Venezuela will bid adieu to its membership in the IMF and World Bank, Venezuelan President Hugo Chavez announced on Monday. In a speech delivered at an event to celebrate May Day workers’ rights, he declared:

We don’t need to be going up to Washington. We are going to get out. I want to formalize our exit from the World Bank and the International Monetary Fund. We are going to withdraw before they go and rob us.

With this, Chavez issued an order for Rodrigo Cabezas, Venezuela’s finance minister, to begin proceedings to formally withdraw from the organizations.

The announcement is largely symbolic because Venezuela has already paid off its debts to the lending institutions. Venezuela recently repaid its debts to the World Bank five years ahead of deadline. The IMF debts were taken care of shortly after Chavez first took office in 1999.

Read between the lines of this story and you may gauge a deeper trend. A trend which seeks to eliminate the pillars of ‘Washington Consensus,’ - the international lending institutions.

Situation in other Latin American nations

In fact, several nations other than Venezuela have tried to lower their dependence on lending institutions in the past few years. Major countries like Argentina and Brazil have announced to make their debt repayments ahead of schedules. They have seen that time and again IMF funds and policies have provided lackluster growth at best.

Stretching the point further, this trend has been witnessed in other countries as well. Pakistan, Indonesia, Russia and China have all followed the strategy of early repayment.

Changing political scenario in Latin America- Is it to blame?

For decades, U.S.A. has been spreading its own brand of ‘neo-imperialism‘ through the policies of the IMF. The consequent economic crashes coupled with high rates of inflation have resulted in regime changes in Latin America. Bolivia, Nicaragua, Brazil, Venezuela, to name a few, have all been swept over by a socialist tide. These socialist regimes are ready to help their Latin brethren move out of the debt traps and are against the restructuring conditions imposed by the lending institutions.

The socialist regimes are completely against arbitration by the World Bank in the way they control the business domestically. Evo Morales, Bolivian President, said yesterday:

We emphatically reject the legal, media and diplomatic pressure of some multinationals that ... resist the sovereign rulings of countries, making threats and initiating suits in international arbitration.

Such rhetoric isn’t uncommon in the Socialist states, particularly against the U.S.

What about the lenders’ loss of credibility?

International institutions like the World Bank and IMF should share a part of the blame. Their incompetence and fondness for controversies have made the nations doubt their efficacy. Europe and America are unwilling to let go of the hoary custom of appointing their diplomats as the heads of these financial institutions.

IMF has been often criticized for imposing strict conditions on the debtors. It has also been criticized for transferring the national businesses into the hands of Foreign multinationals. World Bank’s problems often revolve around its leadership and the ongoing saga of Wolfowitz is just another instance of how deep its problems really are.

Will Petrodollars provide the alternative?

Chavez’s economy is driven by oil. He is nationalizing huge chunks of foreign oil companies this year. With the global oil prices soaring, he is in a position to talk of reducing dependence on American lenders. Chavez intends to set up an indigenous Latin American lender, which he calls ‘Bank of the South.’ He has pledged to support it with Venezuela’s oil revenues. He has even offered to contribute $250 million to its coffers. Hugo Chavez has already shown that doesn’t hesitate in spending his foreign earnings by buying out Argentina’s debt.

Bank of South is already running as a joint project between Argentina and Venezuela. Recently, Brazil decided to join it. With the kind of influence that Chavez enjoys in amongst his neighbors, it might not be too long before we do see a Latin American corpus emerging.

It is true that the present voting rights in the IMF do not represent the current global economic scenario. I concede that there have been changes, but these have been few and far between. The emergence of a local fund in Latin America might spell an end for U.S. hegemony in the region.

It’s right time for the global economic order to change.