Will the Union of South American Nations (Unasur) and its monetary fund, Banco del Sur, be successful?
It has been difficult for emerging markets to diversify their sources of balance of payments (BOP) support. During the 1997-98 Asian crisis, the shame such Asian nations as Korea, Thailand, and Indonesia felt (their leaders and peoples, that is), when they had to go hat in hand to the IMF and accept harsh reforms for BOP support, led to calls for an Asian Monetary Fund to supplant the IMF as the lender of last resort. This fund took over ten years to establish; still, these days many Asian nations have ample fx reserves to weather a global slowdown on their own.
Such is the case with many South American nations. Brazil (with over US$ 350 billion in reserves) and Peru (with nearly $50 billion) are exemplary. Due to Chinese demand and the boom in commodity prices, most South American countries are in pretty good shape in terms of fx reserves. But, such countries with heterodox (read: unsound) economic policies as Argentina, Ecuador, Bolivia and Venezuela could see themselves under fiscal and perhaps BOP pressure. These governments follow policies at odds with IMF standards and would be prime candidates for Banco del Sur funds. Yet South American governments are a long way from agreeing on what policy conditions Banco del Sur would condition disbursements. Most countries would probably adhere to an approach not too dissimilar from the IMF’s. Finally, given the infancy of Unasur’s institutions, bilateral central bank swap facilities would be the preferable option to help countries in need.
