The China led initiative for setting up Asian Infrastructure Investment Bank (AIIB) became a reality on 24 October, 2014 when 21 Asian countries including Pakistan formally launched the venture at a ceremony held in Beijing. China would contribute US$ 50 million to the initial capital of US$ 100 billion while the rest of the money would be provided by other members. Though the AIIB capital is far less than the financial resources of the World Bank, Asian Development Bank and the IMF, considering its region specific agenda it should be good enough to meet the requirements of the member countries.
As against IMF objectives to promote international economic cooperation, international trade, exchange rate stability and to meet balance of payment needs of the member countries, AIIB would provide finances to the member countries for the development of necessary infrastructure. It would provide finances to the member countries on less stringent conditions than the IMF and create healthy competition amongst the lending institutions to the benefit of the borrowing countries who would be in a stronger bargaining position with regards to required loans. Since lending policies would be framed by the representative of the Asian countries, it is hoped that they would be formulated keeping in view the economic situations of the member states, the requirements and aspirations of their people rather than being at cross purposes with their needs. China is inclined to make the lending process hassle free, making sure that borrowing countries do not have to jump through a layer of hoops to get their money. The human and cultural aspect of the economic policies is indeed very important to ensure peace, harmony and progress. It is now firmly believed by the economists and social scientists that development is always ‘culture bound’.
The US virtually enjoys a veto in the major decisions and policies of the existing international lending institutions by being a major contributor, especially the IMF. Thus the polices framed by these agencies are heavily tilted towards serving the interests of the developed nations and geared to strengthening the existing global economic order. They lack recognition of the cultural sensitivities and moorings of the borrowing nations. The US and its allies view the establishment of AIIB as a threat to the existing international financial institutions. They fear that the establishment of AIIB will relax their hold on the economies of the developing countries of Asia and undercut international institutions like the World Bank, IMF and ADB by relaxing fiscal discipline and good governance. The US reportedly also used its influence with Australia and a few other countries of the region to stay away from the venture. However, the US and its allies conveniently refuse to acknowledge the fact that while speaking to the delegates after the inauguration ceremony, the Chinese President Xi Jinping stated in unequivocal terms that the new bank would use the best practices of the World Bank and ADB and other existing multilateral development institutions.
Nevertheless, the AIIB would surely enhance international stature of China. US is also worried about any move by China to shift world attention from existing lending institutions as both are engaged in fierce competition for pre-eminence in Asia. Some circles believe that the formation of AIIB was China’s reaction to being continuously relegated to second class status at existing institutions. China also is supporting another alternative institution, the New Development Bank sponsored by BRICS countries. The idea being that if the US and its allies will not make room for China at the table, then Beijing could take its own initiative.
The IMF loans also have political repercussions as they are given on very stringent conditions which almost dictate to the borrowing countries the policies initiatives they should take to improve the health of the economy. It is more discernible in Pakistan where the IMF is insisting on enhancement in the prices of electricity and gas, phasing out subsidies and increasing regressive sales tax. Pakistan is currently spending a big chunk of its budget on debt servicing.
The establishment of AIIB is indeed a very imaginative and prudent move on part of China and member countries. China’s phenomenal rise as an economic power has generated excessive savings which can be productively employed for the benefit of all countries of the region. The move also has the potential of building strong economic linkages and the creation of a regional economic fraternity contributing to the health of regional economies as well as the global economy. Finance minister Ishaq Dar was right on the money when speaking to the Chinese media. He said, “We believe the bank will constitute an important platform to convert the abundant savings available in the region into investments to help regional economies in sustainable and rapid development and to contribute to the world economy.” It is a landmark decision and will provide financial support to developing countries of Asia for infrastructure development in order to promote regional connectivity.
Pakistan can greatly benefit from the establishment of AIIB as it badly needs resources to build necessary infrastructure to revive its economy as well as to kick-start a process of sustained economic development. It also needs enormous resources to tide over the energy crisis in the country and ensure energy safety in the years to come. The entire focus of the Pak-China Economic Corridor initiative under which China would be making an investment of US$ 34 billion is also on building the infrastructure which would not only provide easy access for Chinese products to the littoral states of the Indian Ocean and beyond, but also help in a big way to boost the economy of Pakistan. The decision by Pakistan to join hands with China and other Asian countries in the establishment of AIIB stems from the new narrative evolved by the present government for building economic and political linkages with neighbours and Asian countries. Pakistan’s security and economic progress is inextricably linked to the region where it belongs. Therefore the emphasis on finding solutions to the security and economic challenges confronting it, through the collective efforts of the countries of the region is a pragmatic and visionary initiative.
The writer is a freelance columnist.