GEGI: Is FLAR Latin America’s Answer to the IMF?
The Global Economic Governance Initiative (GEGI), a research initiative at the Frederick S. Pardee School of Global Studies at Boston University, hosted a discussion on October 7, 2016 with GEGI Assistant Director William N. Kring on the Latin American Reserve Fund (FLAR), an international financial organization made up of Bolivia, Colombia, Costa Rica, Ecuador, Paraguay, Peru, Uruguay and Venezuela.
FLAR emerged in 1978 as a tool of regional integration designed to support trade within the region between founding members Bolivia, Columbia, Ecuador, Peru and Venezuela. The organization was created as a regional reserve pooling arrangement to lend money in proportion to the capital contributions of member countries.
According to Kring, FLAR has an orthodox, central-bank like approach to investing paid-in capital, more leftist member governments want to see the utilization of capital movements and the organization’s AA rating to increase available resources, the organization to accept deposits from member country and non-member country central banks and the purchase of member country sovereign bonds.
A key driver to FLAR’s success is the creditor-debtor dynamic of the organization and the shared sense of ownership between member countries, according to Kring, who said the organization could likely benefit from the incorporation of additional approaches to aiding member countries including sovereign debt purchasing and the creation of a swap line network among member countries.
“It’s success is driven by members feeling included and equal in the lending process,” Kring said. “It’s a creditor-driven model, there’s a balance between creditors and debtor — almost everyone with the exception of the two newest members has borrowed from the institution over the course of it’s history so there’s a shared sense of ownership. Everyone is at the table with an equal say.”
Kring also discussed the idea of FLAR as an answer to the International Monetary Fund, and said while currently the FLAR does not displace the IMF in material terms, it could easily be scaled to displace the IMF.
“It doesn’t completely displace the role of the IMF,” Kring said. “It’s a robust first line of defense, but it doesn’t have the capacity to lend to member countries at the levels that would be necessary if there simultaneously pressures across all of the countries or a large amount of them, especially the larger member countries like Columbia.”