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Just what is the point of Banco del Sur?

Does Latin America really need a new multilateral lender? Do Latin countries need more funding, and might not Banco del Sur hinder local capital markets’ growth?

In December, the presidents of Argentina, Bolivia, Brazil, Ecuador, Paraguay and Venezuela stood before their national flags in Buenos Aires and signed the founding charter of the Banco del Sur, the “Bank of the South”. The new bank aims to lend money to its member nations for social and infrastructure projects, with each member giving $1.4 billion from its currency reserves to the bank in coming weeks.

The finance ministers in the region announced in May 2007 that the new bank would be based on “democratic, transparent and participatory schemes that are responsible to their constituencies”, as the region enters a new era, with approaches different to the free trade neo-liberalism policies of the 1980s and 1990s.

Even as the socialist words of Venezuela’s president, Hugo Chávez, ring in the ears, several bankers doubt that this master plan will ever fulfil its potential. The bank says the first loans are expected in just a matter of weeks with around $7 billion of capital but there is a long way to go before any such handouts can start.

First, the main premise of the bank is that all members have equal voting rights and contribute equal amounts of money.

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