The Rise of the AIIB  

AIIB
• 4 minute read •

After World War II, Asia and Europe were devastated, over 80 million had died, many, many more injured and much of the world lived in abject poverty. Countries were in the process of rising from the ashes (literally, in some cases) and for this, they needed some strong financial support. From the Bretton Woods Conference, held near the end of the war, diplomats talked about the need for financial institutions to restore the World Economy after the devastating war. Soon after, in 1945, the World Bank and the International Monetary Fund were born. The aim being that the two institutions combined would regulate and rebuild the international monetary system. Over time the integrity of the two institutions grew leaps and bounds and together are now viewed as the dependable backbone of the international economy.

What do the World Bank & IMF do and what have critics said?

Simply put, the World Bank provides loans for capital projects to help promote economic development and infrastructure undertaken by countries and the IMF offers loans to countries facing monetary issues. Over the years, the 2 institutions have received flak from critics all over the world. Loans issued by the World Bank and the IMF have a number of fiscal and policy conditions the recipient must accept or else they run the risk of not receiving the loan.

Renowned economist Joseph Stiglitz, former Chief Economist of the World Bank, has stated the conditions are very rigid and sometimes dictated without thought, no matter the recipient country’s individual characteristics. Some of the conditions include limitations on Government Expenditure and reduced roles for the State among others.

President of the Eurasia group and American political scientist, Ian Bremmer stated that America had used its authority in the affairs of the World Bank and IMF to influence developing countries into adopting western values. America and its allies seemed to dominate the working of both institutions. China, for its part, held very small roles in the two institutions – although the country is the second largest economy.

Isn’t there an Asian bank already?

Yup, there is. The Asian Development Bank (ADB), although headquartered at Manila, Philippines has had Japanese presidents since its inception 51 years ago. The ADB’s focus is more widespread. They provide loans and grants for projects concerning agricultural and food security, education along with infrastructure. It is believed that Japan has a large control of the proceedings there.

Of the many things that desperately need improvement and work in the continent, infrastructural development is one which has incredibly high demand in Asia.

Image result for developing asia
It is currently estimated that Developing Asia will require $1.3 trillion per year!

That number is sure to increase in the future. The continent’s rapid growth in recent years shows that there is a lot of potential which, with better infrastructure and policies, can be tapped to promote the Asian economy.

Now, about the AIIB

The Asian Infrastructure Investment Bank, or AIIB, headquartered in Beijing, started operations on 16th January 2016 after 15 months of the founding members working on developing policies, principles and the core philosophy they would use in all the projects they would conduct. The developmental bank has an aim to improve social and economic outcomes in Asia and other countries. They offer to finance projects involved in developing avenues like Rural Infrastructure, Energy & Power and Environmental Protection. There are 87 members in total. China and India hold the highest percentage of total subscriptions (the amount of money invested in the bank), because of this the 2 countries also hold the highest percentage of voting rights.

The AIIB currently has $100 billion capital stock. The loans handed out by the bank have lesser conditions than the World Bank and the IMF and some believe this could help in more countries approaching the AIIB for loans. China, or at least the officials at the head of the institution, held the opinion that each country should reserve the right and have the freedom to dictate how internal affairs are conducted in their own country rather than be forced to follow rules an international body with a very western flair to its conditions prescribes them.

Well, this definitely seems to have worked, as, in just 2 and a half years of operation, they have financed over 25 projects ranging from countries in Asia, the Middle East and Europe. Sometimes working alongside the ADB, more than 15 Proposed Projects (as of the time of writing this article) are in the pipeline. Over $1 billion has been invested in projects in India. Examples of projects that have been backed with financial support from are Madhya Pradesh’s Rural Connectivity Project – which aims to improve rural accessibility and Andhra Pradesh’s Power For All project – which, you guessed it, aims to improve the supply of power and efficiency of operations.

When the bank was established, it was seen as a rival to the IMF and World Bank. In fact, the US urged its allies to not make any ties in the bank. Many believed the bank was established by China so that the country could pursue its own geopolitical interests in the future. China decided to forgo veto power in the bank – a daring move that helped bring European countries as members into the bank, most notably America’s strongest ally, the UK.

The bank not only serves the purpose of raising China’s strength in the international financial system, but it also helps promote infrastructural projects part of the “One Belt, One Road” project, which comprises of the land-based Silk Road belt and the Maritime Silk Road. Combined these 2 routes connect Europe, Middle East and Southeast Asia. This regional connectivity will foster international trade.

The AIIB has been given top ratings by three major rating agencies. They champion projects that promote sustained economic development with a low carbon footprint. They have taken projects such as Bengaluru’s Metro Rail (construction of a mass transit system – a step in the battle against Climate Change) and in Egypt, they financed a renewable-energy project involving 11 solar power plants (adoption of new technologies while constructing infrastructure). In just over 2 years, they have built up their reliability and credibility. The AIIB is now a recognized and respected Multilateral Developmental Bank (an MDB is a financial institution made by 2 or more countries for economic development). There is every reason to believe in an optimistic future in shared benefits for Asia and beyond.

 

 

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Create a free website or blog at WordPress.com.

Up ↑

%d bloggers like this: