Fresh from the Bloomberg newsfeed: Brazil, Argentina, Ecuador, Bolivia, Paraguay and Uruguay are joining Venezuela’s Bank of the South, as expected.
The Bank of the South, a Latin American development bank fostered by Venezuelan President Hugo Chavez, will be inaugurated today, a week after the Venezuelan leader met his first political defeat in nine years at home.
It’s a very modest bank:
The Venezuelan government has said the new poverty-fighting bank will have starting capital of around $7 billion. The governments involved haven’t yet determined how they’ll divide contributions to the bank or whether it will turn to capital markets to increase its lending power
Now comes the business part
None of the bank’s supporters have an investment grade credit rating. Both the World Bank and Inter-American Development Bank enjoy AAA credit ratings because of the backing of the U.S. The Corporacion Andina de Fomento has an A+ credit rating from Standard & Poor’s.
The rating of any new multilateral lender would also hinge on the commitment of its member countries, said John Chambers, managing director of sovereign ratings at Standard & Poor’s.
“It’s important that the member countries provide strong backing for the institution and that they support its priorities,” Chambers said.
The Bank of the South could be unsettled by disagreements about its role among its leading members. Chavez, who called President George W. Bush “the devil” in a speech last year at the United Nations, is followed in his anti-American stance by only Ecuador and Bolivia.
Lula’s also not jumping in the deep end, to say the least:
Objections from Brazilian President Luiz Inacio Lula da Silva prevented Chavez from turning the Bank of the South into a rival to the International Monetary Fund, too, offering loans in the event of currency crises.
“Lula has a much more conciliatory, moderate attitude toward the U.S. and so I think that’s going to create conflict with Chavez as they set up the Bank of the South,” said Michael Shifter, a director at the Inter-American Dialogue, a Washington-based research organization. “This has already been seen in the way Brazil worked to prevent the new bank from also competing with the IMF.”
Reading the news, The Husband, who is a financial guy, said, “If there’s a bank you expect to fail, this one’s it.”