We need new financial institutions to oversee the world economy more fairly.

The International Monetary Fund (IMF) is back, and that’s not a good thing.

Over the last few decades, the IMF had discredited itself by crudely imposing pro-market policies on developing countries in a one-size-fits-all manner that caused mass hardship. But in the current global financial crisis, the IMF has returned, playing a central role from Greece, Hungary and Latvia all the way to Pakistan. Yet its policies remain surprisingly static: cut public sector employment, cut public subsidies, and roll out the red carpet for foreign corporations.

As the IMF head Dominique Strauss-Kahn recently said: “We remain an institution that believes that low and stable inflation delivers positive benefits for growth and macroeconomic stability.” Employment creation, poverty reduction or better income distribution are not part of the IMF vocabulary.

As an alternative to the IMF, several left-of-center governments in South America have come together to create the Bank of the South (BANSUR). Officially created in May 2007 and formally constituted last September, BANSUR is going operational.

According to Pedro Paez, head of the Ecuadorian Presidential Commission for the New Financial Architecture, BANSUR will be the main component of the new strategy of integration in South America. The plan for a new regional financial architecture involves reduced dependence on external funds, with increasing use of the currencies of the region rather than the dollar, greater degree of cooperation in the region and a move towards a common monetary system underpinned by policies to promote full employment and poverty reduction.

BANSUR also represents an alternative to the bilateral trade accords promoted by several American administrations. Not surprisingly, Chile, Colombia and Peru — all of which have bilateral trade agreements with the United States — are not, at least initially, members of the new organization.

The Bank of the South is a crucial first step in promoting a more balanced and sustainable process of development, one of whose basic goal is improving the lives of the vast majority of the people, not serving the narrow interests of multinational banks and corporations. If BANSUR succeeds in South America, other regions should copy it and free themselves from the yoke of the IMF.

The dictatorship of the International Monetary Fund must come to an end.

Matias Vernengo is associate professor of economics at the University of Utah. He can be reached at pmproj [at] progressive [dot] org.