New Alternative to IMF for South American Countries
Global traveler Sara Nunnally wonders if Venezuelan president Hugo Chavez idea of a “Bank of the South” could rival the IMF in funding South American countries…
All right, I can’t help it… When I see a good idea, I have to say something, even if it’s not a popular one.
Like wind power. When I first started talking about alternative energy, I got some nasty e-mails from subscribers. I was called names and admonished for turning subscribers on to a lousy idea with no chance of success.
Well, I stood by my idea then (and now), and alternative energy became a hot investment opportunity.
What I’m about to say might spark another round of letters, but to borrow a phrase from our most recent ex-president (and a popular cheerleading movie), “Bring it on.”
South American leaders are creating a “Bank of the South” with $20 billion in start-up funds. The following seven countries are creating this bank:
Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay, Venezuela
Here’s what might spark some e-mails: Venezuelan president Hugo Chavez first argued for this idea back in 1998 during his campaign.
It was a good idea then, but an even better idea now.
This new institution is supposed to give countries an alternative to the International Monetary Fund (IMF) as a funding source. It’s like the difference between a small regional bank and big national banks.
The pros: a “local” bank is more likely to understand local economies; it’s more likely to fund smaller projects; and it’s more likely to be able to offer lower rates for borrowers.
The con is that the founding members are a bit imbalanced, economically speaking.
The bulk of the start-up funds will likely come from Brazil, Venezuela and Argentina. The smaller countries of Paraguay and Boliva (GDP-PPP-wise) won’t be able to contribute nearly as much.
The other con is that the “Bank of the South” does not include Chile as a founding member. It’s a very stable economy in the region with trade links to a lot of countries around the world.
According to the CIA’s World Factbook, Chile claims to have 57 bilateral or regional trade agreements. Last year, foreign direct investment was $17 billion, four times as much as the amount invested five years ago.
Regardless, this bank will certainly create a bit more opportunity and flexibility for South American countries, particularly the ones just starting to grow…
Those that might be called by some “Frontier Countries.”
Bolivia comes to mind…
Back in mid August, just before I delivered my presentation to more than 100 of our subscribers in Chicago, Harinder Singh, editor of Currency Profits Trader, pulled me aside. He’d heard about the idea I would be presenting.
In a nutshell, I told the Chicago attendees that hybrid battery technology would be the best way to invest in the auto industry in this new global economy. Both American and foreign brands are expanding their use of this technology.
I told the attendees that the next wave of investment would be in the more powerful and efficient lithium ion batteries.
When Harinder heard this, he asked me if I knew about the big find in Bolivia. Well, it’s not exactly a big find… Bolivia has been known to hold 50% of the world’s lithium reserves under the briny salt flats of Salar de Uyuni. The big “find” is the easing of political opposition to mining in Bolivia.
Back in November 2008, Bolivia’s minister for mining, Luis Alberto Echazu, said to the BBC, “We want to send a message to the industrialized countries and their companies. We will not repeat the historical experience since the fifteenth century: raw materials exported for the industrialization of the west that left us poor.”
Originally, Bolivian president Evo Morales said that his country would mine the 5 million tonnes alone, without the help of the international community.
But in early July, Morales indicated that he would be open to partnership with a multinational company to develop the reserves. Since then big companies have been lining up to put in their deals.
From French company Bolloré to Japan’s Mitsubishi Motors to General Motors before the bankruptcy, according to Khaleej Times.
It’s an interesting scenario that bears watching. On the one hand, this is a massive opportunity for both Bolivia and whichever multinational company is chosen to help develop the lithium reserves.
On the other hand, Morales has a history of nationalizing assets (à la Chavez) like the petroleum and natural gas industry.
It’s a risk, but it’s one worth taking as demand for lithium is expected to more than quintuple in the next decade.
I’m going to keep my eye on this race, and I’ll let you know if anything else develops.
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