There were interesting rumblings at the August 5 meeting of the Finance Ministers of the Union of South American Nations (UNASUR). The creation of the organization's Financial Council--following in the path of its Defense Council--was announced,and ways were discussed to protect the region from global financial instability. In that context, Brazil's finance minister Guido Mantega expressed his country's interest in joining an existing mechanism, the Latin American Reserve Fund (FLAR), which is currently made up of Bolivia, Colombia, Peru, Costa Rica, Ecuador, Uruguay and Venezuela.
The FLAR, very much like the IMF, is meant to help its members deal with current account and debt crises. Although the commitments of its members total U$2.3 bn, the FLAR, established in 1978, currently controls... $1.84 bn, which basically means that it cannot be of much help. Hence the idea of beefing it up to $10 or 20bn, by having the region's two largest economies, Argentina and Brazil, join in with significant contributions.
Brazil's support remained very abstract, however, and no decision was taken. In fact Mantega argued that the main obstacle lied in the FLAR's own regulations, which currently set a mzximum contribution of $500m to its participants. With Colombia and Ecuador--an unlikely pair--promoting the idea, and Argentina and Venezuela apparently enthusiastic the proposal, Mantega's argument sounds very lame.
Now, Brazil's stand should come as no surprise. These regional outfits offer very little to Brazil, for a number of reasons: 1) unless it invests massive amounts of resources in these endeavours, they are unlikely to have much bearing were a serious financial crisis--think Venezuela in the next 24 months--to happen in the region; 2) Brazil cannot openly dominate these mechanisms, for fear of looking like--and being painted as--an imperialist power, making its resources vulnerable to hijacking by more aggressive regional actors--think Hugo Chavez or friends; 3) for both these reasons and because such a fund would have no bearing whatsoever on Brazil's own financial security, a serious commitment would be a losing proposition with the Brazilian public and Congress.
Following Brazil's less than lukewarm support for Hugo Chavez' Banco Sur--idealized as a regional challenger to the World Bank and the Inter-American Development Bank--this latest non-decision thus looks a lot like another Brazilian refusal to serously back regional institutions, in spite of the country's lofty rhetoric about South American solidarity and integration. With international reserves currently worth $335bn dollars, even $5bn should have been easy enough to commit, obviously conditional on changes to FLAR's regulations.
Now, Brazil is not alone: given the size of the region's international reserves ($500bn for South America; 650bn for Latin America as a whole, and even $20bn for tiny Central America), the tiny amounts being discused here show once more that Latin America is not really serious about collective action. While there are many, many things that should keep Christine Lagarde awake at night, a Latin threat to the IMF is not one of them...