Paul Wolfowitz’s indiscretions are not the only cause of headaches at the World Bank. Latin American countries are paying off their loans early, cutting ties with the institution, and creating their own financing instruments instead.
Since its creation over 60 years ago, the World Bank has provided trillions of dollars in loans to poor countries. In Latin America, financing by the Bank accounts for 20 per cent of multilateral lending, and comes with policy prescriptions, made into ‘conditions’, that interfere with governments’ rights to make sovereign decisions.
At the same time, persistent poverty in Latin America has barely budged. Now there is a clear backlash. In 2006, presidential elections were held in 12 Latin American countries. In six, leftwing candidates won, and in another four, Left parties made considerable progress. Economic policy was a dominant theme in all the campaigns. Candidates who were critical of the conservative, pro-business, free-market economic policies of their predecessors fared much better than supporters of the Washington-favoured status quo.
In April, Venezuela announced that it was paying off all its $3.3 billion debt to the World Bank, five years ahead of schedule. Venezuelan Minister of Finance Rodrigo Cabezas said: ‘Venezuela is free… and, thank God, neither today’s Venezuelans nor children yet to be born will owe one single cent to this organization.’ Argentina, Brazil and Ecuador have also paid off their debts to the International Monetary Fund (IMF) – and others have expressed a desire to do the same.
Later in April, in the wake of the Wolfowitz corruption scandal, President Chávez declared that Venezuela was withdrawing from membership of the World Bank and the IMF completely. At the same time, Ecuador expelled the Bank’s representative in that country, declaring him persona non grata. These decisions could help strengthen the efforts of other developing countries seeking to reform the World Bank, by demonstrating that choosing not to be part of it is a real option.
Increasingly frustrated by their dependence on capital – and influence – from the United States and Europe, some governments have begun thinking about alternatives. While the World Bank suffers its most damaging scandal to date, plans for a new, independent regional bank have been advancing quickly.
Earlier this year, Venezuela and Argentina launched the new Banco del Sur (Bank of the South), pledging more than $1 billion to get the institution up and running in the next few months. Brazil, Bolivia, Ecuador and Paraguay have agreed to join, and Nicaragua, several Caribbean countries and a few Asian nations have also expressed interest.
In a clear departure from the undemocratic and paternalistic governance structure of the World Bank – where voting privileges are based on financial contribution, giving the US Treasury the largest share of the vote – Banco del Sur assures potential members that no-one will be the ‘sole owner’. Although not yet fully defined, indications are that voting power will be based on financial need, rather than monetary contribution or political weight.
The real challenge will be to create an institution that not only looks different to its predecessors, but actually thinks and acts differently.