AIIB & The Changing World Order
Reforming Multilateral Development Banks (MDBs), advocating for the Global South
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Multilateral development banks (MDBs) and India's involvement
Mains level: Multilateral development banks (MDBs) and its relevance today
Introduction
- Multilateralism, as the preferred mode of international cooperation, has evolved in scope, dimension, and outcomes over time. The ongoing debate on the reforms of multilateral development banks (MDBs) reflects the wider discussion on the value, content, and scope of multilateralism. Recognizing the need for reform, President Joe Biden and Prime Minister Narendra Modi emphasized the importance of strengthening and revitalizing the multilateral system.
Evolution of multilateral development banks (MDBs)
- International Monetary Fund (IMF): Established in 1944, the IMF aims to promote global monetary cooperation, financial stability, and economic growth. It provides financial assistance, policy advice, and capacity development to its member countries.
- World Bank Group (WBG): Formed in 1944, the WBG consists of several institutions that support economic development and poverty reduction. These institutions include:
- International Bank for Reconstruction and Development (IBRD): The IBRD provides loans and financial support to middle-income and creditworthy low-income countries for development projects.
- International Development Association (IDA): The IDA offers concessional loans and grants to the world’s poorest countries to fund projects that address poverty and promote sustainable development.
- International Finance Corporation (IFC): The IFC focuses on promoting private sector investment in developing countries by providing loans, equity, and advisory services to businesses.
- Multilateral Investment Guarantee Agency (MIGA): MIGA offers political risk insurance and credit enhancement to investors and lenders involved in projects in developing countries.
- International Centre for Settlement of Investment Disputes (ICSID): ICSID provides a platform for resolving investment disputes between states and foreign investors through arbitration and conciliation.
- Regional Development Banks (RDBs): In addition to the IMF and WBG, several regional development banks have emerged to address specific regional needs. Some prominent RDBs include:
- Asian Development Bank (ADB): Established in 1966, the ADB provides financial support and technical assistance to promote economic development in the Asia-Pacific region.
- African Development Bank (AfDB): Founded in 1964, the AfDB supports social and economic development in African countries through financing and capacity-building initiatives.
- Inter-American Development Bank (IDB): Formed in 1959, the IDB promotes sustainable development and regional integration in Latin America and the Caribbean through financial and technical assistance.
- Other Multilateral Development Banks: Several other MDBs have been established to address specific regional or sectoral needs. Examples include the European Bank for Reconstruction and Development (EBRD), Islamic Development Bank (IsDB), and Caribbean Development Bank (CDB), among others.
Relevance of MDBs
- Financial Assistance: MDBs play a crucial role in providing financial assistance to member countries, particularly middle-income and low-income countries. They offer loans, grants, and concessional financing to support development projects, infrastructure development, poverty reduction, and social programs.
- Development Expertise: MDBs possess extensive technical knowledge and expertise in various sectors such as infrastructure, energy, agriculture, health, education, and governance. They provide valuable advice, capacity building, and knowledge sharing to member countries to help them address development challenges and implement effective policies and programs.
- Catalyzing Private Investment: MDBs play a vital role in mobilizing private sector investment by offering guarantees, insurance, and risk mitigation instruments. They help create a conducive environment for private investment by reducing risks, improving governance, and facilitating public-private partnerships.
- Promoting Sustainable Development: MDBs promote sustainable development by integrating environmental and social considerations into their projects and programs. They support initiatives related to climate change mitigation and adaptation, renewable energy, environmental protection, biodiversity conservation, and sustainable infrastructure development.
- Addressing Global Challenges: MDBs are increasingly focused on addressing global challenges that transcend national boundaries. They support initiatives related to climate change, pandemic preparedness, disaster risk reduction, conflict prevention, and post-conflict reconstruction.
- Capacity Building: MDBs assist member countries in building institutional capacity, improving governance, and enhancing policy frameworks. They provide technical assistance, training programs, and knowledge sharing platforms to help countries strengthen their institutions and implement effective development strategies.
India’s significant role in MDBs
- Shareholder and Contributor: As a member country, India holds shares in various MDBs, including the World Bank Group (WBG) and regional development banks like the Asian Development Bank (ADB). India contributes financial resources to these institutions, which enables them to provide loans, grants, and technical assistance to member countries.
- Voice of the Global South: India often advocates for the interests and priorities of the Global South within MDBs. It seeks to ensure that the concerns and development needs of developing countries, particularly low-income and middle-income countries, are adequately represented and addressed in the policies, programs, and financing decisions of MDBs.
- Policy Formulation and Influence: India actively engages in policy formulation and decision-making processes within MDBs. It participates in discussions, working groups, and committees to shape the strategic direction, operational policies, and priorities of these institutions. India’s perspectives on development issues, poverty reduction, sustainable development, and infrastructure development carry weight within MDBs.
- Bilateral Partnerships: India collaborates with MDBs through bilateral partnerships to implement development projects and programs. MDBs provide financial assistance, technical expertise, and knowledge sharing, while India contributes its own resources and expertise to support development initiatives in areas such as infrastructure, renewable energy, agriculture, and social sectors.
- Promoting South-South Cooperation: India actively promotes South-South cooperation through MDBs. It seeks to foster collaboration and knowledge exchange among developing countries, sharing its own experiences, best practices, and lessons learned in various development sectors. India also supports capacity-building initiatives for fellow developing countries in partnership with MDBs.
Significance of Multilateral Development Banks (MDBs) for the Global South
- Development Financing: MDBs provide crucial financial resources, including loans, grants, and concessional finance, to countries in the Global South. This support helps fund infrastructure projects, social programs, poverty reduction initiatives, and sustainable development efforts.
- Technical Expertise and Knowledge Sharing: MDBs offer extensive technical expertise and knowledge sharing platforms to countries in the Global South. They provide guidance, best practices, and capacity-building support to assist in the implementation of effective policies, projects, and programs.
- Addressing Development Challenges: MDBs focus on tackling the specific development challenges faced by countries in the Global South, such as poverty, inequality, limited infrastructure, and inadequate access to basic services. They work closely with these countries to design and implement tailored solutions for sustainable and inclusive development.
- Advocating for Global South Interests: MDBs serve as platforms for advocating the interests and priorities of the Global South in the international development agenda. They ensure that the voices and concerns of developing countries are represented, influencing policies, strategies, and funding allocations to address the development needs of the Global South.
- Climate Finance and Environmental Sustainability: MDBs play a significant role in mobilizing climate finance and supporting climate action in the Global South. They finance renewable energy projects, climate resilience initiatives, and sustainable infrastructure development, assisting countries in transitioning to low-carbon and climate-resilient economies.
Reforms needed
- Evolving Development Challenges: MDBs must adapt to evolving global development challenges, including climate change, poverty reduction, sustainable infrastructure, digital transformation, and social inequality. Reforms are necessary to align the operations, strategies, and priorities of MDBs with these emerging challenges.
- Inadequate Resources: MDBs face limitations in mobilizing sufficient financial resources to meet the growing demand for development financing. Reforms are required to enhance funding mechanisms, attract additional capital from member countries and private sector partners, and optimize the use of existing resources.
- Changing Development Paradigm: The development landscape has evolved, with a greater focus on sustainability, inclusivity, and impact. MDBs need to incorporate these principles into their policies, project design, and implementation approaches. Reforms can ensure that MDBs effectively address the multidimensional aspects of development and foster sustainable and inclusive growth.
- Governance and Representation: Reforms are necessary to enhance governance structures within MDBs, ensuring transparency, accountability, and effective decision-making. Emphasizing the voice and representation of developing countries, particularly the Global South, can help address imbalances and ensure fair and equitable participation in MDB processes.
- Leveraging Technology and Innovation: Reforms should harness the potential of technology and innovation to enhance the effectiveness and efficiency of MDB operations. Embracing digital solutions, data analytics, and emerging technologies can improve project monitoring, evaluation, and knowledge sharing.
Conclusion
- Reforming MDBs is crucial for them to effectively address the challenges of the 21st century and enhance human welfare. A pragmatic and comprehensive approach, as outlined by the Expert Group, will be instrumental in making MDBs more adaptive, efficient, and capable of driving positive change on a global scale.
Also read:
| G20: Multilateralism and India’s Diplomacy |
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AIIB & The Changing World Order
Canada to quit China-led AIIB
Note4Students
From UPSC perspective, the following things are important :
Prelims level: AIIB
Mains level: Read the attached story
Central Idea: Canada’s government has announced it will halt its work at the China-led Asian Infrastructure Investment Bank (AIIB).
Asian Infrastructure Investment Bank (AIIB) |
|
| Established | Multilateral development bank established in 2016. |
| Headquarters | Located in Beijing, China. |
| Founding Members | 57 countries that initiated the establishment of the AIIB.
India is a founding member. |
| Current Membership | Over 100 countries have joined the AIIB since its inception. |
| Capital | Total capital of $100 billion for financing infrastructure projects. |
| Largest Shareholder | China holds the largest voting power and financial contribution.
India holds the second-largest voting power within the AIIB, providing influence in decision-making processes. |
| Focus Areas | Provides funding for diverse sectors including transportation, energy, telecommunications, urban development, and rural infrastructure. |
| Collaboration | Partners with other multilateral development banks for co-financing projects and enhancing development outcomes. |
| Environmental & Social Standards | Adheres to environmental and social standards in project selection and implementation.
Promotes sustainability and inclusiveness. |
| Notable Projects | Supports significant infrastructure projects such as Chennai Metro Rail and Assam’s road network. |
Try this PYQ from CSP 2019
Q.With reference to Asian Infrastructure Investment Bank (AIIB), consider the following statements
- AIIB has more than 80 member nations.
- India is the largest shareholder in AIIB.
- AIIB does not have any members from outside Asia.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Post your answers here.
Background of Canada’s Involvement in the AIIB
- Canada, a founding member of the AIIB, joined the bank in 2016 with the objective of participating in its development finance activities in the Asian region.
- The AIIB was seen as an opportunity for Canada to engage in infrastructure development projects and gain access to funding for its companies operating in Asia.
Rationale behind Canada’s withdrawal
- Allegations of Chinese Communist Party Control: Canada’s decision stems from the serious allegations made by Bob Pickard regarding the extent of Chinese Communist Party control within the AIIB.
- Concerns about Autocratic Regimes: The decision also reflects Canada’s growing concerns, shared by other democratic countries, regarding the risks associated with reliance on autocratic regimes for economic cooperation and infrastructure financing.
- Evaluating Multilateral Institutions: Canada’s move signals a desire to reassess its participation in multilateral institutions like the AIIB to ensure transparency, governance, and adherence to democratic principles.
- Shifting Attitudes towards China: Canada’s decision reflects a broader trend of Western countries becoming more cautious about their engagements with China and re-evaluating their relationships.
AIIB’s Role and Relation to Other Banks
- Development finance: The AIIB was created to address the growing need for development finance in the region.
- Rival of World Bank: It is often referred to as a rival to the World Bank and the Asian Development Bank (ADB), but this description exaggerates its capacities.
- Limited interface: Many of the AIIB’s early projects were co-funded with the World Bank or the ADB, and its capacity to evaluate projects was initially limited. The share of co-funded projects has decreased over time.
India’s Rationale for Joining AIIB
- China’s renewed focus on Multilateralism: India was satisfied with the AIIB’s focus on multilateralism, transparency, and adherence to laws.
- Developed countries joining: The UK and Germany joined the AIIB despite the US discouraging its partners and allies from doing so. The membership includes countries such as Russia, Germany, South Korea, Australia, France, and the UK.
- Green initiatives: The bank has largely tried to avoid politics and has focused on promoting green projects in the region.
- Symbolic distancing from BRI: India joined the AIIB but decided not to participate in the Belt and Road Initiative (BRI).
Conclusion
- Canada’s decision to halt its involvement in the AIIB highlights the importance of transparency and adherence to democratic principles in multilateral institutions.
Back2Basics:
Asian Infrastructure Investment Bank (AIIB) |
World Bank (WB) |
International Monetary Fund (IMF) |
Asian Development Bank (ADB) |
|
| Year Established | 2016 | 1944 | 1944 | 1966 |
| Headquarters | Beijing, China | Washington, D.C., United States | Washington, D.C., United States | Manila, Philippines |
| Membership | 100+ countries | 189 countries | 190 countries | 68 countries |
| Purpose | Infrastructure financing in Asia | Global development assistance | Economic stability and growth | Economic and social development in Asia-Pacific |
| Capital | $100 billion | Not applicable | Over $1 trillion | $153 billion |
| Focus Areas | Infrastructure, sustainable growth | Poverty reduction, development | Economic stability, balance of payments, capacity development | Infrastructure, poverty reduction, climate change adaptation |
| Financing Mechanism | Loans, equity investments, guarantees | Loans, grants, technical assistance | Financial assistance, policy advice | Loans, grants, technical assistance |
| Collaboration | Partners with other multilateral development banks | Collaborates with various institutions and organizations | Collaborates with member countries and international institutions | Collaborates with other development institutions, governments, and civil society organizations |
| Geographical Focus | Asia and beyond | Global | Global | Asia-Pacific |
| India’s Involvement | Founding member, significant involvement and benefits | Active participant, recipient of funding and technical assistance | Member, recipient of financial assistance and policy advice | Active participant, recipient of funding and collaboration |
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AIIB & The Changing World Order
AIIB set to lend Pakistan $500 million
Note4Students
From UPSC perspective, the following things are important :
Prelims level: AIIB
Mains level: Not Much
The Asian Infrastructure Investment Bank (AIIB) is scheduled to lend $500 million to Pakistan in this month.
Asian Infrastructure Investment Bank (AIIB)
- The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank with a mission to improve social and economic outcomes in Asia, began operations in January 2016.
- It aims to stimulate growth and improve access to basic services by furthering interconnectivity and economic development in the region through advancements in infrastructure.
- AIIB has now grown to 102 approved members worldwide.
- The US & Japan are not its members.
- It is a brainchild of China. It has invested in 13 member regions.
Capital and shareholding of AIIB
- It has authorized capital of US 100 billion dollars and subscribed capital of USD 50 billion.
- It offers sovereign and non-sovereign finance for projects in various sectors with an interest rate of London Interbank Offered Rate (LIBOR) plus 1.15 % and a repayment period of 25 years with 5 years in grace period.
- China is the largest shareholder in AIIB with a 26.06% voting power, followed by India with 7.62% and Russia with 5.92% voting power.
Try this question from CSP 2019
Q.With reference to Asian Infrastructure Investment Bank (AIIB), consider the following statements
- AIIB has more than 80 member nations.
- India is the largest shareholder in AIIB.
- AIIB does not have any members from outside Asia.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Post your answers here.
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AIIB & The Changing World Order
Asian Development Outlook Report
Note4Students
From UPSC perspective, the following things are important :
Prelims level: Asian Development Outlook Report, ADB
Mains level: Not Much
The Asian Development Bank (ADB) forecasts has provided some useful insights about India’s GDP growth.
About Asian Development Bank (ADB)
- The ADB is a regional development bank established on 19 December 1966 which is headquartered in Philippines.
- ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty.
- The bank admits the members of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP).
- The ADB was modelled closely on the World Bank, and has a similar weighted voting system where votes are distributed in proportion with members’ capital subscriptions.
- The president has a term of office lasting five years, and may be re-elected.
- Traditionally, and because Japan is one of the largest shareholders of the bank, the president has always been Japanese.
- ADB is an official United Nations Observer.
Highlights of the ADB Outlook Report 2020
- India’s GDP growth will moderate to 7.5% in 2022-23, from an estimated 8.9% in 2021-22.
- It has factored in the Russia-Ukraine conflict’s implications for India, which would be largely indirect through higher oil prices
- The severity of the COVID-19 pandemic would subside with a rise in vaccination rates.
- Higher public capital spending is expected to improve the efficiency of India’s logistics infrastructure, crowd-in private investment, generate jobs in construction and sustain growth.
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AIIB & The Changing World Order
Asian Infrastructure Investment Bank (AIIB)
Note4Students
From UPSC perspective, the following things are important :
Prelims level: AIIB
Mains level: Not Much
The Beijing-based Asian Infrastructure Investment Bank (AIIB) said it was putting on hold and reviewing all projects in Russia and Belarus.
About AIIB
- The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank with a mission to improve social and economic outcomes in Asia, began operations in January 2016.
- It aims to stimulate growth and improve access to basic services by furthering interconnectivity and economic development in the region through advancements in infrastructure.
- AIIB has now grown to 102 approved members worldwide. US & Japan are not its members.
- It is a brainchild of China. It has invested in 13 member regions.
Capital and shareholding of AIIB
- It has authorized capital of US 100 billion dollars and subscribed capital of USD 50 billion.
- It offers sovereign and non-sovereign finance for projects in various sectors with an interest rate of London Interbank Offered Rate (LIBOR) plus 1.15 % and a repayment period of 25 years with 5 years in grace period.
- China is the largest shareholder in AIIB with a 26.06% voting power, followed by India with 7.62% and Russia with 5.92% voting power.
Try this question from CSP 2019
Q.With reference to Asian Infrastructure Investment Bank (AIIB), consider the following statements
- AIIB has more than 80 member nations.
- India is the largest shareholder in AIIB.
- AIIB does not have any members from outside Asia.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Post your answers here.
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AIIB & The Changing World Order
APVAX Initiative
Note4Students
From UPSC perspective, the following things are important :
Prelims level: ADB, AIIB
Mains level: Not Much
The Government of India has applied for loans from the Asian Development Bank (ADB) and the Asian Infrastructure Investment Bank (AIIB) to procure as many as 667 million doses of COVID-19 vaccines under the APVAX initiative.
Try this question from CSP 2019
Q.With reference to Asian Infrastructure Investment Bank (AIIB), consider the following statements:
- AIIB has more than 80 member nations.
- India is the largest shareholder in AIIB.
- AIIB does not have any members from outside Asia.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Post your answers here.
APVAX Initiative
- The ADB is expected to lend $1.5 billion and the AIIB around $500 million for the vaccine purchase by India.
- It which has been made under the ADB’s Asia Pacific Vaccine Access Facility (APVAX) initiative.
- Launched in December 2020, APVAX offers “rapid and equitable support to its developing member countries as they procure and deliver effective and safe COVID-19 vaccines”.
- The Beijing-headquartered AIIB will co-finance the vaccine procurement.
About Asian Development Bank (ADB)
- The ADB is a regional development bank established on 19 December 1966.
- It is headquartered in the Ortigas Center located in the city of Mandaluyong, Metro Manila, Philippines.
- From 31 members at its establishment, ADB now has 68 members.
- The ADB was modelled closely on the World Bank, and has a similar weighted voting system where votes are distributed in proportion with members’ capital subscriptions.
- ADB is an official United Nations Observer.
- As of 31 December 2020, Japan and the UN each holds the largest proportion of shares at 15.571%.
- China holds 6.429%, India holds 6.317%, and Australia holds 5.773%.
Asian Infrastructure Investment Bank (AIIB)
- The AIIB is a multilateral development bank that aims to improve economic and social outcomes in Asia.
- The bank was proposed by China in 2013 and the initiative was launched at a ceremony in Beijing in October 2014.
- The bank currently has 103 members, including 16 prospective members from around the world.
- The starting capital of the bank was US$100 billion, equivalent to 2⁄3 of the capital of the Asian Development Bank and about half that of the World Bank.
- It received the highest credit ratings from the three biggest rating agencies in the world, and is seen as a potential rival to the World Bank and IMF.
AIIB and India
- So far, the AIIB has approved loans for 28 projects in India amounting to $6.7 billion, more than for any other member of the multilateral bank.
- India is the second-largest shareholder after China in the bank, which does not count the U.S. and Japan among its members.
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AIIB & The Changing World Order
Asian Infrastructure Investment Bank (AIIB)
Note4Students
From UPSC perspective, the following things are important :
Prelims level: AIIB, ADB
Mains level: Not Much
The Government of India and the Asian Infrastructure Investment Bank (AIIB) has signed a $750 million agreement for “COVID-19 Active Response and Expenditure Support Programme”.
Try this question from CSP 2019
Q.With reference to Asian Infrastructure Investment Bank (AIIB), consider the following statements
- AIIB has more than 80 member nations.
- India is the largest shareholder in AIIB.
- AIIB does not have any members from outside Asia.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
What’s so special about this assistance?
- This is the first-ever budgetary support programme from the AIIB to India.
- The project is being financed by the AIIB and Asian Development Bank (ADB) in the amount of $2.250 billion, of which $750 million will be provided by AIIB and $1.5 billion will be provided by ADB.
- The package aims to assist India to strengthen its response to the adverse impacts of the COVID-19 pandemic on poor and vulnerable households.
- The current loan will be the second to India from AIIB under its COVID-19 crisis recovery facility apart from the earlier approved $500 million loans.
- The primary beneficiaries would be families below the poverty line, farmers, healthcare workers, women, women’s SHGs, widows, PWDs, senior citizens, low wage earners etc.
About AIIB
- The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank with a mission to improve social and economic outcomes in Asia, began operations in January 2016.
- AIIB has now grown to 102 approved members worldwide.
- AIIB is a brainchild of China. The prime aim of the AIIB is infrastructure development.
- By establishing interconnectivity across Asia through advancement in the construction of infrastructure and other productive services, the AIIB can stimulate growth and economic development in the Asian Region.
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The Asian Infrastructure Investment Bank (AIIB) is an international financial institution proposed by China. AIIB is regarded as a rival for the IMF, the World Bank and the Asian Development Bank (ADB) which the AIIB says are dominated by developed countries like the USA and Japan. In this Article We will explain everything about AIIB and also why India has joined it and the likely challenges AIIB will face in future.
What is AIIB?
- The ‘AIIB’ is the Asian Infrastructure Investment Bank, a new multilateral development bank first proposed by Xi Jinping in a speech to the Indonesian parliament in October 2013.
- At the time, Xi explained that ‘to support the process of interconnection and integration of the economic development in the region, China has proposed to build the Asia infrastructure investment bank and provide financial support to infrastructure development in developing countries in the region.’
- The bank was formally established on October 24, 2014 in a ceremony in Beijing where 21 founding members signed the bill.
Functions of the AIIB:
The AIIB has broad functions, similar to other MDBs. Under its Articles of Agreement, the AIIB’s functions include:
(i) Promoting public and private investment in the Asia region for development, in particular for infrastructure and other productive sectors;
(ii) Utilizing the resources at its disposal for financing such development in the region; and
(iii) Encouraging private investment that contributes to economic development in the Asia region, in particular in infrastructure and other productive sectors, and supplementing private investment when private capital is not available on reasonable terms and conditions
source
Why was AIIB is established when the IMF and World Bank are already there?
The Asian Infrastructure Investment bank (AIIB), the new kid in the development lender’s neighbourhood is a both the result and reflection of changing political economic equation of an increasing multi polar world. The necessity and the differential design of AIIB can be enumerated as follows:
#1. Economic
- To begin with China is sitting on a huge pile of unutilised cash and is looking for markets to invest it to earn from the otherwise idle money. Funding projects through AIIB is a structured way to do it.
- Investment focus of AIIB will be sector and region specific unlike IMFs and ADBs of the world. AIIB specifically will be an financial enabler for sponsoring infrastructure in Asia
- With Yuan’s entry in SDR it makes sense to loan Yuan to spread its global availability.
- Asian infrastructure development needs huge investment (estimated $ 800 Bn annually) which certainly cannot be supplied by IMF alone.
- The boost to Asian Infrastructure provides a market for Chinese firms with excess capacity in cement and steel lying ideal post slowdown.
#2. Political
- Unlike IMF, AIIB does not adopts quota system ie decision making power is not proportionate to contribution, thus it is more democratic. Well, err, China and democracy do not go hand in hand, undeniably Chinese interest will be loudest.
- IMF and ADB funding comes with the vested interest of western world like “free” market economy, forced structural reforms, skewed intellectual property rights etc. AIIB’s loan provides an alternative to circumvent western influence during financial emergency.
- IMF is increasingly going green with increasing western focus on cleaner and renewable energy (off course with only limited heed to CBDR call), which might not be appealing to nations which are yet to release their quota of developmental pollution. Well, AIIB is here to help.
- Presents the benevolent face (most possibly farcical) of the otherwise ruthlessly pragmatic and openly aggressive china.
Why has India joined the AIIB?
There are many reasons for it, a few of them being:
- India is preparing to start a large number of infrastructure projects, but they’re short of money, so they need help from China. Of course they can get money from ADB or WB, but they also need to find a balance between China and USA.
- It’s a great chance to develop economy links between India and China. These two countries both have huge market, and they also keep a rapid growth of economy.
- Though AIIB is a Chinese-lead financial institution, India is welcomed to play a important role in it. It’s the reason why the UK, Germany and France all want to be a member of AIIB.
- The AIIB gives countries like India and China the historical opportunity to enter and reform a bastion where they have been traditionally denied entry.
Difference between AIIB and NDB
source
Challenges that AIIB may likely face in Future?
China will face many challenges in future while implementing the AIIB .The major challenges include:
- Non Participation of USA and Japan: The United States and Japan remain non-committal to the AIIB, althoughthat is an improvement from their previous firm opposition. The AIIB will probably function well without the participation of the United States and Japan. But the participation of these two countries is important for China since it will help improve the new bank’s credit rating and give it added legitimacy.
- Security issues: Security will be another major challenge. For example, most of the loans which will be given under AIIB would be to projects in central Asia however there is a challenge of who is going to protect so many projects covering so many countries as this region has some of theworld’s most vulnerable and conflict-ridden territory.
- Fear of NPA: Many recipient countries in Asia have poor credit, which means many projects may be promising at the beginning but will be difficult to pursue. Agreement and consensus are reached at the top levels of government, but implementation is at the local level. Local governments often do not care about the central government’s policies and do not always cooperate with foreign investors.
References: