Syllabus:Important International institutions; agencies and fora; their structure; mandate

Asian Infrastructure Investment Bank (AIIB)

Recent news

• India to host 3rd Annual Meeting of Board of Governors of Asian Infrastructure Investment Bank

Background

• AIIB is a multilateral development bank with a mission to improve social and economic outcomes in Asia and beyond. Headquartered in Beijing, China, AIIB commenced operations in January 2016.
• The core principles are openness, transparency, independence and accountability and the mode of operation is "Lean, Clean and Green".
• The $100-billion Asian Infrastructure Investment Bank represents a challenge to the older such institutions. Mooted by Chinese President Xi Jinping in October 2013, the AIIB took shape with 50 members, including Australia, India, Russia and the United Kingdom.
• Mexico, Japan and the United States are non-members. Taiwan's request to become a Prospective Founding Member was rejected by China as it does not consider the former to be a sovereign state.

Comparison with other important institutions

Issues

• Being based in China means that the AIIB will be staffed by a large number of Chinese diplomats and economists with a distinctly Chinese outlook on the world.

• While on one hand, it has promised not to use veto, existing rules require 75 percent “super-majority” for key decisions like appointing the president and allocation of funds outside the region. Clearly, that can’t happen without express Chinese approval.

Opportunity for India

• India needs over $1.5 trillion in investment in the next 10 years to bridge infrastructure gap as the government intends to connect seven hundred thousand villages with roads by 2019 as part of a massive modernisation plan

• There is western dominance in the IMF, the World Bank and the Asian Development Bank (ADB) While India holds the second largest shareholding in AIIB

• The U.S. government placed severe restrictions on financing coal-fired electricity generation abroad, the World Bank followed suit less than a month later. The World Bank’s policy, in keeping with that of the United States, is only to lend for coal-fired electricity projects in “rare circumstances.” their lack of support for coal poses a major challenge for India, which has the world’s fifth-largest coal reserves and needs to massively ramp up its energy-generation capacity

• The Asian Infrastructure Investment Bank (AIIB) is investing $1.5 billion in six new projects in India that includes Rs 1,279 crore in India's National Investment and Infrastructure Fund (NIIF). India has been trying to attract investments for NIIF from several international institutional investors.

Conclusion

This long-planned initiative mirrors the growing influence China intends to play on world economic and financial affairs hence care must be taken to prevent it to become the sole driving factor for the bank.