Has Developing Asia Found Its Knight in Shining Armor?

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By SHARJIL M. HAQUE

WASHINGTON — The arrival of the Asian Infrastructural Investment Bank (AIIB) has been met with mixed reactions. Many see it as a threat to the World Bank (WB) and the Asian Development Bank (ADB). Underlying this are portrayals of the initiative as an attempt to lure countries from South and Southeast Asia into Chinese control. All this skepticism solicits a single question—is the AIIB really the long-awaited answer to Asian infrastructural inadequacies or just a response to China’s lack of influence in the traditional multilateral lenders?

The multilateral development powerhouses WB and ADB, together consisting of capital around $390 billion, have fallen woefully short of alleviating Asia’s infrastructural needs; a shortage forecasted at nearly $8 trillion between 2010-2020 by the ADB itself. Additionally, since their concentration has generally been on poverty reduction, a gaping hole has developed in the search for an institution focused on infrastructural advancement. Consequently, the AIIB’s accelerated loan application process, coupled with its relatively easier monitoring conditions, could be the perfect answer for countries like Thailand, Myanmar, Cambodia and Bangladesh—all of which have struggled with the stringent reforms traditional lenders demand.

These factors may paint the AIIB as the answer to emerging Asia’s infrastructural needs, yet with only $50 billion in capital, one must question whether it even has the capacity to implement substantial change. Even if the AIIB were to provide the necessary finance, there is an inherent risk of the money falling into unproductive projects, thereby failing to accelerate GDP growth. This is especially true for some Asian countries where political instability and bureaucratic corruption often hinder development.

Moreover, there is a high probability of divergence in lending terms and conditions between the AIIB and traditional lenders like the WB and ADB. If this divergence results in contradictory reform requirements, developing countries run the risk of having to choose between opposing geopolitically oriented financial institutions, a predicament that threatens both borrowers’ future financial opportunities and an already tense international balance.

While the AIIB does hold exciting new possibilities for addressing a critical area of Asian development, one needs to wait and see if there is sufficient collaboration between this new institution and its so-called rivals. It is this cooperation that will ensure long-term mutual development, not destabilizing competition.