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. by KALINGA SENEVIRATNE
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