Bank of the South, championed by Venezuela, begins to take form

RIO DE JANEIRO: The idea from Hugo Chávez, the Venezuelan president, of creating a Bank of the South to finance regional development projects is moving forward, aided by the tacit approval of Brazil, which has South America's largest economy.

But doubts persist about the need for such a bank, which many economists and analysts continue to see as a political move by Chávez to try to spread his influence and carry out his crusade against Washington-based multilateral institutions like the World Bank and the Inter-American Development Bank.

Seven South American countries are expected to inaugurate the new bank at a ceremony on Nov. 3 in Caracas, Venezuela's capital, where it will be based. At a meeting here last week the countries - Argentina, Brazil, Bolivia, Ecuador, Paraguay, Uruguay and Venezuela - agreed to create an institution with up to $7 billion in initial capital, paving the way for the bank to begin operating as early as 2008.

An eighth country, Colombia, said last week that it wanted to be included as well. Its president, Álvaro Uribe, said that his country would join as long as the new bank was an "expression of solidarity and brotherhood," and not a rejection of the international lending institutions.

The Bank of the South will be designed to promote investment in infrastructure and could help stimulate greater regional trade and integration. Chávez sees it as an alternative financing institution to the World Bank, the Inter-American Development Bank and the International Monetary Fund, all of which have significant Washington involvement.

"The idea is to rely on a development agency for us, led by us," Rodrigo Cabezas, the Venezuelan finance minister, said last week.

The bank's formation comes at a time when South America is awash in development money, both public and private, and when most of its economies have raised their credit ratings to levels that make the cost of borrowing cheaper than during the past two decades.

That is one reason that Chile, which has the continent's best credit rating, has not signed onto the project.

"The macroeconomic picture in Latin America is as good as it has ever been," Luis Alberto Moreno, the president of the Inter-American Development Bank, said. Still, he said, "there is plenty of room for everybody. The challenges of development in Latin America are very big."

Brazil has sent mixed messages about its support for the institution. It declined to give its support until clarifying that the bank's role would be limited to aiding investment in the region, and would not create an emergency fund to bail out countries in economic crisis as the IMF does, which Chávez had set as an initial goal.

"Brazil has shown less interest because it has the greatest credit capacity," said Guido Mantega, the country's finance minister. But, he said, "we continue to support the project because it will benefit our commercial partners and Brazilian businesses."

Several issues remain unresolved about how the Bank of the South would function, including how much capital each country would commit, what its lending conditions would be and whether the members would have equal voting rights.

Mantega, Brazil's finance minister, said it was still unclear whether Brazil and Venezuela would enter the bank with higher capital levels. Brazil appeared to make a major concession recently, however, when Mantega said that each country would have voting rights in the bank's administrative council.

Meanwhile, development banks already based in the region, like the Corporación Andina de Fomento in Caracas, are waiting to see how an institution more closely aligned with Chávez's political objectives will compete in granting loans.

The new bank could struggle to be competitive with the Inter-American Development Bank, especially, which has investment-grade status in the international markets due to the participation of the United States and other developed nations, and thus obtains resources at relatively low cost.

None of the future partners of the Bank of the South borrow on terms readily available to rich, industrialized nations.

Simon Romero contributed reporting from Caracas.