Banco del Chavez: Undermining Liberal Capitalism
Modi, Vikram, Harvard International Review
The Banco del Sur is only the latest gambit in Venezuelan president Hugo Chavez's mission to pry Latin America away from international capitalism. The bank would be run by Latin American countries themselves and would play a role similar to those of the World Bank and the International Monetary Fund (IMF). The Latin American countries, however, remain divided over the exact role the bank should play. Chavez and his ally, President Rafael Correa of Ecuador, want the bank to combine the functions of the World Bank and the IMF, but without the stringent conditionality agreements that both institutions require from borrowers. Brazilian finance minister Guido Mantega, on the other hand, opposes relaxing conditionality agreements.
Under the Venezuelan proposal, the Banco del Sur would become a mere political instrument of Chavez and his allies and harm development efforts in Latin America. Chavez has already moved to expel the LMF from the region. In February 2007, LMF lending to Latin America fell to US$50 million, less than one percent of the fund's total lending, compared to eighty percent in 2005. Venezuela has become one of the region's main lenders, lending US$2.5 billion to Argentina and offering a further US$1.5 billion to Bolivia and US$500 million to Ecuador.
By replacing the IMF as the primary lender in Latin America, Chavez undermines the liberal trade and investment policies that have benefited other countries in the region such as Colombia and Chile. One only has to look at the policies he has implemented in his own country. For example, Chavez has threatened to take over banks that do not offer low interest rates to domestic industries, a particularly unreasonable demand in an inflationary environment: in January 2007, inflation hit 18.4 percent, the highest rate in Latin America. High inflation is to be expected as government spending, fueled by high oil revenues, has doubled since 2004.
Given the heavy-handedness of his economic policies, it comes as little surprise that Chavez's development programs have not been particularly successful. Despite an eightfold increase in the price of oil since Chavez came to power in 1999, combined with GDP growth of 10 percent per year, Venezuela's own central bank reports that the Gini coefficient, a measure of income inequality, increased from 0.44 in 2000 to 0.48 in 2005.
Chavez is already encouraging his allies to pursue poor economic policies and would only gain more influence through a Venezuela-dominated Banco del Sur. For example, he has encouraged Argentina to pay off its IMF loans, which would be a sound policy if Argentina were not replacing IMF loans with Venezuelan ones. The Venezuelan loans come with fewer conditions, which reduces the incentive for Argentina to continue with former finance minister Roberto Lavagna's reforms. …