{"id":26206,"date":"2015-04-11T17:37:07","date_gmt":"2015-04-11T15:37:07","guid":{"rendered":"http:\/\/www.w-t-w.org\/en\/?p=26206"},"modified":"2015-04-11T17:50:15","modified_gmt":"2015-04-11T15:50:15","slug":"26206","status":"publish","type":"post","link":"https:\/\/www.w-t-w.org\/en\/26206\/","title":{"rendered":"Supporting the AIB?"},"content":{"rendered":"
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Ray M. Desai and James Raymond Vreeland write: The AIIB is yet another creation whose aim is to challenge the hegemony of institutions dominated by the United States, Western Europe and Japan. Unlike the BRICS Bank, whose main shareholders may face coordination problems due to the equal distribution of voting shares, the AIIB faces no such difficulty since China will provide the largest share of resources. It also, of course, has a far more focused mission than the BRICS Bank.In fact, the developmental logic behind the AIIB is paramount. Asia faces a massive infrastructure gap. The Asian Development Bank (ADB) that Asia will need $8 trillion over the next decade for energy, transportation, telecommunication and water\/sanitation. Private investment in infrastructure, according to the ADB, hovers at $13 billion a year, the majority of which is concentrated in low-risk projects. Official development assistance adds another $11 billion a year in financing. If true, this means that the shortfall exceeds $700 billion a year. The United States, as a result, places itself in opposition to regional investments that can expand trade, support financial market development and macroeconomic stability, and improve environmental, health and social conditions.Were the current group of international financial institutions capable of plugging the gap, it is unlikely that the AIIB would gather worldwide support. But existing institutions cannot hope to fill this hole. The ADB and the World Bank have a combined capital base of less than $400 billion, which must support a wide variety of lending programs beyond infrastructure. Moreover, there is little chance that bilateral donors \u2014 including the biggest bilateral donor, the U.S.\u00a0government \u2014 will increase its\u00a0funding for foreign aid in the current political climate. The AIIB has an initial capital base of $50 billion, with authorized capital up to $100 billion. According to one estimate, using similar loans-to-equity ratios of the World Bank and ADB, the AIIB could commit some $30 billion in loans devoted exclusively to infrastructure (the World Bank\u2019s own infrastructure financing was $24 billion in 2014).<\/p>\n

In effect, the United States is informing fast-growing Asian nations: \u00a0We are not going to increase official funding for your important needs anytime soon; we are also going to prevent the institutions we control from increasing their funding for those needs; and lastly, we are going to admonish others from devising other ways of funding you. No wonder that Asian governments have jumped on the AIIB bandwagon. Australia, Indonesia and South Korea were conspicuously absent<\/a> from inauguration ceremonies last year when they shared U.S.\u00a0concerns. But now they have all warmed to the idea of joining the AIIB (Indonesia became a founding member, while Australia and South Korea have applied for membership). Moreover, ADB and World Bank officials have extended a cautious welcome to the new China-led bank, saying they see room for collaboration. But the clearest signal of the AIIB\u2019s appeal has come from officials in Taipei, who have announced that Taiwan, too, will join the organization as Taipei, China. If Japan also joins \u2014 as is now expected<\/a>\u00a0\u2014 it will leave the United States isolated among major donor nations.<\/p>\n

Not only does the United States endanger its own regional influence through its refusal to participate, it also threatens private American investment. Unlike most types of private investment, infrastructure projects tend to have extremely high up-front costs and longer maturities. This leaves infrastructure investors much more vulnerable to sovereign risk, regulatory instability, shifting political winds, and the threat of expropriation. For this reason, multilateral development banks play a critical role in attracting private infrastructure investment to developing countries through \u201cadditionality,\u201d that is, by contributing their own funding, bringing financing partners into specific deals (through syndications or co-financing), and by using risk guarantees and other tools. Importantly, multilateral development banks cannot offer support to investors from non-member countries. Should the AIIB develop its own system of risk insurance and partial guarantees, they will not be available to American investors.<\/p>\n

Asia, the United States \u2014 and for that matter, the whole world \u2014 would be better off if the United States were to participate in the AIIB. What better way to encourage the Chinese to implement a transparent regime that adopts global best practices in financing infrastructure than to be a voting member? If anything, China\u2019s move towards multilateralism should be welcomed. Rather than rebuke others for joining, the U.S.\u00a0should consider doing the same?<\/em><\/p>\n

\"China's<\/a><\/p>\n<\/article>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Ray M. Desai and James Raymond Vreeland write: The AIIB is yet another creation whose aim is to challenge the hegemony of institutions dominated by the United States, Western Europe and Japan. Unlike the BRICS Bank, whose main shareholders may … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":22,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"footnotes":""},"categories":[70,13],"tags":[],"class_list":["post-26206","post","type-post","status-publish","format-standard","hentry","category-big-banks","category-finance"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t