South America Said to Consider Creating $20 Billion Regional Crisis Fund
By Arnaldo Galvao - Aug 11, 2011 11:25 AM ET .
South American finance officials are considering creating a $10 billion to $20 billion emergency fund to assist nations that experience capital flight should the global economic crisis deepen, two government officials involved in the talks said.
The proposed fund, a regional alternative to the International Monetary Fund, will be discussed by central bank presidents and finance ministers from the 12-member Union of South America Nations at a meeting tomorrow in Buenos Aires, said the officials, who serve in separate governments and who declined to be named because talks are ongoing.
The fund would be modeled on the Bogota-based Fondo Latinoamericano de Reservas, they said. Known as FLAR, the $4 billion fund pools foreign currency reserves from five Andean nation plus Costa Rica and Uruguay to help member nations that run into balance of payment problems during times of crisis.
Regional finance ministers met Aug. 5 in Lima at the urging of Colombian President Juan Manuel Santos to discuss ways to protect their economies and the value of their record $700 billion in foreign currency reserves from a deteriorating U.S. and European economic outlook.
Among the options debated at that meeting, which was attended by Brazilian Finance Minister Guido Mantega and his counterparts from Argentina and Colombia, was a strengthening of the FLAR by boosting its membership and raising new capital, Peruvian Finance Minister Luis Miguel Castilla told reporters.
Talks Ongoing
That proposal was put forward by Colombia and Peru, and has the tentative support of several countries including Chile and Brazil, one of the officials said. The other official said Brazil hasn’t decided whether to endorse the plan or the competing proposal for a new plan. Both will be debated at tomorrow’s meeting in Buenos Aires, the negotiators said.
Calls and e-mails sent to Finance Ministry spokespeople in Argentina, Chile, Peru and Venezuela were not immediately returned. Brazil’s Finance Ministry declined to comment and an official at Colombia’s Finance Ministry who asked not to be named due to internal policy said he didn’t have any knowledge of discussions over a new fund.
Local Currencies
The Unasur bloc will discuss measures to use local currencies instead of the U.S. dollar in the $120 billion trade within the region and coordination of central bank policies on reserves, said Argentina’s Deputy Economy Minister Roberto Feletti in comments posted on the government’s website.
“We’ll try to coordinate the reserves that our central banks have so that they can count on a rapid contingency credit line to strengthen their ability to respond to speculative attacks,” Feletti said.
Brazil, which pledged $10 billion of its reserves to the IMF in 2009, would be the biggest contributor to any new lending vehicle to assist smaller countries in the region that are more vulnerable to a drying up of world trade and credit, said the negotiators.
Regional central banks began searching for ways to diversify assets away from the dollar, in which the bulk of reserves are held, after the collapse of Lehman Brothers Holdings Inc. in 2008. That move has intensified in recent weeks as concerns mount that the U.S. economy could re-enter recession.
“For several years we as a government have been telling Latin America to bring home its reserves,” Venezuelan President Hugo Chavez said in a televised comments a day after the Lima meeting.
Bigger Reserves
Reserve levels in South America’s five biggest economies climbed 29 percent over the past year, to $501 billion, as investors spurred by near-zero interest rates in the U.S., Japan and Europe looked for higher-yielding assets in emerging markets. To stem the inflows that are putting pressure on the region’s currencies, policy makers from Brazil, Chile and Colombia have stepped up dollar purchases in the spot market. Most of the greenbacks are reinvested in U.S. Treasuries.
Finance officials from Unasur will also discuss in Buenos Aires boosting support for two other regional banks: the Corporacion Andina de Fomento, a Caracas-based development bank, and the Banco del Sur, which aims to boost infrastructure integration in South America.
To contact the reporter on this story: Arnaldo Galvao in Brasilia at
agalvao1@bloomberg.net To contact the editor responsible for this story: Joshua Go