Banco del Sur launch -- Downward pressure on dollar
February 1, 2008
Banco del Sur was officially launched in December with a capitalization of $7 billion from its seven members: Venezuela, Argentina, Bolivia, Brazil, Ecuador, Uruguay and Paraguay. Chile, Peru and Columbia will not join.
Banco del Sur (Bank of the South) will finance infrastructure projects like the $20 billion Gasoducto del Sur gas pipeline which will run from Bolivia to Argentina. It will also provide emergency assistance for natural disasters. (Source: Global Finance, "Banco del Sur Takes Off," January 2008, “Chavez Banks on Regional Support,” May 2007)
What the Banco del Sur launch means:
Venezuela, Argentina and Ecuador are behind this effort to replace the IMF and the Inter-American Development Bank (IDB) in Latin America. IMF loans to Latin America have decreased from 80% of its portfolio to less 1% as countries like Venezuela and Argentina have repaid their loans. Venezuelan President Hugo Chavez used oil dollars to accelerate this trend, loaning Argentina the $5 billion it needed to pay off the IMF. (Source: Global Finance, “A Bumpy Ride,” May 2007)
In fact, Argentina's new President Christina Kirchner used resentment against the IMF to help her win last fall's election. Many in South America feel the IMF used loans to influence the economics and politics of the area. For example, the IMF forced privatizations of the oil industry in Venezuela in the early 1990’s as part of its loan requirements. In response, Chavez was elected on a platform of restoring the profits of these natural resources to local control, which he accomplished last year.
The IDB has been accused of funding infrastructure development, like the Cana Brava Dam, which destroys local communities and the environment to benefit multi-nationals.
The establishment of Banco del Sur means that these Latin American countries have joined the global trend away from U.S. Treasury bond investment. Latin American countries hold over $130 billion, so their withdrawal would put downward pressure on demand for U.S. bonds and, therefore, the dollar. (Source: BiCeca, “Belo Horizonte: IDB annual meeting tip sheet," March 28, 2007; U.S. Treasury, “Foreign Holdings of U.S. Treasuries," December 2007)
Action steps:
The best hedge for a continued dollar decline is to check with your financial advisor to make sure part of your portfolio is in three types of funds:
- Foreign mutual funds, particularly Europe.
- U.S. multinationals, which usually have already hedged against a dollar decline.
- Hard asset or commodity funds, which tend to rise when the dollar declines.
Find out how more about how to protect your personal finances in the WorldMoneyWatch Special Report, "The Dollar Collapse."
Banco del Sur Related Articles
Banco del Sur launch,6/27/07
Venezuela nationalizes oil industry,5/2/07
Lula wins,11/1/06
Indonesia repays IMF loan,10/26/06
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