South-South cooperation is becoming
increasingly important given criticisms on the current process of globalization.
Since the 19th century, non-hegemonic countries and regions forged alliances
as a strategy to reduce dependency and dominance from Northern powers.
At the beginning of the 21st century, Southern countries remain associating
to promote South-South cooperation. This article focuses on new developments
in bilateral South-South ODA and regional integration, including South-South
banks.
South-South Bilateral ODA and Investments: Emergence
of China
South-South aid and investment tend to occur on bilateral basis. Main
non-OECD donors are Brazil, China, India, Kuwait, Mexico, the Russian
Federation, Saudi Arabia, South Africa, South Korea, Taiwan Province of China, and Turkey.
Precisely for being outside of the monitoring lens of the OECD Development
Assistance Committee (DAC), data on South-South transfers is unreliable.
DAC points that in 2005, 4.4 per cent of total ODA was provided by non-OECD
countries, but this is an underestimation.
The case of China must be highlighted, given the magnitude (and controversy)
of its investments in developing countries, particularly in Sub-Saharan
Africa, as well as in neighbouring East Asian countries. Beijing does
not officially report on its ODA, but estimates to have spent $5.7 billion
on assistance for Africa alone up to 2006 – though it is unclear what
this figure includes[1]. In 2003, China set
an important example by honouring the commitments made by the world community
at the Monterrey Conference on Financing for Development by reducing or
cancelling $1.2 billion of debt in favour of 31 African countries, arguing
that world peace and development cannot possibly be sustained if the North-South
divide grows wider and developing nations grow poorer. In 2006, President
Hu Jintao announced that China would double its assistance to Africa by
2009, and provide $5 billion additional in loans.
The Export-Import Bank of China plays a strategic role. Since its foundation
in 1994 to 2006, Exim Bank China developed 259 loans in Africa alone (concentrated
in Angola, Nigeria, Mozambique, Sudan and Zimbabwe), most of them large
infrastructure projects: energy and mineral extraction (40 per cent),
multisector (24 per cent), transport (20 per cent), telecom (12 per cent)
and water (4 per cent). Most known examples include oil facilities (Nigeria),
copper mines (Congo and Zambia), railways (Benguela and Port Sudan), dams
(Merowe in Sudan; Bui in Ghana; and Mphanda Nkuwa in Zambia) and thermal
power plants (Nigeria and Sudan). Social sector investments have not been
a Chinese priority; however, in a much lesser scale, China has offered
free technical assistance and goods such as anti-malaria drugs [2].
According to Exim Bank China Annual Report 2005, only 78 loans of the
total Bank loan portfolio were concessional, below-market rate loans.
When the terms are concessional, interest rates can go as low as 0.25
per cent per annum, subsidized by the Chinese Government; however most
of the procurement has to be imported from China, this is, is tied aid.
Apart from the condition to procure inputs from China, there are no other
strings attached to these loans, this is, no policy conditions, no environmental
or social standards required, a main reason why Southern governments find
Exim Bank China loans attractive.
International and national organizations, including civil society groups,
have criticized that China is supporting highly repressive regimes (Burma,
Sudan, Uzbekistan, Zimbabwe) to satisfy China's need for natural resources,
particularly oil; creating new debt in low income countries to promote
Chinese exports; undermining the fight against corruption and the promotion
of environmental and social standards. In view of this, Exim Bank China
recently approved an Environmental Policy (its quality remains to be evaluated);
it has no social safeguards yet but there are signs that this may be reversed.
Alternative Regionalism in the South: Emergence
of MERCOSUR and ALBA
Regional integration is a major form of South-South cooperation, and a
constructive alternative to the current pattern of inequitable globalization.
Regional formations offer a means of ‘locking in' finance for the development
of its member countries. Regionalist trading strategies are an effective
means of protecting, promoting and reshaping a regional division of labour,
trade and production. While the European Union is the best existing example
of how regional solidarity may be articulated, there are increasing experiences
in developing countries.
All countries in the world fall under some regional block: the Association
of South East Asian Nations (ASEAN), the African Union, the Andean Community
(CAN), the Caribbean Community (CARICOM), the League of Arab States (LAS),
the South Asian Association for Regional Cooperation (SAARC), the Southern
Africa Development Community (SADC), to mention some. The most mature
Southern regional integration case is MERCOSUR (Southern Common Market)
and the most radical, the recently created ALBA (Bolivarian Alternative
for Latin America), both in Latin America[3].
MERCOSUR has evolved slowly but steadily, from a custom union in 1991
to establishing a MERCOSUR Common Parliament last May 2007. The importance
of MERCUSUR comes in being the best example of regional integration after
the European Union, which is meritory given the high growth volatility
in the region and the fact that several economies collapsed in the period.
Countries also managed to resist external Northern pressures that would
have eroded MERCOSUR potential, such as the US-led Free Trade Association
of the Americas (FTAA) - ''Our North is the South'' says MERCUSOR motto.
MERCOSUR has progressively expanded its role, from common external tariff
agreements to a more comprehensive economic and political integration
of its member states. With 260 million people and a combined GDP of $4.2
trillion per year, MERCOSUR is the sixth largest economy of the world
when considered as a single market. However, intra-regional transfers
to support local development (ultimately, to raise living standards and
expand the internal market) remain low, as compared to the European Union,
where the Social Cohesion Funds absorb 36 per cent of the EU budget.
This is different in ALBA. ALBA was created in 2006 to address the ''social
debt'' of Latin America, that is, address the needs of those who have
lost out in the process of globalization –and as an alternative to the
neoliberal FTAA. ALBA countries argue that a new set of public policies
is needed to redress social asymmetries and raise living standards, based
on social spending, public investment, and macroeconomic policies geared
towards employment and the expansion of national markets.
Because ALBA countries are standing against the orthodoxy of Northern
powers and the IFIs, they feel that the only chance of success comes by
associating and uniting efforts, creating a new political bloc that provides
support to its members. ALBA is using policies of regional solidarity
to pursue social transformations at both national and regional level;
oil-rich Venezuela has been funding a number of economic and social investments
among neighboring countries, such as under the Petrocaribe Initiative.
The largest is Project Grand National (April 2007) which includes multiple
proposals for ALBA countries, from literacy programs and regional universities
to the promotion of industrial technology policies; from radio/TV media
with indigenous content to investments in energy generation and distribution;
from regional fair trade agreements to the issuance of an ALBA bond.
Critics argue that ALBA redistributive policies depend on the price of
oil; if oil prices were to plummet, regional integration may fall apart.
While diversification of regional contributions and lesser dependency
on a single resource is advised, it must be pointed that oil prices are
likely to remain high. Venezuela is doing with ALBA what it was hardly
done earlier by OPEC: using funds to develop the region. In the past,
OPEC countries lost a golden opportunity for development, a large majority
of petrodollars coming from the oil bonanza ended in Northern banks.
South-South multilateral Banks: Arab Development Banks, CAF and the potential
of Banco del Sur
The most elaborate South-South multilateral banks are found in the Arab
and Islamic world. Most of these institutions started operating in the
1970s as vehicles to transfer some of the resources from oil-rich countries
to poorer countries in the region and Africa. The Islamic Development
Bank objective is to foster the economic development and social progress
of Muslim communities in accordance with the principles of shari'ah. In
2006, it announced a major funding operation in support of MDG-related
expenditures among its member States. The second-largest is the Arab Fund
for Economic and Social Development (AFESD), which provides soft lending
for Arab League countries, mostly for infrastructure projects.
The Andean Development Corporation (CAF in its Spanish acronym) is also
a successful case of Southern multilateral bank, also created in the 1970s
under the auspices of CAN. In recent years its portfolio (US$3 billion),
again mostly in infrastructure, largely surpasses investments by the World
Bank and Inter-American Development Bank in the Andean region. Its board
includes seventeen Latin American members, plus Spain and twelve commercial
banks; most of the Andean borrowing members value CAF's proximity, lack
of conditionalities and speedy processes (as low as 3 months for loan
approval). However, the lack of transparency regarding the most basic
of CAF functions and the costly pricing of its loans puts some questions
on the institution.
South-South banks appear friendly to governments given their lack of policy
conditionalities and lesser requirements, however, unless there are created
with a different set of principles, they will replicate the same problems
that exist in the Northern-driven multilateral banks, such as concentration
of ODA in a few countries and sectors, residual social investments, inequitable
outcomes, etc.
In May 2007, countries from MERCOSUR and ALBA associated to create an
alternative Bank, Banco del Sur (Bank of the South)[4].
Several member countries have withdrawn from the IMF and the World Bank
and they intend that Banco del Sur becomes an instrument of South-South
solidarity and fair development, an alternative to the IFIs, combined
with a revamped Latin American Reserve Fund (known by its Spanish acronym
FLAR) as a regional monetary fund that would ensure a “collective insurance”
to its members, pooling funds against financial risks. The founding chart
of Banco del Sur assigns one country-one vote, which is an important advance
as compared to the rest of multilateral banks who assign votes according
to contributions (so richer countries remain in control). The bank expects
to raise US$7 billion in paid-in capital.
Banco del Sur is likely to expand the model of BANDES (Bank for Economic
and Social Development of Venezuela, created 2001)[5]
at a regional scale. BANDES, under the Ministry of People's Power for
Finance, supports advice and investments in less developed areas, fostering
local economic and social development, offering concessional rates to
public/social enterprises (SOEs, coops, community ownership) according
to the priorities of Venezuela's National Development Strategy. In 2005-06
most of BANDES portfolio (US$1,2 billion for the biennium) was onlent
to rural, industrial, SME and mutual banks, supporting from milk producers
to health services.
Many questions remain ahead the new Banco del Sur, such as agreeing on
a lending framework, type of loan guarantees expected, the criteria for
selecting investments to ensure equitable development, and its social
and environmental safeguard policies, among others. The fact that it intends
to be a truly alternative bank hopefully will bring transparency and accountability
to its processes, and question the drive of most Southern institutions
to spend resources in large infrastructure projects with no social and
environmental standards, bypassing more complex but needed economic and
social development investments. With its egalitarian principles, Banco
del Sur may be the first Southern institution that invests solidly in
national productive capacities and does not consider social development
as a residual investment.