Bank of the South must learn from World Bank’s failures

The Bank of the South, a multinational funding institute is inaugurated today by seven Latin American nations to finance regional development projects. The seven participating members are Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay and Venezuela. Seven presidents attend the official launch: outgoing Nestor Kirchner of Argentina; Hugo Chávez from Venezuala; Luiz Inácio Lula da Silva from Brazil; Rafael Correa from Ecuador; Evo Morales from Bolivia; Tabaré Vázquez from Uruguay and Nicanor Duarte Frutos from Paraguay. If lessons from past World Bank and International Monetary Fund (IMF) failures are learned, the launch of the Bank of the South represents a strong opportunity to combat Latin American poverty, according to the international anti-poverty agency, ActionAid.

The South can lead in making the world financial system more democratic by implementing its voting system giving equal votes to member countries. “Latin American countries are breaking new ground by discarding the discredited one dollar one vote model of the World Bank and IMF in favour of equal votes for all participating countries,” says Anne Jellema, ActionAid International policy director. The Bank of the South could be also a strong tool to reduce poverty and inequalities in Latin America. “We call on the new bank to take into account the disappointing track record of big infrastructure projects funded by the World Bank and not focus heavily on financing such projects as has been announced by several member states, ActionAid points out. “Focusing on social policies would have a stronger impact for millions of poor people residing in Latin America, and would give Latin American leaders the credibility to support poverty-related policies worldwide”.

Lessons from Argentina: How unorthodox wisdom propelled high-growth recovery

Argentine Senator Cristina Fernandez Kirchner seems to be headed for a solid first-round victory in today’s presidential election, and a new paper from the Center for Economic and Policy Research (CEPR) looks at the economic expansion that has propelled her candidacy. "Argentina challenged the conventional economic wisdom, and won," says economist Mark Weisbrot, co-Director of CEPR and lead author of the paper. Argentina's economy has grown by more than 50% in real (inflation-adjusted) terms during the past five and one half years of expansion, making it the fastest-growing economy in the Western Hemisphere. Unemployment fell from 21.5 to 9.6%, and more than 11 million people, or 28% of the population, have been pulled across the poverty line. Real wages have increased by more than 40 percent.

A number of policy choices seem to have contributed to the recovery, some of them unorthodox and controversial. Among these were: the Central Bank's targeting of a stable and competitive real exchange rate; Argentina's break with the IMF and its policy prescriptions; and its tough bargaining with international creditors over defaulted external debt. The paper, Argentina's Economic Recovery: Policy Choices and Implications, looks at these and other policies, as well as the role of the IMF during the recovery. The authors argue that Argentina's recovery and its successful macroeconomic policies may have important lessons for other middle-income and also low-income countries. This is especially true at a time when the influence of the IMF and allied institutions over economic policy has declined drastically in recent years. The paper also looks at the current state of the economy.