AIIB Financing Development in Asia

    
    摘要:African ConferenceCommemoration Summit in Jakarta, the Indonesian president in his openingaddress put the record straight that "The view that the world economicproblems can only be solved by the World Bank, the International Monetary Fund,and the Asian Development Bank is an out-dated view." One can hardly hearsuch a scathing attack from an incumbent leader against the financial-troikasin Asia. Besides the World Bank, IMF and the ADB, the European Bank forReconstruction and Development (EBRD) is another addition to western dominatedinternational financial institutions (IFIs), which finance developmentprogrammes in Asia.

OPINION /ANALYSIS

AIIB:Financing Development in Asia

AVILASH ROUL

June 15, 2015

During the Asian-African ConferenceCommemoration Summit in Jakarta, the Indonesian president in his openingaddress put the record straight that "The view that the world economicproblems can only be solved by the World Bank, the International Monetary Fund,and the Asian Development Bank is an out-dated view." One can hardly hearsuch a scathing attack from an incumbent leader against the financial-troikasin Asia. Besides the World Bank, IMF and the ADB, the European Bank forReconstruction and Development (EBRD) is another addition to western dominatedinternational financial institutions (IFIs), which finance developmentprogrammes in Asia.

The President seems to be right in terms of the changing developmental financelandscape of Asia. The establishment and institutionalisation of China-ledAsian Infrastructure Investment Bank (AIIB) and BRICS (Brazil, Russia, India,China and South Africa) sponsored New Development Bank (NDB) is the newadditional sources of development financing. Presently, funds from IFIs withtheir patron donor countries' bilateral aids and developing countries’ domesticresources are lagging behind to fulfil the ever growing gap of investmentrequirements in various sectors in Asia. It is estimated that Asia needs $7.9trillion in the infrastructure sector alone.  

The year 2015 is vital for guiding global development. While the on-goingpost-2015 Sustainable Development Goals (SDGs) discourses is scheduled to beheld at Addis Ababa in July, COP 21 on climate change in Paris is gaining pacealong with the upcoming 10th WTO Ministerial Meeting at Kenya. All debate boilsdown to finance.

Who foots the bill?
Asia needs more investment than what is presently being provided by the donors.The Manila-based ADB mobilises annual investment up to $23 billion ininfrastructure, energy, agriculture, water resources and others. The World Bank(IBRD, IDA and IFC) annual investment in Asia is approximately $26 billion onsimilar lines. The EBRD alone funds funnels nearly $1.5 billion annually inCentral Asian countries and Mongolia. The Islamic Development Bank (IDB), whichlends predominantly to Muslim countries, invested $5.1 billion in 2013 in 17countries in Asia.  There are also other smaller funds like ASEAN InfrastructureFund. Not to forget, the 'Chinese Silk Road Economic Belt' has a pool ofresources which is the consolidation and continuation of Chinese investment inAsia and Africa. India too has its own fund for external investments as doesthe IBSA (India, Brazil and South Africa) Fund since 2004.

However, the AIIB is a new addition, like NDB, into the lexicon of developmentfinance that will fund largely infrastructure projects in Asia from its paid-upcapital of $50 billion and with authorized capital of $100 billion. By nextyear, BRICS' NDB will also start lending to Asia from its $50 billionsubscribed capital. Still, this may not fulfil the demand of need-baseddevelopment in the Asian countries. For example, a whopping $450 billion isrequired only for meeting Indonesia's infrastructure need by 2020. The ASEANregion requires an annual $70 billion investment for various developmentalprojects. The emerging five (E-5) needs $4 trillion in coming five years tomeet their infrastructure gap.

The establishment of the AIIB is a welcome move as it aims to fill the basicfinancing gaps in Asia. This is where the basic problem for the US and Japanlie as they want to continue using bilateral resources and IFIs as a majorforeign policy tool. For instance, the US Treasury Secretary Jack Lew whiletestifying before the House Committee in March urged that the US shouldn't letgo of World Bank and IMF as its foreign policy instrument. Meanwhile, PresidentObama's 'Asia pivot' has now got a formidable competitor in terms of Chinesefinancial aid.

On the other hand, the NDB and AIIB have swiftly achieved what the G-20/G-24failed so far, especially since 2010 when the developing countries demandedoverhauling of the Bretton Woods Siamese twins - World Bank and IMF. At least,the new banks have compelled the US government to rethink about the monopoly onglobal economic structure. Despite the demand, in a typically US 'standardprocedure', the Congress has been sitting on a reform bill of the BrettonWoods. It is long overdue. The AIIB and NDB have both emerged in the Asianhorizon in order to send a strong message to the unequal economic governancestructure and to provide alternative but supplementary need-based developmentfinance. This is a paradigm shift in Asia, which is needed to counter theneo-colonial western dominant institutions.

Since November 2014, the AIIB has been in headlines for all wrong reasons whenthe US asked its allies not to be part of this seemingly “less transparentgoverning institution with unknown environmental standards and procurementpolicies.” Are the World Bank and ADB transparent and governed with democraticprinciples? Why is it that only a US citizen can be World Bank President, orwhy only a Japanese citizen will be President of ADB and why only a Europeanwill be chief of IMF? Besides, the Board of Directors, who control and approveprojects, policies and programs, in these institutions are not democraticallyrepresented. The countries are not equal in decision making. The rule of the gameis whosoever’s contribution is hefty it will call the shots.  A freshexample is provided by NDB in its structure as India is taking its firstpresidency for five years.

However, in the fast changing world politics, many US allies - four out of G-7members (UK, France, Germany and Italy) -- jumped one after another against theUS' diktat to be founding members of the AIIB. Some argue that they will makechanges in AIIB from within by becoming members and others are waiting to joinwhen the institutional policies will be released in July this year. In fact,it's out of sheer fear of losing their bilateral relevance in 'developmentbusiness’ that most of the non-Asian member have joined the AIIB.

The legitimacy of any institution in the 21st century depends on equitable,democratic governance structure with pro-people agenda. While 21 Asiancountries signed the Memorandum of Understanding (MoU) on 24 October 2014 toestablish the AIIB, by April 15, 2015, it already has 57 countries as foundingmembers. When World Bank (IBRD) was established in 1944, the membership was 44.Similarly, ADB was established with just 31 member countries in 1966. To stayrelevant in terms of competition in Asia, the ADB, as predicted earlier, hasproposed and agreed to work with AIIB as co-financing partner.  The WorldBank too has already welcomed and acknowledged the arrival of AIIB.

Bone of Contention
It is not a coincidence that a handful of opponents (economists, CSOs,academicians) in the developed world and their corresponding counterparts inAsia have reservations against NDB and in particular AIIB, like their hostgovernments. Grave concerns related to human rights violations and transparencyin AIIB projects loom large at least in Asia. However, it should be noted thatthe so-called 'gold standard' of the World Bank - Safeguard Policy(environment, resettlement, Indigenous and information) - has failed to protect3.4 million people's physical and economic eviction across the world between2004 and 2013 for its own projects. In his own admission, World Bank Presidentpromised to rectify these grave mistakes as soon as possible. The South Koreangovernment, which initially opposed AIIB due to its unknown environmentalpolicies, rushed to be a founding member. Was POSCO project in Odisha (India)funded by Korean giant protecting human rights? Even bilateral agency-supportedprojects are not bereft of human rights violations. But neither these agenciescome under independent watch groups’ mandate, nor are being strictly scrutinizedfor non-compliance with international standards. Same outstretched concerns arebeing thrown as to whether the ADB will be following its own standards in termsof protecting environment for any co-financing projects with AIIB. In fact,since 2009, the ADB policies (Safeguard and Accountability Mechanism)categorically state that all co-financing project will strictly follow its ownpolicies.

It is not noticed by the same opponents that AIIB has already been takingaccount of robust provisions of all existing financial institutions, bilateraldonor agencies and international best practices to form its institutionalpolicies to be more responsible and accountable. In March 2015, AIIB organiseda workshop where more than 100 technical experts across 32 countries andinternational agencies, including World Bank, ADB and UN, had been consulted toprepare the intuitional documents - safeguard and procurement policies. Itshould be remembered that Rome was not built in a day. So formulation of theideal institutional policies would also take time. It is better that the AIIBand NDB learnt from the mistakes of the IFIs, especially World Bank and ADB. IfAIIB can ensure that people will be consulted fairly before any project designand subsequently during the project cycle, that would be the revolutionarychange from existing developmental discourse. The Article of Agreement mustreflect as boldly as possible the aspirations of Asian people rather than thatof governments of Asia. It seems that those who are opposing the newinstitutions fear losing their relevance and are thus forced to oppose AIIB andNDB.

The message of Indonesian President Jokowi is loud and clear. Hithertoarm-twisting, pushing, coercing, cajoling through conditionalities andhandpicked projects by a few donor countries in World Bank and ADB would nownot dare to follow the usual practice. Now, the countries in Asia will haveadditional leverage to deal with pressure from World Bank and ADB. Manygovernment representatives who have been leading negotiations in these westerndominant financial institutions have vented their frustrations about 'coerceddevelopment'. It is also an opportunity for countries to make their ownnational standards higher to take responsibility of the projects which aresupported by both the IFIs (World Bank and ADB).  The AIIB and NDB haveprovided an additional financial opportunity to smaller countries in Asia andgiven them the freedom of access to resources. A new world economic order isbeginning to take shape in Asia. Time will witnesswhether  it is a success or a momentary bubble.

AVILASH ROUL (Ph.D), Senior Fellow, Society for the Studyof Peace and Conflict, New Delhi

http://sspconline.org/opinion/aiib-financing-development-asia