Eight Latin American governments are pooling their financial resources to form a new development bank called the Bank of the South next month. Venezuela's President Hugo Chavez is leading the project in an effort to reduce the influence of institutions like the World Bank and International Monetary Fund.

Venezuela's President Hugo Chavez devised the Bank of the South as a response to what he claims are problems with the World Bank and the International Monetary Fund, or IMF. He accuses the Washington-based institutions of perpetuating poverty in the developing world by charging high interest rates and imposing flawed political and economic reforms.

Already, the Venezuelan leader has used soaring oil revenues to pay off his nation's debts to both institutions. And he warns he will cut all ties to them.

Venezuelan officials say the Bank of the South, which is to be inaugurated on December 9th, aims to finance sustainable infrastructure projects and promote development across Latin America.

Venezuela's Finance Minister, Rodrigo Cabezas, says that loans to regional governments will not come with strings attached.  Cabezas says the new bank will not perform the kind of outside monitoring that the World Bank and IMF impose on countries receiving loans.

More Financing Options and Competition

Argentina, Bolivia, Brazil, Colombia, Ecuador, Paraguay and Uruguay have signed on to the bank, which will be based in Caracas. Officials from member nations say they hope to have up to seven billion dollars in funds, though it is unclear how much each nation will contribute at the start.

The Bank of the South will enter an already tight market that includes many private lenders drawn to recent economic prosperity in Latin America.

John Price, President of InfoAmericas consulting, says Latin American governments have more choices than ever when seeking loans for infrastructure development or other projects. He says the Caracas-based bank, known as Banco del Sur in Spanish, may have to fight for business. "Banco del Sur, quite frankly, will face the same competitive issues the World Bank will have. And even though it might receive decent funding to begin with, I don't see it carving out a competitive niche in any near term future."

The World Bank and IMF have seen their loans to Latin America decline sharply in recent years because of changes in the market and shifting attitudes toward the institutions.

Marcelo Giugale, Latin America head of economic policy and poverty reduction for the World Bank, says the needs of Latin American governments have changed. "They don't call us anymore to do the school, the bridge, the highway, the hospital. Mostly, they call simpler banks for that. And I'll let you decide which bank that could be. Banks that will not ask too many questions because they [i.e., the governments] know what they want to do."

In response, the World Bank is seeking to expand its offerings to include management and consulting services as well as enhance its role as an advocate for developing nations. World Bank officials say they do not see the Bank of the South as a threat because there is ample room for new development initiatives.

A Drag on Venezuela?

In Venezuela, the Bank of the South has raised concerns about its possible effect on the domestic economy and the nation's changing role in the region.

Political scientist Anibal Romero at Metropolitan University in Caracas says the more than one billion dollars that Mr. Chavez has offered to the bank will not be available for needed improvements at home. Romero says the new bank poses an economic risk because the money being spent abroad on what the president calls a "socialist revolution" is money not being spent on problems of poverty and infrastructure in Venezuela.

Some observers have questioned the need for a new development bank, when the region already has a similar organization called the Andean Development Corporation, or CAF. Last year, the Caracas-based institution issued five billion dollars in loans to the region. John Price of InfoAmericas says the Bank of the South and CAF could become direct competitors. "The new competitive threat is a reinvigorated CAF, which is based in Venezuela; it is funded by Andean nations, particularly Venezuela. It is well funded. It also is leaner and meaner than the World Bank and is less obliged terms of its compliance issues."

In spite of the growing supply of money available to Latin American nations, many communities continue to face poverty and inequality. Luis Alberto Moreno, President of the Inter-American Development Bank, says the goals of his institution and others are the same. Moreno says what matters most is not the institution, but the problems of poverty and social exclusion that all development banks hope to resolve.

Analysts say the Bank of the South hopes to draw on the success of social improvement programs launched under President Hugo Chavez in Venezuela, as well as efforts in other nations. Supporters say once the bank opens it doors, it promises to bring the benefits of those efforts to other communities in the region.

This story was first broadcast on the English news program, VOA News Now. For other Focus reports click here.