It was a week ago that the Venezuelan government announced the release of bonds that would cover the debt it recently bought off of Argentina.

The release was a success. Due to the accessibility of the bond average Joe-alongside the usual commercial buyer- had the opportunity to buy the bonds at a set low price in Venezuelan bolivars per US dollar and at a minimum of US$1000.

The so-called Bond of the South was the outcome of a treaty between Argentina and Venezuela resulting in the purchase of the debt of Argentina by its northern neighbor.

For its part, the purchase is the next step in the current Latin American policy in order to reach the overall integration of the continent and the rejection of the neo-liberal rule by the West that must ultimately lead to the Bank of the South, a joint bank for all Latin American countries.

«We will use our capacity to contribute, together with Argentina, to strategically deepen the integration in Latin America and to form a block of nations», summarized the president of the financial commission of the National Assembly, Rodrigo Cabezas.

Venezuela had helped debt-crushed Latin American nations before in order to pay off their international obligations. As Greg Grandin notes in The Nation, a critical American weekly, «Venezuela has already become an important regional creditor, purchasing more than $1 billion of Argentine debt last year, which allowed Buenos Aires to pay off its IMF (International Monetary Fund) tab in full».

Venezuela has recently purchased up to $2 billion more of Argentine debt, and last year it cut a similar deal with Ecuador.

But the knife cuts on both sides. Not only does Argentina benefit from the debt deal, also Venezuela gains. The bonds could be purchased in Venezuelan bolivars while the value could be sold in US dollars. With a liquated monetary market, few options to save and an exchange restriction in order to fight capital flight, Venezuelans used the bonds as legitimate way to store money.

Cabezas describes this interaction as "a policy of integration that puts the national government forward in one of its most important development strategies. Together with Argentina a mechanism is formed in which two nations can provide a decline in debts for both countries well-being".

The bonds were especially attractive for its high exchange rate. Venezuelans only paid 2150 bolivar for every dollar whereas a dollar on the black market makes a mere 3200 bolivar. Bonds were sold up to a total of US$ 1 billion.

The way to independence

Monetary interactions, like the debt pursue, between Latin American countries are important for the continent.

These policies are based on breaking away from the economic colonization that swept across Latin America in the 90s through a wave of privatizations, free trade agreements, and structural adjustment policies that pushed Latin America further in to debt and increased the already aggravated inequality ratio.

Impoverished neo colonial Latin American countries were forced to lend money with financial institutions like the IMF and the World Bank receiving in return fierce neo-liberal reforms that left these countries stripped down.

In order to fight off international neo-liberal institutions and to enlarge their markets, since the mid eighties country ties like the Mercosur (South Common Market, Spanish acronym) were formed.

With last May's entrance of Venezuela in the Mercosur, a new, economically and politically important Latin American block was formed and -alongside the establishment of a joint Latin American Bank of the South- the continent's autonomy took a serious turn.

The Mercosur now constitutes 75% of South America's economic activity holds 65% of the continent's population and contains some of the largest reserves of water and hydrocarbons on the planet. There is no doubt as to the geo-political importance of the trading block as an economic front against the United States and the devastating politics tied to the credits of the IMF.

«The bank may function as an alternative to structural adjustment policies imposed by the IMF», says Andres Santeliz, economist and professor at the Central University of Venezuela (UCV).

«Intra-continental monetary interactions can be backed up by the bank and in a situation of mismanagement of a country the Bank of the South implements sanctions that are not imposed by countries outside of Latin America», he adds.

The regional institution will finance infrastructure projects and business investments in the countries of the South at a low interest rate.

Debatable method

Nationally, in Venezuela, not everybody is equally satisfied with the solution to deal with the debt of the fellow country.

Critics have blamed the low interest rates and the artificial reduction of inflation on the government. They claimed that the Bonds of the South were not enough to reduce the liquidity.

But high liquidity is most of all due to «annual Christmas bonus and holiday shopping sprees», according to the President of the National Bank of Venezuela, Domingo Maza Zavala.

On top of that, the emission of the bonds was never to solve national problems. According to Rodrigo Cabezas, «the government tried to tighten relations between the country and Argentina. This was done in order to take a step forward in the economical financial integration».

«The private sector is reclaiming a larger emission even though the operation was not launched to enlarge the capital of the private sector», said the socialist politician, «it was part of an economical integration strategy».

To emphasize the intra-continental outlook of the Bolivarian government Cabezas added that «the interaction between Venezuela and Argentina would set an example for the other countries and members of the Mercosur».

The feasibility of this international view was affirmed by one of Caracas brokerage firms. An intra-continental investment can be cost effective because in local markets, risks are better known.

On the question if the bonds would not stimulate capital flight, something that the government tries to prevent by restricting currency change, the broker said: «The ministry of finance sells the bonds directly or indirectly to the National Bank, in this way the ministry obtains bolivars of Venezuelan private individuals and evades the sale of dollars to the central bank. By doing this they reduced the monetary impact for the public».