During the Asian-African Conference Commemoration Summit in Jakarta, the Indonesian president in his opening address put the record straight that "The view that the world economic problems can only be solved by the World Bank, the International Monetary Fund, and the Asian Development Bank is an out-dated view." One can hardly hear such a scathing attack from an incumbent leader against the financial-troikas in Asia. Besides the World Bank, IMF and the ADB, the European Bank for Reconstruction and Development (EBRD) is another addition to western dominated international financial institutions (IFIs), which finance development programmes in Asia.
The President seems to be right in terms of the changing developmental finance landscape of Asia. The establishment and institutionalisation of China-led Asian Infrastructure Investment Bank (AIIB) and BRICS (Brazil, Russia, India, China and South Africa) sponsored New Development Bank (NDB) is the new additional sources of development financing. Presently, funds from IFIs with their patron donor countries' bilateral aids and developing countries’ domestic resources are lagging behind to fulfil the ever growing gap of investment requirements in various sectors in Asia. It is estimated that Asia needs $7.9 trillion in the infrastructure sector alone.
The year 2015 is vital for guiding global development. While the on-going post-2015 Sustainable Development Goals (SDGs) discourses is scheduled to be held at Addis Ababa in July, COP 21 on climate change in Paris is gaining pace along with the upcoming 10th WTO Ministerial Meeting at Kenya. All debate boils down to finance.
Who foots the bill?
Asia needs more investment than what is presently being provided by the donors. The Manila-based ADB mobilises annual investment up to $23 billion in infrastructure, energy, agriculture, water resources and others. The World Bank (IBRD, IDA and IFC) annual investment in Asia is approximately $26 billion on similar lines. The EBRD alone funds funnels nearly $1.5 billion annually in Central Asian countries and Mongolia. The Islamic Development Bank (IDB), which lends predominantly to Muslim countries, invested $5.1 billion in 2013 in 17 countries in Asia. There are also other smaller funds like ASEAN Infrastructure Fund. Not to forget, the 'Chinese Silk Road Economic Belt' has a pool of resources which is the consolidation and continuation of Chinese investment in Asia and Africa. India too has its own fund for external investments as does the IBSA (India, Brazil and South Africa) Fund since 2004.
However, the AIIB is a new addition, like NDB, into the lexicon of development finance that will fund largely infrastructure projects in Asia from its paid-up capital of $50 billion and with authorized capital of $100 billion. By next year, BRICS' NDB will also start lending to Asia from its $50 billion subscribed capital. Still, this may not fulfil the demand of need-based development in the Asian countries. For example, a whopping $450 billion is required only for meeting Indonesia's infrastructure need by 2020. The ASEAN region requires an annual $70 billion investment for various developmental projects. The emerging five (E-5) needs $4 trillion in coming five years to meet their infrastructure gap.
The establishment of the AIIB is a welcome move as it aims to fill the basic financing gaps in Asia. This is where the basic problem for the US and Japan lie as they want to continue using bilateral resources and IFIs as a major foreign policy tool. For instance, the US Treasury Secretary Jack Lew while testifying before the House Committee in March urged that the US shouldn't let go of World Bank and IMF as its foreign policy instrument. Meanwhile, President Obama's 'Asia pivot' has now got a formidable competitor in terms of Chinese financial aid.
On the other hand, the NDB and AIIB have swiftly achieved what the G-20/G-24 failed so far, especially since 2010 when the developing countries demanded overhauling of the Bretton Woods Siamese twins - World Bank and IMF. At least, the new banks have compelled the US government to rethink about the monopoly on global economic structure. Despite the demand, in a typically US 'standard procedure', the Congress has been sitting on a reform bill of the Bretton Woods. It is long overdue. The AIIB and NDB have both emerged in the Asian horizon in order to send a strong message to the unequal economic governance structure and to provide alternative but supplementary need-based development finance. This is a paradigm shift in Asia, which is needed to counter the neo-colonial western dominant institutions.
Since November 2014, the AIIB has been in headlines for all wrong reasons when the US asked its allies not to be part of this seemingly “less transparent governing institution with unknown environmental standards and procurement policies.” Are the World Bank and ADB transparent and governed with democratic principles? Why is it that only a US citizen can be World Bank President, or why only a Japanese citizen will be President of ADB and why only a European will be chief of IMF? Besides, the Board of Directors, who control and approve projects, policies and programs, in these institutions are not democratically represented. The countries are not equal in decision making. The rule of the game is whosoever’s contribution is hefty it will call the shots. A fresh example is provided by NDB in its structure as India is taking its first presidency for five years.
However, in the fast changing world politics, many US allies - four out of G-7 members (UK, France, Germany and Italy) -- jumped one after another against the US' diktat to be founding members of the AIIB. Some argue that they will make changes in AIIB from within by becoming members and others are waiting to join when the institutional policies will be released in July this year. In fact, it's out of sheer fear of losing their bilateral relevance in 'development business’ that most of the non-Asian member have joined the AIIB.
The legitimacy of any institution in the 21st century depends on equitable, democratic governance structure with pro-people agenda. While 21 Asian countries signed the Memorandum of Understanding (MoU) on 24 October 2014 to establish the AIIB, by April 15, 2015, it already has 57 countries as founding members. When World Bank (IBRD) was established in 1944, the membership was 44. Similarly, ADB was established with just 31 member countries in 1966. To stay relevant in terms of competition in Asia, the ADB, as predicted earlier, has proposed and agreed to work with AIIB as co-financing partner. The World Bank too has already welcomed and acknowledged the arrival of AIIB.
Bone of Contention
It is not a coincidence that a handful of opponents (economists, CSOs, academicians) in the developed world and their corresponding counterparts in Asia have reservations against NDB and in particular AIIB, like their host governments. Grave concerns related to human rights violations and transparency in AIIB projects loom large at least in Asia. However, it should be noted that the so-called 'gold standard' of the World Bank - Safeguard Policy (environment, resettlement, Indigenous and information) - has failed to protect 3.4 million people's physical and economic eviction across the world between 2004 and 2013 for its own projects. In his own admission, World Bank President promised to rectify these grave mistakes as soon as possible. The South Korean government, which initially opposed AIIB due to its unknown environmental policies, rushed to be a founding member. Was POSCO project in Odisha (India) funded by Korean giant protecting human rights? Even bilateral agency-supported projects are not bereft of human rights violations. But neither these agencies come under independent watch groups’ mandate, nor are being strictly scrutinized for non-compliance with international standards. Same outstretched concerns are being thrown as to whether the ADB will be following its own standards in terms of protecting environment for any co-financing projects with AIIB. In fact, since 2009, the ADB policies (Safeguard and Accountability Mechanism) categorically state that all co-financing project will strictly follow its own policies.
It is not noticed by the same opponents that AIIB has already been taking account of robust provisions of all existing financial institutions, bilateral donor agencies and international best practices to form its institutional policies to be more responsible and accountable. In March 2015, AIIB organised a workshop where more than 100 technical experts across 32 countries and international agencies, including World Bank, ADB and UN, had been consulted to prepare the intuitional documents - safeguard and procurement policies. It should be remembered that Rome was not built in a day. So formulation of the ideal institutional policies would also take time. It is better that the AIIB and NDB learnt from the mistakes of the IFIs, especially World Bank and ADB. If AIIB can ensure that people will be consulted fairly before any project design and subsequently during the project cycle, that would be the revolutionary change from existing developmental discourse. The Article of Agreement must reflect as boldly as possible the aspirations of Asian people rather than that of governments of Asia. It seems that those who are opposing the new institutions fear losing their relevance and are thus forced to oppose AIIB and NDB.
The message of Indonesian President Jokowi is loud and clear. Hitherto arm-twisting, pushing, coercing, cajoling through conditionalities and handpicked projects by a few donor countries in World Bank and ADB would now not dare to follow the usual practice. Now, the countries in Asia will have additional leverage to deal with pressure from World Bank and ADB. Many government representatives who have been leading negotiations in these western dominant financial institutions have vented their frustrations about 'coerced development'. It is also an opportunity for countries to make their own national standards higher to take responsibility of the projects which are supported by both the IFIs (World Bank and ADB). The AIIB and NDB have provided an additional financial opportunity to smaller countries in Asia and given them the freedom of access to resources. A new world economic order is beginning to take shape in Asia. Time will witness whether it is a success or a momentary bubble.