The Latin American alternative: a new financial system
As stock markets crashed and a global credit squeeze threatened global economies, Latin American governments pushed ahead with plans for a new financial architecture, to replace the current bankrupt system.
The people of the world "no longer support" this privatised banking system, Venezuela's President Hugo Chavez insisted at an international conference of political economists in Caracas on October 8-10, hosted by the Miranda International Centre (CIM) and entitled "Responses from the South to the global economic crisis".
The International Monetary Fund (IMF) was one of those principally responsible for the financial crisis. It should "dissolve itself" and "disappear from the Earth".
Ecuador's economic policy minister Pedro Paez said society must "reclaim the leading role that has been kidnapped by the centres of political and economic power … the capitalist system is not the only option".
Proposals for a new financial system also emerged from the CIM conference. In a joint report to the Venezuelan government (see below), conference participants urged immediate action to
socialise the banks and protect national savings without bailing out private investors.
The proposals emerging from Latin America differ in important respects from the bailouts taking place in the US and Europe, which seek to underwrite private losses and save the privatised finance cartels.
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Such proposals require substantial political will and coordinated capacity, but such conditions may now exist. Latin America was "no longer" the weak and compliant region of the 1980s, Ecuador's President Rafael Correa has insisted.
Emerging from the debt and structural adjustment policies crippling it, the region has seen sustained economic growth, expanding reserves and a series of new and independent governments.
Venezuela has already withdrawn most of its US$40 billion in reserves from the US, and has been creating new domestic and international state-run banks. It is still planning for significant economic growth, even if oil prices fall back to $60 per barrel.
Ecuador has just passed a remarkable new constitution that, among other things, prohibits state takeovers of private debt, such as those envisaged by the US "Paulsen Plan".
After its own audit commission on "illegitimate debt", Ecuador is strongly against any new round of debt and financial leverage.
The six Latin America and Caribbean countries that subscribe to Bolivarian Alternative for the Americas (ALBA — Cuba, Venezuela, Bolivia, Nicaragua, Honduras and Dominica) have created an ALBA Bank to finance regional social programs. Venezuela has recently created joint banks with Iran, Russia and China, the latter with $12 billion in commitments.
Chavez also wants to revive his OPEC proposal for an oil exporters' bank.
The Bank of the South (Bancosur) has been planned over the past year, with broad South American support. The concept is that participating countries place 10% of their reserves into the bank. Such an institution could displace the Washington-controlled IMF, World Bank and InterAmerican Development Bank (IADB — the region's chief proponent of capital liberalisation).
Brazil and Argentina's support for Bancosur is crucial, but also compromised by those countries' powerful private investment groups. Whether these governments will be able to commit to a powerful new bank that favours public investment and social projects remains to be seen.
With the onset of the Wall Street crash, Venezuela invited 40 political economists to Caracas for the CIM-hosted conference to debate the crisis and propose alternatives.
The conference was chaired by Venezuelan planning and development minister Haiman El Troudi and Luis Bonilla from the CIM. The political economists presented papers and debated for four days, before presenting the Venezuelan government with a joint statement.
Though wider issues were discussed, the first report focused on finance and monetary reform. It seems the group will meet again, in early 2009.
Following is a summary of the recommendations of the first report:
1. States of the region should take immediate control of their banking systems, without indemnification, according to the principle of the new Ecuadorian constitution (290.7: "nationalisation of private debt is prohibited"). These measures should aim to prevent capital flight.
There is a need for each state to shut down offshore banking mechanisms. Banking supervision must be strengthened. One of these services should be to guarantee a minimum national investment level of liquid assets.
2. There is a need for monetary coordination to avoid a war of
"competitive devaluations", which would worsen the crisis, blocking a regional response and undermining the integration process of Union of South American Nations (Unasur — a
South American integration process begun in 2007 that envisages a new continental currency).
There must be clear signals from a Latin American monetary agreement and the definition of a system of payments based on a basket of Latin American currencies, which would provide measures of liquidity for each country.
This in turn requires a substantial coordination of central banks and "overcoming neoliberal dogma". In this respect we propose a South Fund (Fondo del Sur) as an alternative to the
3. Taking advantage of the excess reserves of each country to create a payments system, we propose the immediate implementation of Bancosur, based on a democratic system of one country one vote. This bank can be "the heart" of the transformation of the existing network of banks.
It is necessary to establish exchange controls to protect reserves and prevent capital flight.
4. Countries of the region should consider a suspension of payments on public debt as a transitional measure to protect sovereign resources from the crisis and avoid an emptying of treasuries.
5. We propose an emergency social fund to back food and energy sovereignty, as well as to attend to migratory problems and a possible cutting of remittances. This fund could function within Bancosur or the ALBA Bank.
6. Following the principle of assisting the people and not the bankers, social programs must be maintained, the priorities being: employment security, universal income, public health, education and housing.
7. This is the opportunity for the countries of the region to get rid of the IADB, the IMF and the World Bank, and to
begin creating a new international financial architecture.