US is not amused at the rise of AIIB as rival to World Bank

The US is not amused.

The list of countries signing up to the Chinese-led initiative which would rival the World Bank is growing as Japan and Australia have now indicated that they too will join. In the last week the UK, Germany, Italy, France and Luxembourg indicated that they too would sign up to the Asian Infrastructure Investment Bank (AIIB) in spite of dire warnings from across the Atlantic. South Korea is also expected to sign up now that the UK and Japan have.

(Reuters)Japan signaled cautious approval of the China-led Asian Infrastructure Investment Bank (AIIB) on Friday and said for the first time that, if conditions were met, it could join the institution that the United States has warned against.

Australian Treasurer Joe Hockey said there was “a lot of merit” in the bank and the Sydney Morning Herald newspaper reported that Canberra could formally decide to sign up when the full cabinet meets on Monday.

Japan, Australia and the South Korea, all major U.S. allies, are the notable regional absentees from the AIIB. The United States, worried about China’s growing diplomatic clout, has questioned whether the AIIB will have sufficient standards of governance and environmental and social safeguards.

The US  (US Treasury department and the US Congress) was not amused in October last year when “India along with 20 other countries today signed an agreement to become founding members of the China-backed Asian Infrastructure Investment Bank (AIIB) to aid the infrastructure development in the Asian region and reduce the dependence on Western-dominated World Bank and IMF.”  The authorised capital of AIIB is to be USD 100 billion and the initial subscribed capital is expected to be around USD 50 billion. The paid-in ratio will be 20 per cent. The AIIB is to be headquartered in Beijing and it is hoped that it will be operational by the end of 2015.

It was the US opposition to allowing any reform of voting rights at the International Monetary Fund which had irritated and annoyed China and other Asian countries which had led to the Chinese initiative. The proposed – relatively mild – reforms for the IMF were agreed at a G20 meeting in 2010 and have been ratified by all European countries. But the US has not yet ratified these changes. It has not been prepared to permit any weakening of its dominance in the World Bank and the IMF.  The founding members of the AIIB members in October 2014 were China, India, Vietnam, Uzbekistan, Thailand, Sri Lanka, Singapore, Qatar, Oman, the Philippines, Pakistan, Nepal, Bangladesh, Brunei, Cambodia, Kazakhstan, Kuwait, Lao PDR, Malaysia, Mongolia and Myanmar.

The US has followed a strategy of criticising the possible environmental and social irresponsibility of the new institution which is intended to focus on transport, energy and telecommunications infrastructure. The US has also raised doubts about the transparency and governance of the proposed new institution and warning other countries not to join. But what was a relatively minor and mainly regional matter has been blown-up by the US opposition. The US strategy of “bad-mouthing” the AIIB seems to have back-fired. Some of the support now coming from countries traditionally seen as US followers can be considered a direct reaction to the bad-willed US opposition. 

From all accounts, the Obama administration has expended serious energy trying to dissuade its allies from joining ……. With the defection of the UK, however, it appears likely that Washington’s carefully constructed coalition will gradually unravel—both Australia and South Korea are apparently reconsidering their earlier reluctance to join the bank and could well use the UK’s decision as political cover for deciding to join the bank.

The European countries (and Japan and South Korea) have realised that their companies must have the chance of bidding for future AIIB infrastructure projects. For at least the next two decades – and maybe longer – there has to be a massive infrastructure investment in Asia. The US will eventually have to join the AIIB or to step aside and to let it proceed. US companies hoping to bid for Asian infrastructure projects would prefer that the US join. But now the US administration has the additional task to do some “face-saving” while it backs away from its ill-considered strategy of opposition.

 

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