By Paul Baiocchi

In Caracas on Tuesday, the groundwork was laid for the formation of a South American regional bank, which officials say could be operational by as early as May. While this is a positive development for a region which has a history of economic volatility and currency instability, concern must be expressed over the fact that Chavezuela, er Venezuela is leading the charge.

South America's past attempts at economic integration have largely been unsuccessful. The ANDEAN community, created in 1969 and lauded as the driver of South American economic independence at the time, failed to gain traction and following the withdrawal of Venezuela in 2006 only consisted of four members.  The latest iteration of an economic union, the Union of South American Nations, is modeled after the EU and is much larger in scope and includes the ANDEAN community. When the Union was signed into law in 2008, it was a landmark day for the continent. The lackluster development until this recent announcement has been a disappointment, even if the region has been in the throes of the global economic slowdown.

One of the main obstacles to successful economic integration is the homogenization of regulations and standards. In a region where political turmoil has persisted in many member states, it is clear this obstacle is larger than those faced by Western Europe. As such, it is imperative that those countries with stable government systems and economic viability are the ones leading the charge and setting the example. Instead, in the case of the South American Union (the new proposed name), they have allowed regional rivalries to cloud the goals of the union and relegate a promising economic integration to a mere paper union.

Take Venezuela for example. It may seem like a cheap shot to criticize the country based on its nefarious leader, but it is clear the socialist regime in Venezuela is the epitome of the region's problem.  Hugo Chavez has been very adept at making headlines, but more often than not those headlines are negative. When you consider that Colombia and Ecuador, two historically combative countries, are integral parts of the SAU (my acronym), it is easy to see why so little progress has been made.

That is what makes Tuesday's announcement all the more confounding. While it is clear the region is in need of financial independence, there is also the risk that a move of this magnitude may be a bit premature for a region that has seen little, if any development in the year since the union was formed. Add this to the fact that Caracas is likely to be the location of the region's financial center and one has to wonder if the region is setting itself up for failure. Why would a region which has experienced sustained infighting and has a history of financial instability take such a large leap of faith economically?

The success of the SAU may hinge on the success of Hugo Chavez in respecting the region's other economies and the $10 Billion in seed capital which is to be contributed to the bank. Then again, as Cemex can attest, what Hugo wants Hugo gets.  That may not be the best thing for the South American Regional Bank's future.