The AIIB has members from 21 diverse Asian countries, including Qatar, India, Pakistan, Thailand and Malaysia. Other important regional countries like Indonesia or South Korea have not yet joined the AIIB. Japan, China’s main rival in Asia and which dominates the $175 billion Asian Development Bank (ADB) along with the US, has also not joined the AIIB.
China seems eager to extend its influence and soft power across the region, and has grown understandably frustrated due to being given only limited voting rights in other major international financial institutions despite being the world’s second-largest economy. Besides the AIIB, China is thus, now also a founding member of the $50 billion BRICS Bank launched alongside Brazil, Russia, India and South Africa. China’s involvement in these new entities is being viewed as an attempt to create rival financial institutions to the World Bank and the ADB.
The US has cautiously welcomed the idea of an infrastructure bank for Asia, simultaneously, pointing out the need for the AIIB to meet international standards of governance and transparency. However, the US is itself not in a position to raise such objections given that it dominates the governance structures of the existing multilateral organisations, including the IMF, the World Bank and also the ADB.
Proponents of the AIIB point out that unlike the World Bank and the ADB, the AIIB will focus on infrastructure projects instead of other development works, so there will not be much duplication of efforts. Whether the AIIB will be effective in helping ensure widespread economic development remains to be seen.
Other multilateral organisations like the World Bank were initially funding large infrastructure projects for more than three decades since their creation, before they realised that the benefits of these measures do not necessarily result in prosperity for all, or alleviate poverty. It is then, that the World Bank introduced more ambitious programmes like ‘structural adjustment’ in order to instill a broader set of reforms to help achieve development in ‘Third World’ countries, which were recipients of its loans. The problem with the World Bank, or the ADB for that matter, is that they continue relying on market mechanisms to achieve development, which skews their policies in favour of local elites and transnational business.
In an attempt to counter international cynicism, China recently reiterated that it will adopt best practices of other international financial institutions like the World Bank or the ADB. Such replication will not be sufficient to ensure promotion of sustainable and pro-poor development schemes. China’s own model of development has also been abrasive, without much regard to rights of marginalised communities or environmental concerns, as was evident in the case of the construction of the Three Gorges Dam, and the roughshod repatriation of affected communities. Also, China’s recent record of providing aid to the developing world in Africa, for instance, has not been very reassuring.
Instead of trying to replicate imperfect governance and development policies of entities like the World Bank, China should learn from their failings and try to make the governance structures of the AIIB more participatory to the other member states, as well as concede to the need for making environmental and human development concerns paramount to selecting infrastructure development projects to be financed by the AIIB.
Published in The Express Tribune, October 31st, 2014.
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