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Forum for the Future of Aid

Southern Voices for Change in the International Aid System Project

The Forum on the Future of Aid is an online community dedicated to research and opinions about how the international aid system currently works and where it should go next

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Shaking Up Development Finance in Latin America

By C. P. Chandrasekhar & Jayati Ghosh

The article analyses the emergence of the Bank of the South as an answer to the general disillusionment with the role of the International Financial Institutions (IFIs) in the region. These include not only the International Monetary Fund (IMF) and the World Bank (WB), but also the Inter-American Development Bank (IDB), which has some participation from Latin American countries but is dominated by the US
The article present data on how IFIs have contributed little to development finance in Latin America in recent years. Indeed, in the Latin American region the IFIs - and official finance generally – have been negative net contributors to resources for development.
For most of the recent period, the IMF has been a large recipient of repayment flows from countries in the region. The net amounts provided by the WB to the region since the late 1990s have been paltry, and since 2002 they have been negative as well. Even the IDB - the other large multilateral creditor – has been receiving net inflows from the region.
The only consistently positive – albeit relatively small – source of net finance has come from bilateral aid – and in recent years this has been dominated by intra-regional assistance, as oil-rich countries like Venezuela have provided finance for smaller countries.
In this sense, the creation of the Bank of the South is part of a broader trend within Latin America of governments increasingly distancing themselves from the IFIs that are widely perceived as too biased in favour of US interests and too insistent on providing rigid and undesirable policy advice. If this plan succeeds even partially, it is an important source of hope for the rest of the developing world.

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