AIIB Prelude To SDR Decision

In what can only be seen an unexpected Chinese success, several US allies have agreed to participate in China and India’s Asian Infrastructure Investment Bank. The UK not only appeared to break ranks with the US, but seemed to have preempted its European partners as well. Once the UK expressed interest, it was if a dam burst and quickly others signed up as well. 

Recall that the $50 bln institution was set up last October, and others have until the end of this month to join to be considered as founding members. This allows participation in the decision making of the AIIB though the details are not clear. Those that join later will not have such a role, which is a subtle hint of the difference between it and the other multilateral institutions, like the IMF and World Bank. 

To say that the AIIB will compete with the $160 bln Asian Development Bank is a bit of an exaggeration. First, the infrastructure needs in Asia are much larger than the ADB can fund. Second, the ADB has been consulting with the AIIB in an advisory capacity. Third, Japan, which has headed the ADB since it was founded in almost 55 years ago, is also considering joining AIIB.  

Leaving aside US parochial concerns, which seem to be over the increase of  China’s influence, there are reasonable questions about the transparency and governance of the AIIB. It does not appear to be simply a development bank with China as a key shareholder. Rather than promote neo-liberal values, embodied in the Washington Consensus, the AIIB could encourage China’s state capitalism model. The criteria for picking projects is also not clear. 

While this is seen as a diplomatic setback for the Obama Administration, the underlying may lie with Congress. It has blocked IMF funding which is the precondition for reforming the voting (quotas), which would give China and other developing countries a greater voice. In contrast, the Obama Administration seems to recognize that if China (and others) do not get a larger voice in the existing institutions, it will create parallel institutions.