These financial entities that were originally born for the subregional integration of the Andean Community, have generously and successfully turned to become institutional processes of Latin American integration.
From the Argentine-Brazilian axis, based in Mercosur, the failed attempt was made with the “Bank of the South”with which a lot of time was lost, more than 10 years, and a historic opportunity to transform the CAF-Development Bank of Latin America into an even bigger entity than it is today. Before advancing in a monetary integration with Brazil with the South currency, as has been nominated in public media, it would be more prudent and useful for the entire region to integrate Argentina into FLAR and add CELAC.
This alternative is more relevant, first of all, from the strategic point of view of the Argentine Government and the BCRA in the search for their own national monetary soundness. In fact, countries that are much more stable at this point are integrated into FLAR, why not us? Reserve contributions to FLAR can be leveraged significantly. Argentina could join with the same amount as the Central Bank of Chile, which started this year with US$500 million. Current members can access resources greater than their contributions: up to 2.5 times in the case of loans to support the balance of payments. This multiple could rise as the shareholding base diversifies.
The credit within the FLAR by associated country could be even greater to the extent that the entity leverages its capital in the capital market and through credit lines, in amounts that do not jeopardize its credit rating. In fact, FLAR can now fund any of its current members more efficiently by issuing bonds, thanks to the fact that it maintains better risk ratings. For example, Standard & Poor’s (S&P) rates it “AA/A-1+”. A rating from which Argentina is distant and will take years to achieve as a country, and by joining FLAR it could take better advantage of genuine sources of sovereign financial cost reduction.
In this sense the FLAR could fulfill an agglomeration function and access contingent credit lines granted by multilateral entities or some central banks, more easily and with fewer conditions. Within the framework of this type of regional financial agreement (AFR), it could venture into two issues of monetary impact: 1) On behalf of its swap firm associates for the use of local currencies for trade with other regions outside of its associates, for example with the Central Bank of China among others. 2) For trade between its associates (intraregional) fulfill a role of clearinghouse or local currency exchange desk. Both measures combined will help to progressively avoid the use of extra-zone currencies and generate valuable flows of information to assess the possibility of an agreement on a reserve currency of the FLAR region.
In this historical context, Argentina, from the exercise of its own Presidency of the Community of Latin American and Caribbean States (CELAC), should encourage its members to join the Latin American Reserve Fund and advance in a FLAR regional in scope.[1] It would be particularly important to invite Brazil and Mexico to join, given that Chile has done so this year through its Central Bank. This would be a great institutional step for the reconstruction of the great homeland if the 33 CELAC countries are incorporated into FLAR, especially if it means that other smaller countries will benefit.
Linked to the quantitative objective of members, it is to progressively increase the commitments with capital subscribed to FLAR, which currently stands at U$D 4,437.2 million Dollars, in percentage it does not reach 2% of the total International Reserves that the members currently have. FLAR member countries that add up to around U$D 240,031 million. A new conformation of the FLAR, made up of the states with the most international reserves, should assume a progressive subscription commitment towards approximately 1% in the year 2025, 5% in the year 2035, and 10% in 2045; of the total international reserves that the CELAC countries have, which in their entirety are higher than those of the United States. Thus, achieving a regional financial institution sufficiently strengthened so that all Latin American countries can enjoy an agile and efficient alternative to the IMF.
Let’s hope that the initiative of the dialogue for monetary integration with Brazil is oriented in the first place in adhere to FLAR, would thus be in full Mercosur, and strengthen this important institution from the CELAC adding in principle to Mexico. It would allow a common financial entity for Latin America, consolidating greater stability and a mature process of economic integration in the region, without affecting the monetary policy autonomy of each of the Latin American states, leaving the path traced for a Latin American currency.
*Lawyer. Founding Partner of Fundación Pro.YECTAr. (Programs and Strategies to transform Argentina), Author of several books: “Perón vs Kissinger”, Ediciones Fabro, 2013/ 2nd Ed 2020; “Argentina 2030”, Fabro Editions, 2014; with Miguel Barrios from: “Rethinking Perón”, Ediciones Fabro, 2016. and “Theology of cooperation” (thesis), Editorial Intercooop, 2018 / 2nd Ed Ediciones Fabro 2019.-.
[1] TOWARDS A REGIONAL FLAR. October | 2019. Report of the working group on regional financial stability.
Source: Ambito
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