Chavez is getting ever bolder.  As he consolidates all instruments of state power into his hands, undermining Venezuelan democracy in the process (as commented on previous posts on this blog), he has also struck out in a new direction in the international realm: independence from the international financial system. 

Chavez’s government announced during the first week of May that it planned to withdraw its membership from the International Monetary Fund, a first for a major emerging market country.  The announcement created a momentary panic amongst financial analysts because many of Venezuela’s sovereign bonds contain clauses which stipulate that membership is required for the ongoing validity of the bond.  Market watchers speculated that a number of bond holders would demand early repayment, alleging "technical default."

But the markets did not panic – Perhaps because they are becoming accustomed to Chavez’s feisty rhetoric: the withdrawal from the Bretton Woods institutions was announced the same day as further nationalisations of the country’s oil resources.  But perhaps because they see a method to Chavez’s madness?  

Almost simultaneously with the withdrawal came acceleration of plans to build the Banco del Sur, or Bank of the South, a regional development bank with Venezuela, Brazil and other regional powers as its members.  While the utility of another development bank in the Latin American region where each sub-region and many individual countries have their own development banks is questionable (in addition of course to the enormous World Bank and dominant Inter-American Development Bank which invest heavily in the region), Chavez’s idea to use Venezuelan petro-dollars to fund development in the region is not a bad one.  The details of the bank are still under negotiation (indeed the Economist reports that Brazil and Venezuela are quietly arguing about how the Bank is structured and what’s its goals are) and a successful bank would require carefully planned architecture as well as many checks and balances to ensure that the money goes to the neediest countries, sub-regions or cities with capacity to spend efficiently.  But the idea of using Latin American money to fund Latin American development on terms decided amongst Latin American governments is very much in line with development best practice and the tenets of agreements such as the Monterrey Consensus on Finance for Development.

So finally something to cheer about in Venezuela?  As above, the real details of the Banco del Sur remain to be seen, but if Brazil and other more democratic governments in the region can play down the politics and play up the need for more financing for development in Latin America, the proposal doesn’t look half bad.