It is not surprising that subsequent developments of such international banks have sprung up to focus their efforts to help Eastern nations, but still based on the models of the World Bank. The Asian Development bank ( ADB ) was the first in this category, established in 1966 and headquartered in Manila, Philippines. It is a regional bank, meant to provide grants, loans and development counseling. The U.S. and Japan are equal partners, with about 15% share each, followed by China and India at about 6% shares.
The BRICS bank, representing Brazil, Russia, India, China and South Africa was formally inaugurated at Forteleza, Brazil, in July 2014. It will be headquartered in China and the first President, for a period of six years will be nominated by India. Progress has been slowed down in this project due to geo-poltical and geo-economic reasons, with Russia under sanctions, Brazil in recession and S. Africa due to internal squabbles. India is yet to nominate the first president even though funds have been allocated in the current year budget.
The most recent and startling organization in this category is the Asian Infrastructure Investment Bank (AIIB), a brainchild of China. Calls for liberalizing the structure of IMF and the WB to provide better service to the newly emerging countries of Asia have been around for a while, including one such in 2009, soon after President Obama took office. Very little, however, has happened due to built-in suspicions from way back, regional preferences and the like. In this context, former U.S. Treasury Secretary Lawrence Summers stated that “the past month may be remembered as the moment when the U.S. lost its role as the underwriter of the global economic order.” (Financial Times, 4/6/15) As long as one of our major political parties is opposed to all trade agreements and the other is hesitant to fund international organizations, the US has no leverage to shape the global economic order. Having recognized that no initiative has been made for reform so far, we also openly started discouraging our allies from joining the organization. That attempt miserably failed.
The AIIB, modeled on the WB, starts with $100 billion funding from the enormous forex reserves of China as seed money to fund infrastructure projects primarily in Asia. These include roads, rail lines, bridges, airports and the like. China is the biggest shareholder, and non-Asians are limited to a total of 25% of the shares. In order to encourage global participation, China is adopting an open, non-authoritarian management structure, multi-national staff modeled on Britain. Also modeled on Britain, it appears, is the old dictum from Lord Palmerston: “we have no permanent friends or permanent enemies, but only permanent interests.” Mr. Jin Liqun, a former Chinese vice minister of finance was given the task of shepherding the membership together. He has been just named the President of AIIB.
China stands to benefit in many ways from this initiative. Besides the return on cash investment, other opportunities open up as well. China can openly bid on global tenders to design and build developmental infrastructure.These benefits could be grouped under a “Kamadhenu” model of economics, after the Indian mythological bovine goddess Kamadhenu that keeps on giving and is a symbol of abundance. The investment model is the same that China adopted in funding the widening of the Panama Canal. The projected Nicaragua parallel canal is based on the same modus operandi.
The number of members so far is over sixty. All major European countries have come in. So too the countries of the East.India is in the list. Surprisingly, Taiwan too. The oddest couple of countries who have joined, however, are Israel and Iran. The principle of “deductio-ad-absurdum” will quickly show that these two agree on at least one thing. AIIB is beneficial to both.
It is a master stroke of planning and execution that China has accomplished to make AIIB a reality. Credit is certainly due to them for what could only be called a coup.
P. Mahadevan is a retired scientist with a Ph.D. in Atomic Physics from the University of London, England. His professional work includes basic and applied research and program management for the Dept. of Defense. He taught Physics at the Univ. of Kerala, at Thiruvananthapuram. He does very little now, very slowly.