Many inWest back winds of change in world
InfluentialWestern economic commentators have supported China’s move to establish the Asian Infrastructure Investment Bank and saidUS President Barack Obama made a big mistake by pressuringUS allies to shun the bank.
What theUS has done by doubting the integrity of the AIIB sounds like the pot calling the kettle black, because it is the lack of fair governance in the InternationalMonetary Fund and theWorld Bank that prompted China to initiate the formation of the AIIB and the BRICS countries (Brazil, Russia, India, China and South Africa) to establish theNewDevelopment Bank, formerly referred to as the BRICS Development Bank.
For decades, developing countries have been complaining about the developed countries maintaining their grip on the voting power in the BrettonWoods institutions, because the quotas agreed upon 70 years ago do not reflect the vastly increased shares of the emerging economies in the world economy. Even the mild reform agreed by all that the quotas would be changed slightly in favor of some developing countries cannot be implemented because ofUS Congress’ opposition.
Moreover, the unjustifiable “understanding” that the heads of theWorld Bank and the IMF would be an American and a European remains in place despite promises of change.
In response, BRICS set up the NDB, which will supplement or compete with theWorld Bank, while China proposed the AIIB, which will supplement the Asian Development Bank, which too has a lopsided governance system.
The newbanks will focus on financing infrastructure projects, since developing countries have ambitious infrastructure programs and there is gross underfunding.
Critics speculate that the new banks will finance projects that theWorld Bank or the ADB would reject for not meeting their environmental and social standards. But that is attacking something that hasn’t yet happened. True, it would be terrible if the newbanks build a portfolio of “bad projects” that would damage the environment further, or displace millions of people without recognizing their rights.
It is thus imperative that the newbanks take on board high social, environmental and fiduciary standards, besides having good internal governance and being financially viable. The new banks should be as good as or better than the existing ones, which have been criticized for their governance, performance and effects.
There is no certainty that the newbanks will succeed. But they should be given every chance to do so.
The significance of the AIIB is being seen as part of the jostling between theUS and China for influence in Asia. A few years ago, theUS announced a “pivot” or re-balancing to Asia, which included enhanced military presence and newtrade agreements especially the Trans-Pacific Partnership Agreement. It seemed suspiciously like a policy of containment, or partial containment, of China. TheUS combines cooperation with competition and containment in its China policy, and it retains the flexibility of bringing into play any or all of these components.
China now announced its own initiatives— the Silk Road Economic Belt and the 21st Century Maritime Silk Road. The first will involve infrastructure projects, trade and public-private partnerships, and details of the second are being worked out. The AIIB can be seen as a financial arm (though not the only one) of these initiatives.
Now, prominentWestern opinion makers are urging theUS to change its policy and to accommodate China and other developing countries. The winds of change are blowing in the global economy, and many in theWest recognize and even support this. The author is executive director of South Centre, a think tank of developing countries, based in Geneva.