What is AIIB?
- First proposed in 2013, the Asian Infrastructure Investment Bank is a multilateral bank which has 57 founding members including India.
- Based in Beijing, China, it has $100 billion in authorized capital.
- It is expected to fulfill the huge infrastructure needs of Asia and supplement the efforts of World Bank, ADB, etc.
- China is the largest stakeholder (30.34% stake) followed by India (8.52%), and Russia(6.66%).
According to the Asian Development Bank (ADB), Asia requires a massive infrastructure funding, upwards of $8 trillion between 2010-2020 which cannot be met by the ADB and the World Bank alone.
What are Bretton Woods institutions?
- World Bank (WB) and International Monetary Fund (IMF) are Bretton Woods institutions which were set up after a meeting of 43 nations in Bretton Woods, USA in 1944.
- Initially planned to rebuild the post world war 2 economy, these institutions now work to promote economic development in the world.
- However, their role has been criticized as having neo-imperialistic monetary and fiscal policies.
A Chinese diplomatic push
- The Chinese media sees AIIB as a 'diplomatic coup' for Beijing as it will challenge the existing global financial order.
- World Bank and IMF, dominated by US and European countries, do not adequately represent developing countries.
- According to Luxemberg's Finance Minister, AIIB is proof of rebalancing of the world economy.
- Major US allies - Germany, Australia, France, etc. - have joined despite US's resistance.
AIIB vs Bretton Woods Institutions
- AIIB will offer loans with less stringent conditions compared to WB and ADB.
- Unlike the WB and ADB, which impose inordinate demands on borrowers, AIIB is not likely to vociferously advocate for privatization and deregulation.
- AIIB may not delay project approvals for due diligence as was done by its rivals.
- It also aims to overcome the slow, bureaucratic approach of World Bank and others.
India won't have Vice-Presidency of AIIB
- India, despite being the second largest share holder in the Asian Infrastructure Investment Bank, will not gain its vice-Presidency.
- According to government sources, AIIB has decided that selection of candidates for the post would be done based on merit rather than on share-holdings.
- The selection based on meritocracy is welcomed, as the IMF and World Bank were criticized for not following it.
Effective veto for China
China, with a voting share (decided on the size of the member nation's economy) of 26.06%, has veto powers in decisions such as President's election, suspension of members, rules changes, etc. India has the 2nd highest voting share (7.5%) followed by Russia (5.92%).
China launches Asian Infrastructure Investment Bank
- The Asian Infrastructure Investment Bank (AIIB) was launched by Chinese President Xi Jinping at a lavish ceremony in Beijing, China.
- President Xi, at the opening ceremony said, that the bank will help finance the massive basic infrastructure needs of Asia with low cost finance.
- The bank will start operations in the second quarter of 2016 and initially lend $10-11 billion/year for 5-6 years.
India elected to AIIB BoD
- India has been elected to the Board of Directors of the Asian Infrastructure Investment Bank, which is expected to begin furnishing loans later this year.
- Dinesh Sharma, Additional Secretary of Ministry of Finance was elected to the 12-member board for which a ballot was held on 17 January.
- The inaugural meeting of the board of the governors has approved by-laws and rules for AIIB.
AIIB, World Bank to work on joint projects
- The China led Asian Infrastructure Investment Bank has struck an agreement to undertake joint projects with the World Bank.
- Jin Liqun, President of the AIIB, said that he expected the first projects to be approved in June.
- He added that, "infrastructure projects are very large and it is not a very good idea for one bank to spend $2bn or $3bn on one project."
AIIB, ADB to finance Pak's $300 million highway
- The China-led Asian Infrastructure Investment Bank has agreed to finance its first infrastructure project in Pakistan jointly with the Asian Development Bank.
- The project involves construction of a a 64 km stretch of highway connecting Shorkot to Khanewal in Pakistan's Punjab province.
- ADB president Takehiko Nakao and AIIB president Liqun Jin signed a memorandum of understanding (MoU) in Frankfurt, Germany.
China lauds AIIB capacities at first annual meeting
- Chinese officials stated that the Asian Infrastructure Investment Bank would be unique in its approach to funding industrial growth as it has a better understanding of world problems than existing institutions.
- Chinese Finance Minister Lou Jiwei lauded AIIB's "comparative advantage relative to existing multilateral development banks like the World Bank."
- He made the comments on the last day of AIIB's first annual meeting in Beijing.