A little more than a year after it was broached, a new
multilateral bank in Asia — the Asian Infrastructure Investment Bank (AIIB) —
was born last week in Beijing, signalling in the process the failure of hectic
lobbying by the United States against the move. The bank has 21 signatory-
countries, with India being the only major backer apart from China; the rest are
the smaller economies of Asia. The event was not without its share of drama as
Australia, Indonesia and South Korea pulled out apparently under pressure from
the U.S. Yet, it may not have been easy for them, as statements from some of
their diplomats show. The three countries, which have extensive trade dealings
with China, seem to be still torn between safeguarding their relations with the
Asian giant and not displeasing the U.S. It should surprise no one if they
decide to take the plunge after watching from the sidelines how the bank
develops. The AIIB, along with the other new China-based institution, the BRICS
Bank, represents the first major challenge to the U.S.-led global economic order
and the 70-year uncontested reign of the Bretton Woods twins. In a way, the IMF
and the World Bank have only themselves to blame if they find their dominance
under threat, because the seeds of the new bank sprouted from either their
inability or unwillingness, or both, to meet the growing funding needs of Asia.
As per the Asian Development Bank’s (ADB) assessment, Asia needs
on an average $800 billion of investment in infrastructure annually between now
and 2020. Against this, the ADB, dominated by Japan which is also a founding
member, lends no more than $10 billion a year for infrastructure. With the
American-dominated World Bank and the Europe-led IMF also remaining hamstrung,
the need for a multilateral body to finance the growth region of the world was
real. The ADB has been cautious in its comments, and understandably so; it can
do with support for infrastructure lending, yet needs to safeguard its turf.
India, with its participation, has lent heft to the AIIB, which would otherwise
have been seen as a Chinese bank backed by membership from lightweight countries
of the region. India, which will be the second largest shareholder in the bank,
should work with China to ensure that best practices are followed in projects
for procurement and materials and in terms of labour and environmental
standards. While there is without doubt a geo-political angle to the founding of
the bank — which is natural, given that the economic balance of power is
shifting to Asia — care should be taken to ensure that it does not become the
driving factor in the bank’s functioning. The bank should do what it has been
founded for — fund Asia’s infrastructure.
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