Inclusive AIIB can make a difference
The new multilateral development bank will adopt high standards to operate in a transparent and clean manner
The Asian Infrastructure Investment Bank (AIIB) is an initiative announced by the Chinese leadership in October 2013. Since then, the initiative has been enthusiastically received by many countries in Asia and beyond and substantial progress has been achieved. The signing of the Articles of Agreement, an important milestone for the AIIB, is set to take place in Beijing, China in end of June. This will pave the way for officially inaugurating the bank by the end of 2015, so that it can commence operation soon afterward.
I. The AIIB aims to deliver win-win outcomes
Established as a multilateral development bank, the AIIB aims to promote infrastructure development and regional connectivity, and deepen regional cooperation to bring about common development. First and foremost, the Bank will serve to boost regional infrastructure and economic development and hence support global economic recovery. It also represents an important move on the part of China to fulfill its growing international responsibilities, and to improve and complement the existing international economic system.
Firstly, supporting global economic recovery. World economy is undergoing slow recovery and anemic growth in the aftermath of the 2008 global financial crisis. Investment would play an essential role in spurring economic recovery and growth, while infrastructure investment, in particular, is the cornerstone that anchors sustainable economic growth in the long term. Yet financing gap in infrastructure globally has hindered infrastructure investment from playing its due role in promoting world economic growth.
After the financial crisis, as a result of the successive quantitative easing programs introduced by major developed economies, there is no shortage of liquidity globally; rather, the crux lies in the need of mechanisms as well as the capability to channel funds into infrastructure investment. Against the backdrop of continued sluggish growth, the AIIB can make a real difference by harnessing more capital from both the public and private sectors, for investment in infrastructure development and regional connectivity. This will help catalyze investment growth, stimulate global aggregate demand, create more jobs, and ultimately contribute to a speedier recovery of the global economy.
Secondly, promoting regional development. Underdeveloped infrastructure is a big challenge facing the Asian region, hence the need for massive investment. It has been estimated that for the period from 2010 to 2020, the aggregate demand for infrastructure investment of developing countries in Asia amounts to $8 trillion, an average annual demand of $730 billion. To put things into perspective--existing multilateral development banks like the World Bank and the Asian Development Bank together provide about $10-20 billion for infrastructure investment annually. The AIIB can mobilize more funds to support infrastructure development and regional connectivity, so as to inject long-lasting momentum into the economic growth of Asia.
Thirdly, strengthening multilateral development system. As a regional multilateral development bank, the AIIB is a new member and new partner of the global development system. Among the founding members of the AIIB, developing countries in Asia account for the majority, thus enjoying a bigger voice at the table. This is commensurate with the evolving economic landscape of the world today, and is testament to the confidence and aspiration of Asian countries to spur infrastructure development and economic growth in the region. History sometimes rhymes. It should be recollected when regional multilateral development banks such as the Asian Development Bank and the European Bank for Reconstruction and Development emerged, they did not work at the expense of their more established peers; rather, as proved, they added to the collective strength of the multilateral development banks. Similarly, China could contribute more to the cause of global development by initiating the AIIB. Furthermore, considering the massive demand for infrastructure investment, the AIIB will serve to reinforce and supplement the established multilateral development banks as a whole. It merits mentioning that the AIIB will complement rather than compete with the existing multilateral development banks, as the AIIB has its own distinct mandate and focus of business.
Since the inception of the AIIB, China has been, and will continue to be committed to enhancing cooperation between the AIIB and the existing multilateral development banks, in an aim to scale up infrastructure investment in the region and promote sustainable development in Asia and the world at large.
II. The AIIB will continue to pursue an open, inclusive and multilateral approach.
Ever since the AIIB was initiated, preparation work has been progressing steadily and solidly, thanks to the strong support from all stakeholders.
Firstly, a participatory approach in line with the principle of "open regionalism". An open and inclusive approach has been followed through the process, and all interested countries are welcomed to join the bank, following the principle of "regional first and non-regional later". In October 2014, in Beijing, the first batch of 22 regional Prospective Founding Members signed the Memorandum of Understanding on Establishing the AIIB (the MOU hereafter). Since then, the AIIB membership has expanded rapidly through multilateral approach, as agreed by existing members. As of mid-April 2015, the number of AIIB Prospective Founding Members had added up to 57 countries, spanning five continents from Asia, Oceania, Europe, Latin America to Africa, hence the AIIB has achieved wide representation on a global scope.
Secondly, advancing the multilateral process. After the MOU was signed, the 22 existing members reached an agreement on the preparation process and the working mechanism on establishing the AIIB. At the heart of the mechanism is the Chief Negotiators' Meeting at the Finance Deputies' level, which serves as the primary platform responsible for negotiating the Articles of Agreement. The Multilateral Interim Secretariat (the Secretariat hereafter) was established to provide technical support and services to the Chief Negotiators' Meeting. It has been agreed that decisions associated with AIIB establishment would be made multilaterally by consensus where possible, otherwise by a 75% majority of existing members. Prospective Founding Members are welcome to nominate qualified secondees to work at the Secretariat. Meanwhile, professional consultants are recruited from the market, with a view to enhancing the professionalism of the Secretariat, and make it better equipped to provide quality technical support.
Thirdly, concluding the Articles of Agreement negotiations in a democratic and efficient way. The Articles of Agreement underpins the fundamental principles for the establishment and future operations of the AIIB. Upon the signing of the MOU last October, negotiations on the Articles of Agreement entered into substantive phase. As the negotiations involved the obligations and interests of various parties, plus the fact that it went in parallel with admitting new Prospective Founding Members, the process was difficult and complex. An open, inclusive, transparent and democratic approach has been adopted and the concerns and aspirations of all the Prospective Founding Members have been taken into account with due respect. In that spirit, Chief Negotiators' Meetings have been co-chaired by China and other Prospective Founding Members who volunteered to host, including India, Kazakhstan and Singapore, and the negotiation process has been accelerated through a multilateral approach acceptable to all founding members. Credit must go to all Prospective Founding Members for their concerted efforts and strong support along the way, making it possible to advance the Articles of Agreement negotiation process efficiently. Within just six months, important consensus was reached covering all key elements of the AIIB, such as its purpose, membership, capital subscription, voting powers, operations, governance structure, and decision-making rules. A high quality Articles of Agreement laid a solid legal basis for the official establishment and early operation of the Bank.
III. The AIIB will adopt international good practices and embrace high standards, striving to build a professional, efficient and clean platform for infrastructure investment.
As the first multilateral development bank proposed by China, the AIIB will actively draw upon the experiences and good practices of the existing multilateral development banks. It will adopt international norms and good practices, and embrace high standards in governance structure, operations, human resources, and management, among other aspects, to ensure the Bank will operate in a professional, efficient, transparent and clean manner.
On governance structure. The AIIB will adopt a modern governance structure which comprises three levels: the Board of Governors, the Board of Directors, and the Management. The Board of Governors is the highest decision making body of the Bank, and is vested by the Articles of Agreement to delegate authority to the Board of Directors as necessary. The Board of Directors will be non-resident initially and convene regularly to discuss major policy and operational issues. Effective oversight mechanism will be instituted to hold the Management responsible and accountable. The Bank would show zero tolerance towards corruption and fraud, and enforce rigorous policies and regulations to uphold integrity.
On operational policies. The Bank will respect and learn from the good practices and experiences of the existing multilateral development banks in terms of environment and social framework, procurement policy, project management, and debt sustainability assessment, with a view to putting into place strict and credible operational policies of the highest standards. Moreover, the AIIB will draw lessons from the "dos and don'ts" of the existing multilateral development banks, and explore better ways and practices to improve its operating efficiency and reduce costs.
On human resources management. China and other members will work in concert and provide guidance to the Secretariat through the Chief Negotiators' Meeting mechanism on matters of human resource management and staff recruitment, through formulating policies, procedures and criteria, so as to tap the global talent pool for management and staff positions through open, transparent and merit-based multilateral processes.
On project pipeline and headquarters establishment. All Prospective Founding Members will work together on project pipeline development to ensure the Bank would be fully geared for a stellar debut upon its official establishment. Moreover, as the host country, China will continue to deliver good services to facilitate work associated with the Bank's headquarters in Beijing, and provide strong and reliable support to enable efficient operation of the Bank.
The AIIB initiative has come a long way since its inception. Nevertheless, it is but a first step leading up to an "epic journey". More hard work lies ahead in our quest to build the AIIB into an international financial institution embodying the highest standards. I am convinced that with the concerted efforts of the 57 Prospective Founding Members, we will live up to the vision of building the AIIB into a multilateral development institution of the 21st Century, and contribute in a meaningful way to the great cause of regional and global development.
The author is Minister of Finance of China.
