Infrastructure () Set Cornerstone In Beijing

Monday, representatives of the 57 prospective founding countries of the Asian Infrastructure Investment Bank (AIIB) gathered in Beijing for the agreement signing ceremony, a former (WB) official said that the new institution could seize the opportunity to establish right standards for multilateral development banks.

“I think the formulation of AIIB is moving in a right direction, ” Yukon Huang, a former World Bank’s country director for China and a senior associate with the Program of the Carnegie Endowment for International Peace, told Xinhua in an interview, referring to the China-initiated international financial institution to infrastructure projects in .

While there are concerns whether the AIIB will adhere to the ” highest standards” of existing institution such as the World Bank and the Asian Development Bank (), Huang argued that “the AIIB has the potential to help improve the governance structures of multilateral agencies in general.”

The objective of the AIIB is not to simply follow the supposedly “highest standards” but to make use of this opportunity to establish the “right standards”, Huang said, noting that “the right standards always evolve over time.”

The World Bank and the ADB have already modified their rules ” concerning design of loans, concerning sensitive issues like the environment and treatment of social groups in projects, and procurement arrangements” over time, the former World Bank official added.

“So the AIIB has a very good opportunity,” Huang said. “It doesn’t begin with the predetermined set of rules and regulations. It can look around see what everyone is using …it can bring in voices and opinions, and then it can come up designing something which I think really is the best at this time.”

“As far as I know”, the AIIB has done so, Huang said. “It brings in a lot of expertise. It’s looking at all the options. I think it will come forward with guidelines which everyone will find be quite sensible for this situation.”

Speaking of lessons drawing from existing multilateral development banks, Huang said “one of the major concerns” about the World Bank and the ADB is that they’re “overly complicated” and take a lot of time to “develop and prepare a loan”, which cannot meet needs of borrowers for infrastructure projects.

The longer it takes to design and construct the infrastructure project, the lower the return you get, Huang said, suggesting that the AIIB could streamline the operational procedures and speed up the implementation process.

In terms of governance structure, the AIIB has already adopted a non-resident board of directors, unlike with the World Bank and the ADB, in order to improve efficiency and avoid bureaucracy, according to the Articles of Agreement of the AIIB.

“This means the AIIB can move much more rapidly in terms of the design and implementation of programs,” Huang said, adding that the bank also has to “provide insurance the sensitive issues being looked at adequately”, otherwise people would think “you’re sacrificing quality” in terms of trying to be faster.

“I think the major challenge for the AIIB is finding a way to make sure it oversights of the processing cycle, make sure the sensitive issues be adequately dealt with, even though it would move in a way to make the whole cycle more efficient than currently is the case in the World Bank,” he said.

Huang noted there’s a lot of debate about the structure of the AIIB, but very little attention was paid to client needs. “The important question is what do the client countries …who are joining because they want to borrow from the AIIB, what do they feel about the loans the AIIB makes? Are they going to be attractive? Will they borrow? And they do, there would be a success,” he said.

Vikram Nehru, a former World Bank chief economist for East Asia, also believed the AIIB needs to be client-focused, to make sure the clients, the developing countries, to decide what’s in their best interests. “Ensuring the developing countries in the driver’s seat is absolutely central” to the success of the AIIB, Mr. Nehru said in a previous interview.

As a new multilateral institution focusing exclusively on infrastructure development, China said the AIIB will be dominated by developing countries, and their requests and demands need to be respected.

World Bank Group President Jim Yong Kim said on Monday that the World Bank views the AIIB as an important new partner with which it will jointly address the huge infrastructure needs critical to ending poverty, reducing inequalities and spreading shared prosperity.

“The developing world’s infrastructure investment needs are too huge for any single institution. The world spends about US$1-T a year on infrastructure, but the vast majority of that goes to developed countries.  and low-income countries face an annual gap of US$1 to 1.5-T  in infrastructure spending,” Kim said in a statement.

China’s Minister Lou Jiwei said Monday that he was confident of working with related parties to accelerate legal procedures and push for the official set up of the AIIB before the year end.

Stay tuned…

Paul Ebeling

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