalities' ?@ The commission ,ould rely on a research )rou of se!eral do.en eole ,ho ,ould identify ille)itimate debts, ,hether to multilateral creditors 2such as the #$, the IM", the Inter American <e!eloment $an%3 or to bilateral creditors 2mainly *ain, Jaan, $ra.il and Italy3' There are in fact o!er ?B bilateral creditors for a total 7*I 2 billion, i'e', 20 er cent of Ecuador-s ublic e+ternal debt' The )o!ernment ,ould also ,ish to audit debts held by ri!ate creditors in the form of bonds so as to determine ,hich art is ille)itimate and ,arrants cancellation' The same alies to ublic internal debt for ,hich cancellation measures are already bein) imlemented' The current Ecuadorian )o!ernment ,ants to be 5uic% about it' This is ,hy international e+erts on the debt issue are ready to )o bac% to Ecuador as soon as ossible' Any,ay, se!eral ministers ha!e in(deth %no,led)e of the debt issue ?: Total social sendin) is only 22 er cent of the country-s bud)et, unless the )o!ernment mana)es to radically reduce the ercenta)e de!oted to the debt and chan)e the situation' ?@ Eric Toussaint mi)ht be one of them' Ee ,as in!ited, and he acceted' It still has to be confirmed by residential decree' *ee the daily aer (l 3ni/erso, [uito, s]bado 2: abril 2007, ' B' ,,,'eluni!erso'com and many citi.ensA associations ha!e been ,or%in) for years on auditin) the debt' This is ,hy the Ecuadorian authorities are ready to ta%e measures based on ,ell(documented research' Which !ay for!ard 5 7nilateral action is necessary because ,ere Ecuador to ,ait for the international community to set u an international settlement court, it ,ould ta%e years before any outcome ,as reached' The situation is critical' In so far as debt issues are concerned, unilateral action is le)itimate and far more efficient' It is referable to ta%e the so!erei)n decision to denounce and sto ser!icin) some debts e!en if it ,ere subse5uently decided to ta%e u ne)otiations a)ain ,ith some creditors on some of them' In this case the )o!ernment ,ould be in the fa!ourable osition since it is the creditors ,ho ,ould be ,antin) ayment to be resumed and ,ould be more inclined to tal% and tune do,n their demands' Ecuador thus has e+cellent reasons to underta%e a unilateral action and decide on the basis of an audit that a lar)e art of the e+ternal debt is ille)itimate' A so!erei)n decision of the [uito authorities to sto ser!icin) debts ,ould be based on !arious ar)uments of internal and international la,' What are the ar$u"ents in favour of cancellin$ the debts 5 Many contracts include usurious interest rates' Ecuador has to ay for ro0ects that ,ere ne!er carried out or the outcome of ,hich does not meet re5uirements' <ebts ,ere contracted to ay bac% debts contracted by dictatorshis in the ?@70s' A detailed analysis of the ro0ects on ,hich those debts are based thus yields se!eral reasons for cancellation' Actually this concerns most of Ecuador-s debt' #e should no, establish ,hich debts can be called off and mo!e on to the ne+t sta)e, i'e', susendin) ayments' This could be done in the comin) months, as early as summer 2007, the )o!ernment and the President ma%in) the final decision' 9o! is the ne! audit co""ission $oin$ to #roceed 5 The transarency olicies of the ne, )o!ernment mean that this ne,ly created auditin) commission ,ill ma%e all its results ublic' The auditin) commission-s offices ,ill be oen, accessible to any member of the ublic ,ho ,ould li%e to contribute to their ,or% or could testify in order to identify embe..lements, ro0ects that ,ere not carried out or !arious tyes of fraud ,hich Ecuadorian citi.ens ha!e been !ictim to ,hile bein) e+ected to ay the resultin) debt' In accordance ,ith the transarency olicy the committee ,ill oen a ,ebsite on ,hich most contracts ,ill be dislayed' If this sta)e is carried out, CA<TM alon) ,ith other associations demandin) the cancellation of the debt ,ill launch an international call for ,itnesses' It is li%ely that some former #orld $an%, I<$ or IM" consultants or officials, creditors, or a)ents of ri!ate creditors ,ill be ready to brin) u dubious, ille)al or criminal ractices amon) creditors so as to hel the Ecuadorian authorities not to ay their ille)itimate debt' An i"#ortant testi"ony 1 :ohn Perkins This is for instance the case of John Per%ins, ,hose boo%, The Confessions of an Economic Eit Man, 20 has turned into an imortant e!ent' Ee clearly e+lains ,hat his mission ,as, namely Kencoura)e leaders of !arious countries to become art of a ,ide net,or% romotin) the 7nited *tatesA trade interests' At the end of the day, those leaders are riddled ,ith debts, ,hich ma%e sure that they remain loyal' #e can call on them for our o,n olitical, economic or military ro0ects ,hile they comfort their olitical osition as they create industrial areas, o,er lants and airorts for their oulations' The shareholders of 7* en)ineerin) and construction comanies thus become incredibly richN' Ee haened to ,or% in Ecuador for President Jaime 4oldos/ KJaime 4oldos ,as mo!in) for,ard' Ee too% his camai)n romises seriously and he ,as launchin) an all(out attac% on the oil comanies' U'''V The oil comanies reacted redictably X they ulled out all the stos' U'''V They tried to aint the first democratically elected resident of Ecuador in modern times as another Castro' $ut 4oldos ,ould not ca!e in to intimidation' U'''V Ee deli!ered a ma0or seech at the Atahuala 9lymic *tadium in [uito and then headed off to a small community in southern Ecuador' Ee died there in a fiery airlane crash, on May 2G, ?@:?'N An accident, really, as in the case of the President of Panama, 9mar Torri0os, at the same timeY Per%ins ne!er belie!ed there ,as anythin) accidental about it/ KThey ,ere assassinated because they oosed that fraternity of cororate )o!ernment, and ban%in) heads ,hose )oal is )lobal emire' #e Economic Eit Men failed to brin) 4oldos and Torri0os around, and the other tye of hit men, the CIA(sanctioned 0ac%als ,ho ,ere al,ays ri)ht behind us, steed in'N The conclusion is ob!ious/ KEcuador is a,ash in forei)n debt and must de!ote an inordinate share of its national bud)et to ayin) this off1 as a conse5uence the only ,ay Ecuador can buy do,n its forei)n obli)ations is by sellin) its rain forests to the oil comaniesN' This means that utterly disre)ardin) Ecuadorian so!erei)nty Kthe )lobal emire demands its ound of flesh in the form of oil concessions\'N John Per%ins ,as bac% in Ecuador on 22 May 2007 to aolo)ise to the Ecuadorian eole' 9ther officials in!ol!ed in the country-s ille)itimate debt mi)ht ,ish to follo, suit' Action is also needed in the ;orth In order to comlete the rocess, auditin) committees need to be created to in!esti)ate the debt reayments claimed by the )o!ernments of the 6orth from countries in the *outh' $el)ium for instance is demandin) 7*I ?M million from Ecuador, most of ,hich ,as loaned ,ithin tied(aid ro0ects' E!en a cursory analysis of those ro0ects sho,s that $el)ium-s loans to Ecuador ,ere conditional uon Ecuador buyin) e5uiment, more secifically electrical 20 *an "rancisco, $errett(Koehler Publishers, 200G' e5uiment, from $el)ian comanies' Eo,e!er, $el)ium itself claims that it relin5uished any tied(aid olicies years a)o as bein) ille)itimate' #e the CA<TM 2Committee for the Abolition of the Third #orld <ebt X ,,,'cadtm'or)3, alon) ,ith the C6C< 2Centre 6ational de CooSration au <S!eloement3 and other 6&9s ,ill roduce a detailed analysis of the contracts si)ned bet,een Ecuador and $el)ium so as to determine ,hether $el)ium can still le)itimately demand any ayment or ,hether the debt should be urely and simly cancelled, as 6or,ay did in 200M, notably for fi!e fishin) shis it sold Ecuador o!er 20 years a)o at a time ,hen the transaction did more )ood to the 6or,e)ian na!al industry than to Ecuador-s economy' Translated by Christine Pa)noulle he International Situation and the +ebt1 he ne! challen$es facin$ -A+M Eric Toussaint Increase in forei$n exchan$e reserves *ince 200G, the economic situation has been characterised by the hi)h rice of ra, materials and a number of a)ricultural roducts' This has allo,ed a lar)e number of de!eloin) countries to increase their e+ort re!enues and accumulate si)nificant forei)n e+chan)e reser!es, esecially countries ,hich e+ort oil, natural )as and minerals' *ome a)ricultural e+orters ha!e also benefited from this fa!ourable situation' Eo,e!er, not all the de!eloin) countries are included in this scenario1 some sub(*aharan African *tates ha!e seen their situation ta%e a turn for the ,orse' In 2007, the de!eloin) countries to)ether hold o!er C trillion dollars 2? in forei)n e+chan)e reser!es ,hile the industrialised countries hold only half this sum' This fa!ourable situation has been sei.ed by a si)nificant number of )o!ernments to ay off in ad!ance all or art of their debts to the IM", the #orld $an%, the Paris Club and ri!ate ban%s' *ome ha!e created de!eloment funds, into ,hich they can lace some of their forei)n e+chan)e reser!es, for financin) social and infrastructure ro0ects' 22 *e!en *outh American countries 2Ar)entina, $oli!ia, $ra.il, Ecuador, Para)uay, 7ru)uay and Vene.uela3 are ne)otiatin) the creation of a $an% of the *outh to finance their re)ional inte)ration and social ro0ects' *ome amon) them are also contemlatin) the creation of the $an% of AD$A 2Cuba, Eaiti, 6icara)ua and Vene.uela3' The si)ns of a di!orce from the #orld $an% and the IM" are increasin)/ Ecuador e+elled the #orld $an% reresentati!e at the end of Aril 2007, Vene.uela is thin%in) of lea!in) the #orld $an% and the IM", $oli!ia does not reco)nise the authority of IC*I< 2International Centre for *ettlement of In!estment <isutes, a subsidiary of the #orld $an%3 anymore' -risis of le$iti"acy for the World Bank and the IMF Mean,hile, the #orld $an% and the IM" are sufferin) a crisis of le)itimacy' Paul #olfo,it., the resident of the #orld $an% since 200B, ,as forced to resi)n in June 2007 on char)es of neotism' #hile many member countries of the #orld $an% ar)ued for the aointment of a citi.en from the *outh to the residency, the 7* President has chosen a 7* citi.en for the ele!enth time to head the $an%' At the be)innin) of July, it ,as the turn of the mana)in) director of the IM", the Euroean 4odri)o de 4ato, to une+ectedly announce his 2? The !alue of forei)n e+chan)e reser!es is calculated in dollars, the main international currency of forei)n e+chan)e reser!es, althou)h in fact, the reser!es are also made u of other currencies/ euros, yens, sterlin), *,iss francs\' #orld,ide reser!es for 2007 are 2 8C in dollars, ^ in euros and the rest in other stron) currencies 2*ee $an% for International *ettlements, $nnual *e0ort -!!;, $ale, '@73' 22 This is the case of Vene.uela, 4ussia and China' The 6or,e)ian )o!ernment has done the same thin) to ma+imise the returns on etroleum 2*ee $an% for International *ettlements, ibi#, ' ?0G3' resi)nation' The Euroean states a)reed to relace him ,ith a "renchman, <omini5ue *trauss Kahn' These recent e!ents confirm, in the eyes of the oulation of de!eloin) countries, that the 7* and Euroean )o!ernments ,ant to %ee total control of the t,o multilateral financial institutions, ,hile another Euroean, Pascal Damy, resides o!er the #T9' In brief, both the circumstances of #olfo,it.As resi)nation and the aointments of the ne, heads of the financial institutions resonsible for the orientation of )lobalisation, demonstrate to the )o!ernments and oulations of the ,hole ,orld that )ood )o!ernance becomes relati!e ,hen it comes to the distribution of o,er at the international le!el' he ne! international architecture and the Southern banks This adds ur)ency to the need to build a ne, international institutional architecture ,hich ,ould lead to a thorou)h democratic reform of the 7nited 6ations and the substitution of the #orld $an% and the IM" by democratic institutions' Achie!in) the construction of this ne, architecture ,ill re5uire the creation and reinforcement of *outh(*outh re)ional inte)ration, the establishment of one or se!eral *outhern $an%s ,hich ,ould ha!e to coordinate their actions, and the settin) u of comensatory 2C e+chan)e mechanisms ,hich are mutually beneficial bet,een de!eloin) countries' *uch e+chan)e mechanisms ha!e already yielded interestin) results articularly in Datin America and the Caribbean/ imro!ed health care, ener)y security 2e')', Petrocaribe3, education and information 2the de!eloment of Telesur3' he debt crisis is not resolved These ne, de!eloments, imortant as they are, must not blind us from the reality of the debt/ each year, the )o!ernments of de!eloin) countries ay o!er 2G0 billion dollars to their debtors, ,hich is e5ui!alent to o!er three times the amount they need to reach the Millennium <e!eloment &oals 2M<&s3' <ebts to the IM" and the #orld $an% remain !ery hi)h and, realistically, unsustainable for a considerable number of countries ,here the ma0ority of the oulation li!e belo, the absolute o!erty line' These or)anisations, thou)h ,ea%ened and lac%in) le)itimacy, ursue olicies ,hich fa!our the ri!atisation of ,ater, electricity, health, education and culture, e!en thou)h these olicies are ma%in) the ,ea% economies e!en more !ulnerable' Massive increase in do"estic #ublic debt A recent de!eloment ,hich also has to be considered is that the domestic ublic debt is increasin) raidly' In ?@@: the internal and e+ternal debts ,ere 2C *ee the tyes of e+chan)es bet,een $oli!ia, Vene.uela and Cuba in 200M(2007 articularly in the area of hydrocarbons, the transfer of technolo)y, health and education' e5ual, in 200M the domestic ublic debt e+ceeded the e+ternal debt by a factor of threeW 2G This henomenon is !ery imortant/ from no, on, it is no lon)er ossible to measure the le!el of debt of de!eloin) countries on the basis of the e+ternal debt' Most of the measures of sustainability desi)ned by the financial institutions are obsolete' The domestic ublic debt must be added to the e+ternal debt to measure the imact of indebtedness on ublic finances and the economy' It is e!en more imortant no, that an increasin) art of the domestic ublic debt is bein) bou)ht by forei)n creditors' 2B Increase in indebtedness of #rivate fir"s #e must not lose si)ht of the increasin) indebtedness of ri!ate firms of de!eloin) countries' *ince the ra, material(e+ortin) countries are ,itnessin) an uturn in their fortunes, the ri!ate ban%s of the most industrialised countries ha!e multilied the loans to the ri!ate comanies of de!eloin) countries' The t,o ri!ate sectors ,hich are indebtin) themsel!es most in de!eloin) countries are the ban%s and the firms dealin) ,ith hydrocarbons and ra, materials' #e must ay articular attention to this de!eloment/ the ri!ate ban%s of the de!eloin) countries are borro,in) from the 6orth at lo, interest rates in order to lend this money on the domestic mar%et at a hi)her rate' If the economic situation suffers a do,nturn 2,hich is li%ely in the comin) years3, ,e mi)ht ,itness a number of ban%rutcies of ri!ate ban%s of de!eloin) countries, 0ust li%e the financial crises ,hich hit Me+ico in ?@@G(?@@B, the countries of *outh( East Asia and *outh Korea in ?@@7(?@@:, Ecuador in ?@@:(?@@@ and Ar)entina in 200?' TodayAs ri!ate debt of ban%s mi)ht become tomorro,As ublic debts, hence the need for control of ri!ate sector indebtedness' The same alies to the sector of hydrocarbons and minerals' Pri!ate etroleum, )as and mineral comanies ta%e out loans to increase their roduction caacity in order to ta%e ad!anta)e of the hi)h rice of ra, materials' If the rices dro, the in!estments made throu)h borro,in) mi)ht turn out not to be rofit(ma%in) and the debt ,ould become imossible to reay' It is imerati!e to limit and control this indebtedness' ;e! !ave of indebtedness in the areas of extractive industries, ener$y "e$a(#rojects and the ex#loitation of tro#ical forests Alon)side other actors, the #orld $an% lays an acti!e role in the de!eloment of minin), etroleum and natural )as ro0ects, as ,ell as in ener)y me)a( ro0ects 2massi!e dams3 and the e+loitation of forests' The CA<TM and other citi.ensA mo!ements ha!e detected a number of offences in relation to these ro0ects, from the non(resect of the ri)hts of oulations directly affected by 2G #orld $an%, Global De/elo0ment Finance -!!;, #ashin)ton <C, ' GM' 2B More and more forei)n in!estors are buyin) bonds issued on the ublic debt as they ha!e a hi)her yieldW In 200M, the _forei)nersA bou)ht I@ billion ,orth of domestic bonds of the de!eloin) countries' *ee #orld $an%, Global De/elo0ment Finance -!!;, #ashin)ton <C, ' GM' these de!eloments to crimes a)ainst humanity such as the massacre at Kil,a in Katan)a in 200G' 2M <ncontrollable $ro!th of -redit +efault S!a#s =-+S> 6e, financial roducts ha!e become more ,idesread, namely the Credit <efault *,as 2C<*3' C<* are bou)ht to rotect a)ainst the ris% of the non( ayment of a debt' The mar%et for C<* has multilied by a factor of ?? in the last fi!e years' 27 The roblem is that these insurance contracts are sold ,ithout any re)ulatory control from the ublic authorities' The e+istence of these C<* is encoura)in) comanies to ta%e increasin) ris%s' $elie!in) that they are rotected a)ainst non(ayment, the lenders )i!e out loans ,ithout !erifyin) the ability of the borro,er to ay' Eo,e!er, if the international economic situation deteriorates, tens or hundreds of borro,ers could suddenly become ban%rut, in ,hich case the C<* ,ould become !alueless ieces of aer as the insurers ,ould be incaable of honourin) their en)a)ements' -a#ital fli$ht and #rofit re#atriation to!ards the ;orth versus the "ove"ent of "i$rants6 re"ittances to!ards the South Caital fli)ht and brain drain from the de!eloin) countries to the most industrialised countries ha!e )ro,n o!er the last fe, years' The amount of rofits reatriated to,ards the _arent comanyA has multilied by a factor of G'B bet,een 2000 and 200M 2from 2: billion in 2000 to ?2B billion in 200M3' 2: Mo!in) in the other direction are the remittances mi)rants send to their nati!e countries, ,hich ha!e also increased' 4emittances, as the #orld $an% has ac%no,led)ed, are much hi)her than de!eloment aid' Increase in #rices of food The rice of food is raidly increasin)' This is mainly due to t,o factors' "irstly, there is the decision of many )o!ernments and multinational comanies to de!elo the roduction of biofuels, such as ethanol ,hich is roduced from su)arcane, mai.e, col.a or other lants' 6o,adays, 20 er cent of 7* mai.e is used to roduce ethanol, and B0 er cent of the su)arcane in $ra.ilW 2@ The rise in rice of mai.e had reercussions in Me+ico ,ith the increased cost of tortillas' This is an e+amle of the de!astatin) effect of free(trade treaties' In fact, in ?@@G, a free trade a)reement bet,een the 7*, Canada and Me+ico 26A"TA3 ,as si)ned' 9nce 6A"TA ,as in lace, 7* a)ro(business flooded the Me+ican mar%et ,ith chea 7* mai.e, sellin) it at a rice that ,as belo, the cost of roduction of the small Me+ican farmers, thousands of ,hom subse5uently lost their 0obs 2and ha!e since tried to emi)rate to their rich 6orthern nei)hbour3' 2M *ee Myriam $our)y, _De massacre de Kil,a/ An!il Minin) et lAA)ence MultilatSrale de )arantie des in!estissements, comlices de crimes de )uerreA, in $ 4ui 0rofitent toutes les richesses #u 0eu0le con1olais ? 'our un au#it #e la #ette con1olaise, edited by the CA<TM, 2007, htt/88,,,'cadtm'or)8si'hYarticle2CG? 27 #orld $an%, Global De/elo0ment Finance -!!;, #ashin)ton <C, ' :C(:G' 2: #orld $an%, Global De/elo0ment Finance -!!;, #ashin)ton <C, ' BC' 2@ #orld $an%, Global De/elo0ment Finance -!!;, #ashin)ton <C, ' 2B' *ince 200M, the rice of mai.e e+orted by the 7* has lar)ely increased because of the demands lin%ed to the roduction of ethanol' Conse5uently, the rice of food ,ent u in Me+ico since mai.e is the main stale food' The Me+ican easants ,ho used to roduce the mai.e are not there anymore to resond to the demand' They ha!e either sold their land and emi)rated to the cities or the 7*, or they are criled by debt and ha!e difficulties to start )ro,in) cros a)ain' A second henomenon ,orsens the food situation of the oorest' The bi) )rain comanies based in the most industrialised countries ,ith moderate climates ha!e reduced, in 200M and in 2007, their area of culti!ation of cereals, thus causin) a hi%e in cereal rices on the ,orld mar%et' This ,as a ris%y !enture as it had the otential to cause se!ere food shorta)es in Africa and other continents ,hich ha!e alon) the years become net imorters of cereals, since institutions such as the #orld $an% ha!e encoura)ed them to rioritise the culti!ation of troical roducts 2cocoa, coffee, tea, nuts, etc'3' Today, the #orld $an% is rin)in) the alarm bells ,hen it notices that cereal rices ha!e doubled in late 200M(early 2007' The #orld $an% redicts the continued increase in the rice of mai.e, ,heat, rice and other stale foods as a conse5uence of the increase in the roduction of biofuels' C0 $ecause of this, the number of eole li!in) in absolute o!erty is li%ely to increase and a se!ere food crisis mi)ht occur' Moreo!er, the e+ternal debt of the oorest countries mi)ht e5ually rise due to the hi)her imort bill for foodstuff' Broken #ro"ises of the rich countries The romises made by the rich countries in 2002 at the 76 conference in Monterrey in terms of de!eloment ha!e been bro%en' C? It is imossible to see ho, the rich countries, startin) ,ith &: members, ,ill be able to increase their aid to Africa to IB0 billion before 20?0 2as romised by &: leaders at &lenea)les in 200B3' To achie!e this tar)et, they ,ill ha!e to increase their aid bud)et by ?M er cent each year' Increase in South(South loans and the increasin$ #resence of -hina *ome ri!ate ban%s of some de!eloin) countries 2China, India, Malaysia, *outh Africa3 are increasin)ly )rantin) loans to )o!ernments or other firms of de!eloin) countries' The loans of Chinese ublic ban%s to Africa are risin) sharly' $et,een 200G and 200M, the Chinese ban%s loaned 2 billion dollars to de!eloin) countries for ,or% in the etroleum and natural )as sector' C2 China, as ,ell as India and *outh Africa, are in need of ra, materials, and see their loans as )uaranteein) that sulies continue to flo,' The most !ulnerable countries ris% e+chan)in) one sort of deendence on the most industrialised countries to another, ,hich ,ill not be necessarily better' #e must also note the C0 #orld $an%, Global De/elo0ment Finance -!!;, #ashin)ton <C, ' C0(C2' C? #orld $an%, Global De/elo0ment Finance -!!;, #ashin)ton <C, ' BB(BM' C2 #orld $an%, Global De/elo0ment Finance -!!;, #ashin)ton <C, ' BB(BM' rise of o,erful ri!ate or ublic firms of the *outh 2Petrobras, Petronas, P<V*A, C699PC, to ta%e only oil comanies as e+amles3' Increased s#endin$ on ar"s A ne, arms race has started in the be)innin) of the 2? st century under the imetus of the 7*' The amount sent on ,eaons by #ashin)ton is risin) sharly and accounts for half the )lobal sendin)' China ,ill increase its sendin) on arms by ?: er cent in 2007' The 7* has recently )i!en massi!e bilateral loans to its allies to send on ,eaons' This threatens of a ne, rise in e+ternal ublic debt lin%ed to buyin) arms'
What are the i"#lications of the ne! international situation for -A+M5 The CA<TM has to adat its analysis to the ne, reality' "or e+amle, in the boo% Who owes Who? ! 4uestions about Worl# Debt CC ,ritten in 2002, the authors ha!e deliberately left out the 5uestion of domestic ublic debt' #hen they comletely re,rite this reference boo%, CG they ha!e to fully incororate the )ro,th of domestic ublic debt and its imlications' E5ually, Eric $err and "ran`ois Combarnous, the creators in 200B of alternati!e ratios to those of the #orld $an% for the measurement of the imact of indebtedness, must ta%e note of the ne, situation and adat their tools of measurement 2a!ailable on the site of the I<9 X ,,,'oid(ido'or)3' This ,ill be addressed durin) the seminar of the I<9 in 6amur on ?B(?7 9ctober 2007' E5ually, all those ,ho ha!e in!ested themsel!es in the audit of the debt ,ill ha!e to ta%e into account the imact of the domestic ublic debt' The Ecuadorian authorities ha!e already )rased the issue' In July 2007, President 4ahael Correa created a 0oint auditin) commission for both domestic and e+ternal ublic debt' The CA<TM, Jubilee *outh, Eurodad and Datindadd ha!e been directly in!ol!ed in the ,or% of this commission, CB to)ether ,ith si+ reresentati!es of the Ecuadorian social and citi.ensA mo!ements' An analysis of the de!eloment of the debt of ri!ate comanies is also imortant, because if ,e are not careful, ublic finances ,ill ha!e to ic% u the tab for any ban%rutcies and non(reayments, creatin) an additional burden for the oulation' It is imerati!e to reudiate the idea that ublic debt is under control' 6e, forms of indebtedness must be analysed as ,ell as the ne, lenders' CC <amien Millet and Eric Toussaint, Who owes Who? ! 4uestions about Worl# Debt, ;edboo%s, Dondon, 200G1 Debt Scam, 200C, Va%, Mumbai, htt/88,,,'cadtm'or)8te+te'hCYidaarticleb@G2 CG It has been ublished in se!en lan)ua)es 2includin) Arabic, Korean and Jaanese3 in ?G editions' <amien Millet and Eric Toussaint are currently ,ritin) a comletely ne, !ersion of the boo%, ,hich should be ublished in "rench at the be)innin) of 200:' CB Eric Toussaint, ,ho ,as art of the commission, ,as in Ecuador to ,or% on the audit of the debt ,ith Ecuadorian social mo!ements, the [uito authorities and his international collea)ues' In 200:, CA<TM $el)ium ,ill continue ,ith its ,or%, started in 2007, on the audit of the debt of Ecuador, CM the <4C, Mali and other countries ,here the social mo!ements ,ish to start such an audit' Also in 200:, the CA<TM ,ill audit the reayments demanded by the most industrialised countries to the countries of the *outh, namely to,ards Ecuador and the <4C' The CA<TM ,ill ,or% on this ro0ect, in close collaboration ,ith Eurodad, the 9bser!atory on <ebt and &lobalisation, ATTAC(CA<TM Jaan and other mo!ements of the 6orth ,ho are ,illin) to ta%e on this tas%' Considerin) the imortance of the ne, loans in the area of e+tracti!e industries, of ener)y me)a(ro0ects and forest e+loitation and considerin) the numerous offences obser!ed by the CA<TM and other citi.ensA mo!ements, offences in ,hich the #orld $an% is sometimes directly in!ol!ed, the CA<TM ,ill continue its efforts to see that le)al actions are brou)ht about' In relation to the ne, financial architecture that is bein) built, ,e must ma%e sure that the roosed $an%s of the *outh resect democratic and transarent criteria 2one country X one !ote, no le)islati!e immunity for the institution and its officials, access to the archi!es for auditin)1 an obli)ation for accountability to the arliaments and ublic oinion3, and that their actions hel to ma%e the international treaties on fundamental human ri)hts alicable by means of their contribution to imro!in) the li!in) conditions of their oulations' The beneficiaries of loans or donations ha!e to be ublic bodies, small roducers and communities' The ro0ects that the $an% ,ill suort must resect the en!ironment' The $an% ,ill ha!e to a!oid, as far as ossible, financin) its ro0ects on the caital mar%et' To)ether ,ith other debt camai)ns, in June 2007, the CA<TM sent an oen letter to the Presidents of *outh American countries that are unitin) to create the $an% of the *outh' C7 #e must ursue this call and attenti!ely follo, the construction rocess of this ne, financial institution' The 0ob is enormous, and the challen)e )i)antic' To attain these lofty ambitions, ,e must reinforce collaboration and create a unified action of all the or)anisations ,hich ,or% to,ards a 0ust solution for the roblem of debt' The international CA<TM net,or% ,ill reinforce its collaboration ,ith the other mo!ements that camai)n on the debt roblem/ Jubilee *outh, Eurodad, Datindadd, Afrodad and all the national or)anisations, ,hether or not they are art of an international net,or%' The CA<TM ,ill continue to hel to,ards the consolidation of the International <ebt 9bser!atory, ,hich ro!ides a common frame,or% of reflection for all these mo!ements' The CA<TM ,ill continue its actions in the conte+t of the #orld *ocial "orum and the )lobal coordination of social mo!ements so as to )uide the action of the )lobal 0ustice mo!ement to,ard real alternati!es and means of actions that are adated to resond to the challen)e of the debt and all forms of oression' Translated by <iren Valayden CM *ee (cua#or at the cross)roa#s, For an inte1ral au#it of 0ublic in#ebte#ness, -A+M, htt/88,,,'cadtm'or)8si'hYarticle27M7 C7 *ee htt/88,,,'cadtm'or)8si'hYarticle2720
B7I-S Bank 1 Is it an alternative for develo#"ent finance 5 <aniel Mune!ar 2CA<TM84M"3 27 July 20?G 9n July ?Bth, the )o!ernments of $ra.il, 4ussia, China, India and *outh Africa announced the creation of a 6e, <e!eloment $an% 26<$3' Accordin) to the official ress release, the main ob0ecti!e of the ne, multilateral institution is to establish an alternati!e to the current set of multilateral institutions as a source of de!eloment finance for emer)in) and de!eloin) countries 2India, 20?G3' "or this urose, the foundin) members ha!e committed to subscribe an initial contribution of 7*< ?0 billion each, for an initial total caital of 7*< B0 billion' $ased on this caital subscrition, it is estimated that the 6<$ could lend u to 7*< CB billion er year o!er the ne+t t,o decades 2&riffith(Jones, 20?G3' To lace that number in ersecti!e, the #orld $an% has lent on a!era)e 7*< C?,M billion er year o!er the last B years 2#orld $an%, 20?Ga3' This ma%es it clear that the initial lan of the $4IC* is not only to establish an alternati!e, but indeed a stron) challen)e to the #orld $an%' It is recisely this otential that allo,s to understand the o!er,helmin)ly ositi!e recetion that the 6<$ roosal has achie!ed 2&riffith(Jones, 20?G1 *ti)lit., 20?G1 #eisbrot, 20?G3' 6onetheless, a comrehensi!e loo% at the conte+t of the initiati!e ro!ides a healthy dose of s%eticism' Indeed, an analysis of the economic and olitic realities faced by the $4IC* raises serious concerns re)ardin) the !iability of the 6$<' "urthermore, )i!en their similar structure, is not unli%ely that the 6$< ,ill end u e+eriencin) the same roblems, and fate, of the $an% of the *outh C: ' #hen it ,as established in 2007, this institution ,as heralded as a ne, model of de!eloment finance 2Toussaint, 200:3' Pet to this date it hasn-t made its first official loan 2Mune!ar, 20?C3' Thus, at least three troublin) arallels can be established bet,een the 6$< and the $an% of the *outh' "irst, the economic cycles of the member countries are closely ali)ned' As such, the institution is ill suited to face an economic do,nturn' *econd, the economic disarities that e+ist bet,een the countries ,ill ine!itably lead to stru))les o!er the control of the resources of the ban%' Third, and last, the ultimate issue has to do ,ith the real )oals that each artner assi)ns to the institution' As the !ision re)ardin) the role that a de!eloment ban% fits ,ithin the lar)er olicy )oals of each country differs, it becomes increasin)ly comle+ to establish a unifyin) urose for it' #ithout it is simly not ossible to establish an oerational institution' 4e)ardin) the first issue, the relati!e economic success of the $4IC* countries o!er the last decade has been closely associated ,ith the economic C: Institution created in 2007 by the governments of Argentina, Brazil, Venezuela, Bolivia, Ecuador, Uruguay and araguay! Its stated "ur"ose is to finance "ro#ects that strengthen regional integration $hile reducing the de"endence of the member countries to the %orld Ban& and I'(! )ro,th of China and its imact on commodity mar%ets' <urin) this eriod, the reliance on commodity e+orts in )eneral, and on Chinese demand in articular, is a %ey factor that allo,s e+lainin) an imortant share of the economic )ro,th e+erienced by $ra.il, 4ussia, India and *outh Africa' 9n the first account, all of the countries e+erienced a si)nificant increase in the articiation of commodities in total e+orts 2Table ?3' 9n the second account, there has been a steady )ro,th in the articiation of China as a destination of e+orts, esecially in the cases of $ra.il and *outh Africa 2Table ?3' In addition, the economic imact of the increase in commodities demand ,as au)mented by a ositi!e terms of trade shoc% 2Table ?3' Table ? X "orei)n Trade *tatistics $4IC* Countries *ource/ #orld $an% 220?Gb3, 76 Commtrade' &i!en this conte+t, is ,orth onderin) on the lon)(term imact of an economic slo,do,n in China o!er the erformance of the $4IC* countries' *ince 20??, &<P )ro,th rates in $ra.il, 4ussia, India and *outh Africa has reduced 5uite si)nificantly' This de!eloment has been associated ,ith a reduction on both e+ort demand and commodity rices, ,hich has been in turn caused by lo,er )ro,th in China 2IM", 20?C, ' G?XGG3' As a result, domestic economic ressures ha!e started to build' As these countries turn their attention to deal ,ith these issues, is unli%ely they ,ill de!ote the resources re5uired for a 6<$' The synchrony in the economic cycle of the $4IC* is a limitation as it lea!es the institution ,ithout a country that can suort it durin) an economic do,nturn' The effect that this tye of limitation can ha!e on the establishment of a ne, multilateral institution is clearly reflected on the difficult situation faced by the $an% of the *outh' As it is the case ,ith the $4IC*, the economic cycle of the foundin) members of the $an% of *outh ,as closely ali)ned and deended on the rise of commodity rices' The initial lan of the $an% ,as to ha!e an oerational institution by the end of 200:' 6onetheless, as the financial crisis of 200: hit the re)ion, those lans ,here shel!ed' As their economies came under ressure, the )o!ernments behind the $an% of the *outh delayed and scaled do,n their commitment to the inte)ration a)enda' This hels to artially e+lain ,hy it too% M years since the foundation of the $an% to ha!e its first Council of Ministers, and 7 years for its first Council of Administration 2El Pais, 20?C1 6odal, 20?G3' In addition, as the forei)n e+chan)e stru))les of Vene.uela and Ar)entina deeen, there is still no date for the transference of the a)reed initial caital contribution to the $an%' #ith this recedent, is not unrealistic to thin% the 6<$ could e+erience the same difficulties' A second obstacle, ,hich the 6<$ ,ill ha!e to o!ercome, is the o,er stru))le o!er the control of the $an%' E!en thou)h each of the $4IC* has committed to an e5ual subscrition of caital it is e!ident that there is a si)nificant disarity in terms of their otential contribution' "or e+amle, ,hereas the initial contribution for the 6<$ reresents 20'?L of the forei)n reser!es of *outh Africa, it only e5uals to 0'CL of the reser!es of China C@ ' This disarity e+lains ,hy desite the lar)e scale of the initiati!e, the countries ha!e only committed to transfer their contribution to the ban% o!er a eriod of 7 years, ,ith annual a!era)e ayments of 7*< 2:B million 2Chac%o, 20?G3' 6onetheless, )i!en these differences, e!entually China ,ill start e+ertin) their economic o,er in return for a )reater de)ree of control o!er the acti!ities of the 6<$' The roblem is then, that instead of creatin) a ne, structure of o,er, ,here countries are )i!en e5ual reresentation desite the differences in their economic contributions, the 6<$ ,ill end u emulatin) the current structure of the #orld $an%' The difference ,ould be that ,hereas the former or)ani.ation ,ould be controlled by China, the latter ,ould remain under the control of the 7*' As a conse5uence, the roblems in terms of accountability and olitical influence that ha!e la)ued the history of the #orld $an% ,ould simly be relicated by the 6$<' The $an% of the *outh faced a similar roblem re)ardin) the control of the institution' 9n the one hand, Vene.uela suorted a Kone country, one !oteN rincile, in order to ensure that the smaller members of the institution ,ould ha!e a say in its oerations' 9n the other, both Ar)entina and $ra.il suorted a traditional multilateral ban% model, ,here the control o!er the acti!ities of the ban% increased ,ith the amount of resources de!oted to it 29rti. c 7)arteche, 200:3' As the discussions on the $an% stalled, $ra.il )radually increased the resources de!oted to its o,n de!eloment ban%, the $6<E*' Indeed, since 200:, $ra.il has used the $6<E* as a strate)ic tool to suort the e+ansion of $ra.ilian cororations in the Datin America re)ion 2;ibechi, 20?2, ' ?7MX ?:C3' Thus, faced ,ith the choice of suortin) an or)ani.ation in ,hich its artners could challen)e its control of the resources or fundin) its o,n de!eloment ban%, $ra.il end u choosin) the latter' It ,ouldn-t be a surrise then if either $ra.il or China simly retort to the use of their o,n de!eloment ban%s in case they become disleased ,ith the distribution of o,er ,ithin the 6<$' The third and final issue has to do ,ith an a)reement on the ultimate )oal of the 6<$' Is it simly a tool to mobili.e resources for infrastructure and sustainable de!eloment ro0ects as it ,as officially announcedY 9r do the foundin) members ha!e ulterior ob0ecti!es behind the 6<$Y 4ecent e+erience sho,s that both China and $ra.il ha!e learned that a de!eloment ban%s can be a o,erful tool to romote in!estment at the same time that it ad!ances their economic a)endas abroad' In the case of China, the China <e!eloment $an% C@ )alculated on the basis of the foreign reserves, including gold, at the end of 20*+ ,%orld Ban&, 20*-b.! 2C<$3 has become an inte)ral art of the country strate)y to stren)then its economic ties ,ith Datin America' The ob0ecti!e of this olicy is to oen mar%ets to Chinese manufactured )oods and secure lon)(term access to ra, materials in fa!orable conditions' Thus, bet,een 200B and 20?C, the C<$ has lent 7*< 7:'C billion to the countries of the re)ion 2Inter(American <ialo)ue, 20?G3' "or countries li%e Ar)entina, Ecuador and Vene.uela, ,hich ha!e been shunned by both international caital mar%ets and multilateral institutions, these funds are a ,elcomed source of fundin)' 6onetheless, the costs are also si)nificant' The interest rates of C<$ are hi)her than those of multilateral institutions, include re5uirements to contract ,ith Chinese comanies, ha!e inade5uate en!ironmental standards, and re5uire ayments in the form of commodities 2&alla)her, Ir,in, c Koles%i, 20?C3' "urthermore, there is little to no transarency on the secifics of the a)reements 2El Pais, 20?G3' The loans of the $6<E* of $ra.il follo, a similar attern to those of the C<$' Throu)hout the last decade, lendin) for infrastructure ro0ects made by the $6<E* in Datin America and Africa rose steadily from 7*< 22: million in 200G to 7*< ?'C billion in 20?C 2Valor International, 20?G3' Accordin) to a recent sur!ey, the socio(economic and en!ironmental imact of $6<E* ro0ects in the Datin America re)ion is a source of )reat concern' It is estimated that G2L of the ro0ects fail to directly imro!e the economic conditions of the reciient country' Also, M7L of the ro)rams in!ol!e the relocation of communities1 at least B:L of them affect the li!in) conditions of those communities1 and 7BL of the ro0ects affect in a ne)ati!e ,ay the en!ironment 2<A4, 20?G3' "inally, the reort raises the issue of the comlete lac% of transarency re)ardin) the conditions in ,hich the ro0ects are underta%en' The resemblance ,ith the record of the C<$ is not a coincidence' To ma%e the situation of the 6<$ more comle+, add to this dossier of lac% of transarency and disre)ard of social and en!ironmental issues, the ossible moti!ations of 4ussia, India and *outh Africa' "or 4ussia, it seems that the main moti!ation to articiate in the 6<$ re!ol!es around the issue of rotectin) itself from 7* imosed sanctions 2The Mosco, Times, 20?G3' In the cases of India and *outh Africa, their main interest seem to lie in increasin) a!ailable fundin) for infrastructure in!estment in their o,n countries 2*ector, 20?G3' #ith such a lar)e !ariety of a)endas it is !ery hard to belie!e that a minimum common denominator can be achie!ed in order for the 6<$ to become oerati!e' #hen faced ,ith the same imasse, the countries behind the $an% of the *outh simly could not achie!e the basic commitment re5uired to breath life into the ne, institution' <esite the comle+ity of the situation, the lar)er oint that shouldn-t be missed is that initiati!es li%e the 6<$ and the $an% of the *outh reresent the clearest si)n that the current model of de!eloment finance and )o!ernance of multilateral institutions is outdated' "rom this ersecti!e, the roblem ,ith 6<$ is that instead of aimin) to establish a ne, set of )uidelines for de!eloment finance, it is simly relicatin) the established structure of multilateral institutions' As such, it is bound to e+erience the same tye of roblems and disaointin) outcomes' Thus, there is still a clear need for ne, thin%in) and ractices in de!eloment finance in ,hich reciient communities and countries ha!e a )reater say in the conditions in ,hich ro0ects are underta%en as ,ell as ho, their benefits are distributed' 9n that re)ard, the e+erience of the $an% of the *outh sho,s ho, hard it is to brea% ,ith established con!entions' That doesn-t mean that countries in the *outh shouldn-t %ee tryin)' 7eferences Chac%o, *' 220?G3' $4IC* $an% Is Mostly a Jointly Mana)ed *o!erei)n #ealth "und' Euffin)tonost' 4etrie!ed July 22, 20?G, from htt/88,,,'huffin)tonost'com8sunil(chac%o8brics(ban%(is(mostly(a( 0oabaBM02@@B'html <A4' 220?G3' CA*9* PA4A<I&MdTIC9* <e in!ersiHn del $anco 6acional de <esarrollo EconHmico y *ocial de $rasil 2$6<E*3 en *ur AmSrica 6ecesidad y 9ortunidad ara Me0orar Poleticas Internas' 4etrie!ed July 2C, 20?G, from htt/88,,,'dar'or)'e8archi!os8ublicacion8?C7aCasosaParadi)maticos'df El Pais' 220?C, June ?C3' Arranca en Vene.uela el $anco del *ur, 5ue a)rua a seis aeses de la re)iHn' Ediciones El Paes' 4etrie!ed from htt/88internacional'elais'com8internacional820?C80M8?C8actualidad8?C7?0:?:B? aC7B:M@'html El Pais' 220?G, Aril ??3' Ecuador sumar] 7'000 millones de dHlares a su deuda con China' Ediciones El Paes' 4etrie!ed from htt/88economia'elais'com8economia820?G80G8??8actualidad8?C@72C2B7?a0MG: G0'html &alla)her, K' P', Ir,in, A', c Koles%i, K' 220?C3' The 6e, $an%s in To,n/ Chinese "inance in Datin America' 4etrie!ed from htt/88ase'tufts'edu8)dae8Pubs8r8&alla)herChinese"inanceDatinAmerica'df &riffith(Jones, *' 220?G3' A ne, $4IC* ban% to mar% )lobal shift' "inancial Times' 4etrie!ed July 2?, 20?G, from htt/88blo)s'ft'com8beyond( brics820?G80M80C8)uest(ost(a(ne,(brics(ban%(to(mar%()lobal(shift8 IM"' 220?C3' IM" #orld Economic 9utloo% ( 9ctober 20?C 2' G?XGG3' #ashin)ton <C' 4etrie!ed from htt/88,,,'imf'or)8e+ternal8ubs8ft8,eo820?C8028df8te+t'df India, M' of E' A' 220?G3' *i+th $4IC* *ummit X "ortale.a <eclaration' 4etrie!ed July 2?, 20?G, from htt/88,,,'mea')o!'in8bilateral(documents'htmY dtl82CMCB8*i+thf$4IC*f*ummitff"ortale.af<eclaration Inter(American <ialo)ue' 220?G3' China Datin America "inance <atabase' 4etrie!ed July 2C, 20?G, from htt/88,,,'thedialo)ue'or)8maalist Mune!ar, <' 220?C3' $anco del *ur/ Promesas y 4ealidades' CA<TM' 4etrie!ed July 2?, 20?G, from htt/88cadtm'or)8$anco(del(*ur(Promesas(y 6odal' 220?G3' 4eali.an I Conse0o de AdministraciHn del $anco del *ur y afinan los detalles de su uesta en funcionamiento' 4etrie!ed July 22, 20?G, from htt/88,,,'nodal'am820?G8078reali.an(i(conse0o(de(administracion(del(banco( del(sur(y(afinan(los(detalles(de(su(uesta(en(funcionamiento8 9rti., I', c 7)arteche, 9' 2200:3' $an% of the *outh/ Pro)ress and Challen)es' **46 Electronic Journal' 4etrie!ed from htt/88aers'ssrn'com8abstractb?CBCGB0 *ector, $' 220?G3' *outh AfricaAs scramble for ne, $4IC* ban%' <aily Ma!eric%' 4etrie!ed July 2C, 20?G, from htt/88,,,'dailyma!eric%'co'.a8article820?G(07(?:(south(africas(scramble(for( ne,(brics(ban%8g'7:@7IVb0scG *ti)lit., J' 220?G3' 6obel Economist Joseh *ti)lit. Eails 6e, $4IC* $an% Challen)in) 7'*'(<ominated #orld $an% c IM"' <emocracy 6o,' 4etrie!ed July 2?, 20?G, from htt/88,,,'democracyno,'or)820?G878?78nobelaeconomista0osehasti)lit.ahail sane, The Mosco, Times' 220?G3' Putin #ants Measures to Protect $4IC* 6ations "rom 7'*' *anctions' 4etrie!ed July 2C, 20?G, from htt/88,,,'themosco,times'com8business8article8utin(,ants(measures(to( rotect(brics(nations(from(u(s(sanctions8B0CG?B'html Toussaint, E' 2200:3' $an% of the *outh' An Alternati!e to IM"(#orld $an%' Mumbai/ VAK' 4etrie!ed from htt/88cadtm'or)8$an%(of(the(*outh(An( Alternati!e Valor International' 220?G, Aril ??3' Increased $6<E* lendin) for ro0ects abroad dra,s criticism' 4etrie!ed from htt/88,,,'!alor'com'br8international8ne,s8CB?C??08increased(bndes(lendin)( ro0ects(abroad(dra,s(criticism #eisbrot, M' 220?G3' $4IC*A ne, financial institutions could undermine 7*( E7 )lobal dominance' Al Ja.eera America' 4etrie!ed July 2?, 20?G, from htt/88america'al0a.eera'com8oinions820?G878brics( de!elomentban%imffinance'html #orld $an%' 220?Ga3' #orld $an% 9erational *ummary "iscal Pears 200:( 20?C' 4etrie!ed July 2?, 20?G, from htt/88siteresources',orldban%'or)8EhTA664EP20?C84esources8@C0G::7( ?C7720?2?2C7:8@C0B:@M(?C77BGG7BCGC?89*umDendin)TablesaE6'df #orld $an%' 220?Gb3' #orld <e!eloment Indicators <atabase' 4etrie!ed from htt/88data',orldban%'or) ;ibechi, 4' 220?23' $rasil Potencia/ Entre la inte)raciHn re)ional y un nue!o imerialismo' $o)ota <'C'/ Ediciones desde Aba0o'