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UPDATE 2-South Americans to form independent regional bank

(Updates with signing, adds quote, details)

BUENOS AIRES, Dec 9 (Reuters) - Seven South American countries founded on Sunday a development bank to demonstrate their independence from multilateral lending practices that some have blamed for past economic crises.

The presidents of Argentina, Bolivia, Brazil, Ecuador, Paraguay and Venezuela, and a representative of Uruguay, signed an act forming the Bank of the South ahead of Monday’s inauguration of new Argentine president Cristina Fernandez de Kirchner.

All the countries involved except Paraguay are led by leftists and the bank is an initiative of Venezuelan President Hugo Chavez, who envisions lending under rules designed by member countries rather than by Washington or Europe.

“We’re making a decisive step in building the integration dream of the peoples of South America,” said Brazilian President Luiz Inacio Lula da Silva at the signing ceremony in Argentina’s national palace, known as the Pink House.

The bank will fund development projects and each member country will have an equal say in how it is run.

The members’ economy ministers will decide funding and operation details over the next two months.

The bank will be funded with some $7 billion, the bulk of which would come from Brazil and Venezuela, with Argentina contributing $800 million, according to local press reports.

A source at Argentina’s Economy Ministry said countries would initially fund the bank with 10 percent of their total commitments.

“The Bank of the South appears to be one of the region’s most compelling projects leading toward authentic Latin American financial bolstering, as well as helping to allow for a new-found autonomy,” wrote researcher Roberto Mallen of the Council on Hemispheric Affairs, a leftist Washington think tank.


He said the bank’s structure will not allow Chavez to dominate it, even if it is based in Caracas.

The bank “should generate more financing for countries that have difficulty getting it. Brazil has a lot of credit today but we want all countries to have more,” Brazilian Finance Minister Guido Mantega told reporters.

“That way we’ll be pushing the development of other countries and stronger commercial relations.”

Brazil, the economic powerhouse that may provide close to half the bank’s capital, was hesitant to be involved but apparently agreed to come onboard if the institution works as a development lender similar to the World Bank, rather than as a provider of loans for countries in economic crisis like the International Monetary Fund.

The IMF is widely despised in South America because it has imposed tight restrictions on government spending as conditions for lending.

Outgoing Argentine President Nestor Kirchner says IMF policies provoked the Argentine economic meltdown five years ago, partly by encouraging the country to go too deeply into debt.

Argentina and Brazil have both completely paid off their IMF debt and other countries in the region, such as Uruguay, have made steps in the same direction. Venezuela has said it will completely withdraw from the IMF.

Kirchner will sign the bank agreement in his last act as president, a day before his wife Fernandez is inaugurated to succeed him after winning elections in October.

Countries that have cooler relations with Chavez -- a stridently anti-U.S. leader who has used Venezuelan oil wealth to spread his influence in the region -- have so far not joined the bank.

Chile, the region’s model economy, and Peru, whose leader Alan Garcia has had disputes with Chavez in the past, are not onboard though they will be invited to join.

Colombia was to be part of the initiative but pulled out when President Alvaro Uribe fell out with Chavez over his role in helping the Colombian government negotiate a prisoner exchange with leftist guerrillas. (Writing by Fiona Ortiz; editing by Mohammad Zargham)