Bellerbys Economics - Mr Stephenson

Tuesday, October 09, 2007

Development Economics

As we start to move towards the end of Module 6 - International Trade and Development Economics - news arrives of the planned creation next month of a South American Development Bank. Created by the members of Mercosur - Venezuela, Brazil, Argentina, Bolivia, Uruguay, Paraguay and Ecuador - this will be a direct rival of the World Bank.

The World Bank and the IMF were the two economic structures created at the Bretton Woods conference in 1944 as the western world sought to create a new stable world economic order. However, both have been criticised in the last 20 years for following too closely the 'Washington Consensus' and pushing developing countries into adopting free market policies which may not be appropriate to their particular stage of development.

Countries that have been most successful in lifting people out of poverty, such as China and Vietnam, have on the contrary followed quite centralised development policies focussed on health, education, export-orientation and infrastructure development - before opening up to a more free market approach.

The South American Development Bank - and the recently launched Federal Development Bank in Russia - seeks to follow the planned development of Asian countries (sometimes called the Beijing Consensus). Time will tell how successful they will be, but the launch of the bank does indicate a further decline in the influence of the World Bank, still struggling to emerge from recent corruption scandals and struggling to reassert its moral authority in the developing world.

There is conflict, however, between Brazil and Venezuela. They have different cultural traditions and both are fiercely proud of their position - seeing themselves as the leader in South American politics. Brazil is closer to Washington and recently signed an important deal to export ethanol to the US.

One interesting aspect of the new Bank is the idea to create 'stateless' money - in effect, a new currency that does not belong to any one country but can be trusted and used throughout the continent. This money would be issued as credits for development projects and could be drawn on and transferred through the banking system - a virtual economy of its own. The IMF uses a similar system of credits but IMF credits are always backed by US dollars. The BancoSur idea takes this one stage further - it's just an idea at the moment, it will be interesting to see how it develops and how it interacts with existing currencies.


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