To The Left! To The Left!

According to this Washington Times article Venezuela may be emerging as the leader of a “Bank of the South” and working to provide an alternative or escape for South America to the IMF’s highly string-attached loans. Venezuela has already bailed Argentina out of its loan crisis and future efforts may be made for other such nations. Multi-billion dollar no strings attached loans? Is this (gasp) THE RICH(ER) HELPING THE POOR(ER)?!?

NO! Funnily enough, Argentina is actually a much wealthier nation than Venezuela. Why and how do such things happen? Economically saavy people, please help.

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10 responses to “To The Left! To The Left!

  1. They’re doing it for political prestige, not economic reasons. It’s part of Chavez’s effort to paint himself as a big opponent to the U.S.

  2. Oops I forgot to clarify – although the US is not the same entity as the IMF, it’s part of the leftist S. American ideology that the US basically uses neoclassical economics as a means of controlling other nations, and holds the strings of the IMF. Untrue, but again economics here is a tool of politics for Chavez.

  3. Interesting. So how does the poorer nation providing aid to a wealthier nation work?

  4. “Interesting. So how does the poorer nation providing aid to a wealthier nation work?”

    Well… a lot of poorer nations still have high government budgets for this sort of thing because the governments keep all the wealth to themselves. So they may have the money to do it – and I guess the hope is that Argentina will pay them back and maybe give them a little extra in gratitude. It’s kind of a bet that they’ll get more in return in the way of positive relations with other developing countries.

  5. Gotcha. I guess this is sort of like many nations the world over giving money to the U.S. for Hurricane Katrina relief. There are political benefits to be had from this.

  6. Lol remember mexico sending a battalion over the border to help out in Louisiana…yeah same thing lol.

  7. When or what was that? If this is such a politically beneficial move then why don’t more poorer countries help wealthier nations even if it’s not substantial help?

  8. Chavez is also selling highly discounted heating oil to poor families in the U.S. northeast. His goal may be less political than ideological: He is not trying to fortify his own position within Venezuela or increase Venezuelan power per se, but rather making very big gestures that are symbolic in showing the viability of an alternative to Neoliberalism.

    From a free market economics perspective, aren’t Chavez’s actions of establishing a competitor to the IMF good, since right now, the IMF has a monopsony of sorts on the bail-out ‘market,’ making countries doing poorly completely beholden to the only organization that can bail them out?

  9. Here’s another one!

  10. For a similar example, look at China in the 60s. They were among the poorest countries on Earth (i.e., there were literally tens of millions starving), but the leadership still gave away money to richer countries (E Germany, for instance) for reasons of political prestige. Economists call this an “agency problem”; the ones making the decision (Hugo and his boys in this case) are not the ones who pay for it (i.e., the Venezuela taxpayers – the fact that oil money is also used as well is irrelevent because, had the gift to Argentina not been made, the oil money could’ve been used for domestic spending which tax money is being spent on).

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