THERE HASN’T BEEN anything like it in the often smug world of multi-lateral development banking for years. I’m talking about China throwing the proverbial cat (a fat one obviously knowing how pay in that rarefied sector works) among the development bank pigeons by setting up the Asian Infrastructure Investment Bank.
A mate of mine who works at the Asian Development Bank in its Manila headquarters said the atmosphere at his employer’s was a mixture of outrage, jealousy and fear of the AIIB, which is a work in progress but rolling along at a swift pace.
My first reaction, knowing that place, as I do, rather well, is that the fear element probably chiefly comprised the fear of having to do some real work rather than sit around in the ADB’s swanky restaurant eating fine sashimi and listening to the cocktail pianist knocking out show tunes.
I’ve bleated on about that restaurant before in this column but it really is true that a pianist tickles the ivories for the delectation of ADB bankers every lunchtime at the campus-like headquarters of the institution in Manila’s Ortegas business district. Maybe the AIIB could manage a small orchestra as it sets itself up to steal the ADB’s thunder.
Alright, enough cynicism. But seldom has a proposed institution ruffled so many feathers. I’m thinking principally of the United States, which views the establishment of the AIIB as symbolising the definitive arrival of a challenge to its self-perception of global economic and moral hegemony.
Seldom has a proposed institution ruffled so many feathers
THE DEVELOPMENT BANK community has been busy grumbling but no doubt sneaking off curriculums vitae from the home office in the hope of capturing a slice of the action and the no doubt generous wallet that the AIIB has for recruitment.
According to a China Daily report last week, the institution is seeking individuals who are fluent in English and with, among other qualifications, expertise in environmental protection, law and loan approval.
A sense of urgency should have been added to the requirements since that has always been significantly lacking at the ADB where projects drag along for years if they manage to get approved at all. Approval is based on meeting the ADB’s stringent requirements that a project be commercially viable. Soft loans are not up for grabs from this lender.
More’s the pity really. The ADB’s mission is poverty reduction (or depending on the level of optimism, poverty elimination) in Asia-Pacific. The more projects you develop and close out, the closer you get to fulfilling that mission. There is a big argument to be made for throwing mercantilism’s criteria out of the window when you’re involved in development banking.
I wonder how the AIIB will approach that fundamental philosophical element when it gets up and running. There’s no doubt that Asia faces a monumental infrastructure gap, with the funding requirement running into the trillions of dollars. The main thing is to build that infrastructure, not pussyfoot around with endless paper passing between departments.
I assume the usual non-recourse funding route that is usual in project finance deals will be the basic modus operandi. But the AIIB should be generous when it comes to tenor and terms against a floating benchmark.
THE FEARS RAISED by various people in the US who have a stake in the game and do not want to play China’s game on the AIIB centre on the possibility that standards will be lax at the lender. I’ve just suggested that they should be.
That doesn’t mean building dams that collapse due to dodgy construction or turfing out indigenous peoples to make way for an airport or a highway without behaving according to the highest ethical standards. But it does mean getting the job done and not quibbling over the odd basis point.
The US’s isolationism on joining the bank is starting to look embarrassing as a host of countries – including Germany, France, the UK and Australia – have rushed to sign up. As cool heads have observed, if the US fears lax standards then one way to address that issue is to join and have a decisive impact on the bank’s corporate culture. You can’t do that by being Mr Disgruntled of Washington.
There can be little doubt that China has advanced the idea of the AIIB as a counter-weight, both in terms of symbolism and a grab for a slice of the global development pie, to the old Bretton Woods-era World Bank and International Monetary Fund, which are dominated by the US.
It presents an interesting potential dilemma for China, however. The existence of such an important multilateral institution in which an array of key global players participate might provide a drag on China’s military ambitions in Asia-Pacific.
As it engages in sabre-rattling over disputed territory in the South China Sea and seeks to become dominant militarily in the region, it confronts the possibility of walkouts from the AIIB in protest should it overreach. That would be an embarrassment the country would seek to avoid.
It might be that the new institution provides a bulwark against Chinese military aggression, something that many countries in the region are rightfully concerned about.
Or it might be that having engaged in a chunky piece of knowledge-grabbing from the international development banking community, it shows malcontents the door and runs the thing on its own together with the friendliest member countries. We’ll find out over the next decade.