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The Asian Infrastructure Bank: Another Alternative for the Developing World?
By admin October 28, 2014

A general view of the signing ceremony of the Asian Infrastructure Investment Bank at the Great Hall of the People in Beijing

Since 1945, the “Washington Institutions,” such as the World Bank and the International Monetary Fund (IMF), along with the US Treasure have both sustained and constrained global economic development depending on different perspectives. To the developing countries, the conditionality of the IMF and the World Bank that pushed privatization and deregulation in those countries is a paradoxical recipe for economic development. With the rapid growth of the emerging markets, the global economy is now experiencing a changing balance of economic power that the ”Washington Institutions” have not effectively responded and adjusted to yet. However, the emerging markets and the rest of the developing countries are urgently requesting the restructuring of the institutional framework to reflect the growth of their economic power and demand for alternatives. The creation of the Asian Infrastructure Investment Bank (AIIB), to which 21 countries, including India, Thailand and Malaysia, gathered and signed an agreement to form in Beijing on Friday, 24 October, is in part, a product of this request.

The AIIB has been established to give project loans to developing nations with $50 billion USD startup funding provided by China. Compared to the Asian Development Bank (ADB) with $175 billion USD in capital, the AIIB is fairly small. The AIIB has a clear focus on building infrastructure rather than prioritizing poverty reduction. Concentration on infrastructure sectors reflects the general demand from the Asia-Pacific region for infrastructural funds. The ADB estimated that Asia needs about an $8 trillion USD investment in national infrastructure and $290 billion USD in regional infrastructure between 2010 and 2020 to maintain its growth. The bank is unlikely to attach political conditions to its loans in accordance with Beijing’s non-interference policy, which provides an alternative to the developing countries that want to avoid conditions attached by the loans provided by the “Washington Institutions.” The AIIB is not an example by its own. On July 15, 2014, the leaders of the BRICS gathered in Brazil and established the New Development Banks projecting their potential capability of restructuring the current textile of the world economy. The New Development Banks is also established to finance infrastructure projects in the emerging markets.

The future of the AIIB is uncertain for several reasons. First, few key regional players were not present in the conference. Japan, which is a major contributor to the $175 billion USD belonging to the Asian Development Bank along with the United States, was not present. South Korea and Australia were involved in pre-negotiations but did not attend the founding meeting. Second, China plays a predominant role in the AIIB which may potentially provoke the balancing act by the U.S. and its allies in the region. Third, the AIIB with limited funding faces competitions from not only the “Washington Institutions,” but also from the regional banks such as ADB and the New Development Bank. If the AIIB is able to mitigate the challenges listed above, it has potential to widen and deepen its influence in the region.

For more information:

http://uk.reuters.com/article/2014/10/24/uk-china-aiib-idUKKCN0ID08O20141024

http://www.theguardian.com/commentisfree/2014/oct/26/guardian-view-asian-infrastructure-bank-united-states-work-not-oppose

http://www.washingtontimes.com/news/2014/oct/26/world-bank-president-backs-chinese-counterpart/

http://www.economist.com/blogs/analects/2013/10/asian-infrastructure-bank-1

http://www.bloomberg.com/news/2014-05-11/china-s-50-billion-asia-bank-snubs-japan-india-in-power-push.html


Thanks for sharing !


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