The birth of AIIB

The announcement of setting up the Asian Infrastructure and Investment Bank (AIIB) in Beijing on October 24, 2014 at a ceremony in the Great Hall of the People is a highly significant development in the global finance. With its headquarter located in Beijing, AIIB will be an inter-governmental regional development institution, with an authorised capital of dollar 100 billion, of which dollar 50 billion is likely to be subscribed by China, while other institutions and private lenders are expected to provide the remaining dollar 50 billion. Its members are overwhelmingly developing nations with Singapore the only semi-developed economy. Others range from economic powerhouses like China and India to smaller but economically dynamic nations such as Vietnam, the Philippines and Mongolia. Others taking part are Uzbekistan, Thailand, Sri Lanka, Qatar, Pakistan, Nepal, Bangladesh, Brunei, Kazakhstan, Kuwait, Malaysia, Myanmar, Laos, Cambodia and Oman. However, establishment process of AIIB is open and inclusive, and other interested countries are welcome to join. The AIIB is intended to address the region's burgeoning demand for infrastructural development like transportation, dams, ports, and other facilities. Highlighting the importance of the new institution, Chinese President Xi Jinping told the delegates after the signing ceremony that "in China, we have a folk saying that if you would like to get rich, build roads first, and I believe that is a very vivid description of the importance of infrastructure to economic development." Xi was echoing the outlook of Deng Xioping - the man who put China on the path of unprecedented economic progress. Finance Minister of Pakistan, Ishaq Dar, who was present at the occasion, said that appetite for infrastructure in our region is much greater than other regions and creation of the AIIB will provide greater opportunity to focus on attending the infrastructure deficits and be helpful in reducing poverty, increasing GDP and promoting socio-economic prosperity of the region.
Although, the best of intentions were abundantly on display at the signing ceremony in Beijing, the reaction from non-participating countries, particularly the Western countries, was not so favourable. The move by China and 20 other countries for setting up an Asian infrastructure lender was particularly seen as a counterweight to Western-backed international development banks. This was because of the background that China was constantly relegated to inferior status despite the importance of its economy at the global level and it had to find a new way in the running of financial institutions to raise its international standing in the world financial order. It is no secret that the world's first and second biggest economies do not very much trust each other and are locked in a ceaseless competition for pre-eminence in Asia, where US is still the dominant military power but China's massive economy continues to gather strength, creating a strong possibility of re-emergence of the 'Middle Kingdom' - a status this country enjoyed until the first half of 19th century. Nonetheless, the arguments for and against the establishment of AIIB, at least on paper, are quite interesting. Washington worries that AIIB could undercut existing institutions like the World Bank, IMF and ADB that have sought to impose standards to promote good governance, fair labour practices and a clean environment. The new bank, it is apprehended, would introduce laxer standards for borrowers in respect of environment, labour protection, transparency of the project bidding process and human rights. On the other hand, China hopes that the new bank will not only enhance its global stature but would help stop West's bullying and discrimination against developing and poor countries seen at present. Also, the World Bank estimates that dollar 8 trillion in spending was required between 2010 and 2020 just to keep Asian economies humming along and contribution from the AIIB would help these economies in building and rehabilitating their infrastructure to a certain extent. The World Bank's capital of about dollar 220 billion and ADB's of dollar 175 billion is grossly insufficient for the purpose. China also appears to be inclined to streamline AIIB's lending process so that the borrowing countries may not have to wait as long or jump through as many hoops to meet their borrowing needs. Greater competition among the lending institutions may also improve the flow and quality of lending and decrease the pressure on the existing multilateral-financial institutions.
Pakistan has signed on the formation of AIIB with high hopes. Although the country will not contribute any funds to the bank's capital base, it will be able to draw resources from the AIIB once it becomes operational. Since Pakistan has been a regular borrower from other multilateral agencies and old habits die hard, the creation of a new institution would provide the country another window of opportunity to borrow, probably on relatively less stringent terms. It is hoped that the country would be able to have greater access to funding from a new source for infrastructure development funding, particularly in the fields of energy and transportation besides gaining more space in regional connectivity. However, it is crucially important for the policy planners of the country to utilise the expected improvement in funding in an optimal fashion and according to a strictly laid down criteria rather than frittering the additional resources on grandiose or uneconomical projects.