THE ASIAN INFRASTRUCTURE INVESTMENT BANK.

THE ASIAN INFRASTRUCTURE INVESTMENT BANK:

At China's initiative an Asian Infrastructure Investment Bank(AIIB) was set up on 24 October 2014. On that date, 21 Asian countries became founder members and participated in a memorandum of understanding signing ceremony in Beijing. 

As of now, there is no similar interest among developed Western countries in becoming members of the New Development Bank (NDB) or the Contingent Reserve Arrangement (CRA) to be set up by the five BRICS nations. China appears to be more focussed on getting AIIB up and running. 

The $50 billion AIIB will be headquartered in Shanghai like the NDB but China will be the dominant share-holder with 49 per cent equity unlike the $10 billion NDB in which the five founder countries have 20 per cent stakes each.

This is the first time that three out of five permanent members of the UN Security Council (China, UK and France) and four out of seven G7 members (UK, France, Germany and Italy) have defied the US in the setting up a new multilateral development bank. It is curious that Indian print media has barely covered this novel development.

THE USA'S CONTENTION:

The immediately relevant issue for the US is an erosion in the dominance of the IMF, World Bank and ADB if the CRA, AIIB and NDB grow in size over time. After former IMF managing director Dominique Strauss-Kahn left in disgrace in mid-2011, it was apparent that there were several non-G7 country candidates who were well qualified to replace him.

The US has suggested that the AIIB will not follow the high lending standards of existing multilaterals. 

THE CHINA'S DEFENCE:

According to the China’s stated perception, instead of being seen a rival, the AIIB will complement the Western-backed World Bank, and the Asian Development Bank (ADB), which can lend only 10 billion dollars per year . This is far short of ADB’s own prediction that development of infrastructure in the Asia-Pacific requires an infusion of 8 trillion dollars following the decade after 2010.

NEED FOR THE AIIB:

The World Bank and ADB now seem to be too driven by the sensibilities of NGOs in developed countries on sustainable development issues. This is not to suggest that such considerations should be ignored. However, should multilateral development banks unilaterally refuse to fund projects in the hydroelectricity-irrigation, thermal and nuclear power sectors? To conclude, any initiative taken by AIIB or NDB to be open-minded about loans for projects in such sectors, in consultation with borrower countries, is likely to be welcomed.

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