Since the 2008 economic meltdown, Europeans and the Americans have been asking the Chinese to contribute more to the Bretton Wood institutions. But, in turn, the Chinese have been demanding reforms to the hegemonic system of management and voting rights in these institutions that favor the Americans and the Europeans. Both appeals have mainly landed on deaf ears.
Now the Chinese have decided rather than using their enormous financial reserves to prop up a world economic order that does not give them a say in its governance procedures, they will set up their own institutions. Many of the emerging nations seem to agree with China.
In July this year, the BRICS (Brazil, Russia, India, China and South Africa) announced the formation of the BRICS Development Bank with a reserve fund of $ 100 billion that aims to strengthen the global financial safety net. Next week, at the Asia Pacific Economic Cooperation (APEC) meeting in Beijing, China will announce the launch of the Asian Infrastructure Investment Bank (AIIB) with an initial Chinese investment of $50 billion.
The Chinese have been working on the idea for over a year and lobbied many of the regional governments to join in. In spite of heavy US pressure, 20 other Asian and Gulf states signed the MOU on October 24 in Beijing to set up the bank, that will begin to function at the end of 2015.
India, which may have buckled to US pressure a year ago, has enthusiastically embraced the new bank under Prime Minister Narendra Modi’s leadership and hinted at a substantial contribution to its capital. Staunch US allies Singapore, Philippines, Qatar and Kuwait have joined in. Only South Korea and Australia have caved in to US pressure and not signed in, while Japan doesn’t seem to have been invited.
Just over a week after taking office, Indonesia’s new president Joko Widodo has overturned a decision of his predecessor and told the visiting Chinese Foreign Minister Wang Yi on November 5 that Indonesia would also sign the MOU. Now Australia’s Prime Minister Tony Abbot says that his country is also keen to join the new regional bank.
The 21 founding members of the AIIB are Bangladesh, Brunei, Cambodia, China, India, Kazakhstan, Kuwait, Laos, Malaysia, Mongolia, Myanmar, Nepal, Oman, Pakistan, Philippines, Qatar, Singapore, Sri Lanka, Thailand, Uzbekistan and Vietnam. Indonesia will also join this list.
The purpose of the AIIB will be to provide infrastructure development funds to countries in the Asian region that was earlier dominated by the Japan-, Australia- and US-dominated Asian Development Bank (ADB).
Estimates have put the infrastructure development needs of the Asian region up to 2020 at $8 trillion with Indonesia alone needing $230 billion. The existing institutions were not supposed to provide this unless China was willing to invest its huge reserves.
In a commentary published in the Jakarta Post, chairman of the Singapore Institute of International Affairs, Simon Tay argued that the AIIB proposal runs against the established regional and global order, in which the Americans dominate the World Bank while the Japanese traditionally head the Asian Development Bank. But he added that times have changed, “some will remember how, back during the Asian crisis of 1997-1998, they (US) persuaded Japan and others not to support calls for an Asian Monetary Fund. However, the reality today is that, given the real needs for infrastructure, a simple No will no longer suffice.”
Dr Ahmad Rashid Malik, senior research fellow at the Institute of Strategic Studies in Islamabad writing in Pakistan’s Nation newspaper described the AIIB as an “Asian dream come true.” He sees this as a major breakthrough in ending western financial institutions’ hegemony in Asia, which many Asian leaders have fought against for over half a century.
“China wants to build new economic corridors in Asia such the Silk Route Belt in Central Asia, China-Pakistan Economic Corridor (CPEC), and the China-India-Bangladesh-Myanmar (CIBM) Economic Corridor. These are energy and trade corridors mutually beneficial to these countries,” he points out. “China would provide a leadership role in building these corridors to uplift the infrastructure in Asia, hitherto neglected for centuries.”
Sri Lanka’s International Monetary Cooperation Minister Dr Sarath Ammunugama also agrees that this bank will have a positive impact on the region’s infrastructure development. “This will enable Sri Lanka to obtain loans at a concessionary rate to further boost the expansion and building of infrastructure,” he told the Daily News in Colombo.
While much of the region’s media and economic analysts have welcomed the new bank, most of the western media have been barking about possible lack of good governance, anti-corruption and human rights procedures in the bank’s lending policies. They tend to argue that the ADB and the World Bank have strict criteria in this area, ignoring the fact that the ADB in particular has been criticized for years by civil society groups and even certain government officials for their insensitivity to the plight of the poor such as in funding water privatization schemes, or for land rights of the poor or even for cronyism in the choice of consultants.