“I don’t think there will be major change to the world of development finance [because of the creation of the AIIB], although there can be interpretations as to the symbolic meaning of this.”
— Takehiko Nakao, Japanese head of Asian Development Bank
One can hardly blame Nakao for putting on a brave face. After all, the China-led Asian Infrastructure Investment Bank represents not only a major shift away from the multilateral institutions that have dominated the post-war global economic order, but also a move by Beijing to establish what we have described as a Sino-Monroe Doctrine [8]. Speaking to the latter point, President Xi Jinping’s recent pledge to invest $46 billion [9] in Pakistan (53% more than the US has invested in 13 years) as part of Beijing’s Silk Road initiative, gives us a window into what the future may hold in terms of China’s growing regional influence.
But as Washington learned in March, belittling China’s power grabs is a fool’s errand, especially when they are disguised as infrastructure development initiatives. In the end, resistance is futile, but old habits die hard, which is why it’s not surprising that the ADB is now beefing up its lending capacity while simultaneously paying lip service to the AIIB.
Via Bloomberg [10]:
The Japan-led Asian Development Bank unleashed measures that could help it hold its ground as a resource for regional economies, even as China’s Asian Infrastructure Investment Bank gains prominence.
The ADB overhauled a four-decade-old development fund to boost its annual lending and grant approvals by 50 percent, to as much as $20 billion, the bank said at its annual meeting in Baku, Azerbaijan that started May 2. It will also set aside money to support public-private partnership projects and work with the AIIB “for Asia,” the ADB said.
“Now that the China-led AIIB is becoming a reality, the Japan-led ADB wants to ensure that it will still remain a key funder for infrastructure programmes in less developed Asia,” said Wai Ho Leong, a
Singapore-based economist at Barclays Plc. “Given the development needs across Asia, there is sufficient room for both players.”
For almost 50 years, Asian nations from India to Vietnam and Indonesia have benefited from funding from the ADB, which is dominated by Japan and the U.S. That relationship is set to change as the rise of the AIIB, the first major multilateral development bank in a generation, provides an avenue for China to strengthen its presence in the world’s fastest-growing region.
On its side, the ADB is boosting its own firepower.
In a move it described as “groundbreaking,” the lender said it will combine the lending operations of the bank’s Asian Development Fund with its ordinary capital resources balance sheet, with the merger taking effect in 2017. The fund was established in 1973 to provide concessional loans and grants to poorer countries, while OCR loans are provided to middle-income countries at market-based rates.
The initiative will increase ADB assistance to poor countries by as much as 70 percent, and together with cofinancing, enable the bank’s annual assistance to reach as high as $40 billion in the coming years from $23 billion in 2014, it said.
Clearly, this looks quite a bit like an institution trying to play catch up now that a competing player has entered the market. Similarly, The White House is now scrambling to correct the ‘misconception’ that Washington tried to demean the initiative and worked behind the scenes to discourage US allies from supporting Beijing.
Via WSJ [11]:
The U.S. never opposed a new China-led infrastructure bank, President Barack Obamasaid Tuesday, challenging a common narrative that Beijing out-maneuvered Washington by persuading key U.S. allies to sign up as founding members.
“We’re all for it” if the Asian Infrastructure Investment Bank incorporates strong financial, social and environmental safeguards, Mr. Obama said…
“Let me be very clear and dispel this notion that we were opposed or are opposed to other countries participating in the Asia infrastructure bank,” he said at a press conference with Japanese Prime Minister Shinzo Abe. “That is simply not true.”
With that in mind, we’ll leave you with the following quote provided to NY Times last October by a senior Treasury official:
“How would the new institution add value? How would the Asian Infrastructure Investment Bank be structured so that it doesn’t undercut the standards with a race to the bottom?”
Doesn’t sound too much like an administration that was “all for it” to us.
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As a reminder, here are all of the countries that have signed on to participate in the China-led institution:
[12]
