Asian Infrastructure Investment Bank (AIIB) - Merits and Demerits
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6 people namely Amy, Bhavna, Charlie, David, Earl and Fawaz are having a discussion on the topic Asian Infrastructure Investment Bank.
Category: Finance, Business
Group Discussion Starts
Bhavna: Good morning friends the topic given to us is Asian Infrastructure Investment Bank. It is an international bank proposed by China. It is called as multilateral development bank. It has about 37 founding country members who signed an agreement regarding the legal basis for the bank.
Amy: To add to what bhavna said, I would like to give a brief history of the bank. It was the Chinese President Xi Jinping who announced this AIIB during his visit to Southeast Asian countries in October 2013. It is supported by about 37 regional and 20 non regional members who include Australia, China, Pakistan, Germany, U.K. etc. The initial capital of AIIB is about 100 billion dollars which is equal to half of the capital of the World Bank
Charlie: I don’t feel that this institution is going to have much impact on the development of infrastructure of the member countries and it is going to be a nominal organization like many other multilateral treaties and organizations
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David: I don’t agree with you Charlie, the proposed bank has a lot of benefits to the members and in particular to India also. As we have been seeing, currently Asian economy is under a severe downward pressure. Increased spending on strengthening infrastructure will help to increase demand, increase employment and makes the overall production-consumption environment more effective
Earl: The spending of the AIIB are focused on areas like transportation, control of pollution, clean drinking water, rural infrastructure, sanitation improvement etc which are the major requirements in the developing countries.
David: Yes that is why I feel being a member of this institution is quite essential for India since many of our objectives are aligned with the objectives of the bank. The bank is expected to have strong policies on aspects of governance and accountability
Amy: The objective of the bank is to be clean, green and lean which means highly skilled staff and efficient management, zero tolerance for corruption and utmost focus on environmental friendliness
Fawaz: I don’t understand what specific purpose does the bank serve and particularly how does it help India on its growth?
Bhavna: I would like to answer your question. Firstly I think you agree with the fact that infrastructure is one of the most important requirements of any developing country. Asia is facing a gap between the demand and available capital supply which is insufficient to meet the demand. For example if we take the example of recently announced smart cities program in India, in the first phase a list of 25 cities has been released which require an estimated capital of 52lakh crores most of which goes towards infrastructure development. Similar to India many other developing Asian countries are in requirement of capital for infrastructure development which the bank will help to some extent
Amy: I don’t feel that Asia as a whole is lacking capital to spend on Infrastructure. It may be true for some countries but there are countries like China which have huge savings accumulated in their reserves, these reserves are sufficient to spend on infrastructure but the real problem is the lack of a platform for finance and business, which will be provided b the AIIB
David: Exactly, the focus is now on sharing the knowledge with under developed and low income countries and concessional lending to them
Fawaz: But I don’t understand the exact role AIIB is going to play in all this process?
David: AIIB is a platform which is inclusive not only with respect to Asia but also United states and other countries but the principle of inclusion is Asian countries first and then non Asian countries.
Amy: AIIB is going to act as a financial catalyst of Asia, the initial investment of 50 billion dollars is expected from government and apart form that another 50 billion dollars is expected in the form of private investments from financial institutions, the focus will be two level i.e. national and regional levels
Charlie: But there were news articles saying that Japan declined the offer to join as a founding member of the bank since it felt that establishing such an institution is not required and another article said that South Korea was pressurized by USA not to join the bank. How would you explain these?
Bhavna: there are a lot of politics involved in this issue. I feel that USA and Japan are treating the existence of this bank as a threat to their influence in Asia and it is obvious that both these countries want to dominate international financial establishments
David: But despite all these the bank has many advantages for example it is being established after many other such international financial institutions which gives it opportunity to learn from their experiences, it will create a lot of employment in the Asia region.
The establishment of AIIB is definitely a positive move towards multilateral cooperation, commitment towards development and is being welcomed by the world which is evident from the fact that more than 50 countries applied for membership till now.
Facts about the topic
• The inaugural meeting of the Asian AIIB’s Board of Governors was held in Beijing on January 16-17, 2016. 30 Governors participated in the meeting who represented about 74 percent of the AIIB’s allocated capital. They were joined by observers from the 27 signatories to the Bank’s Articles that are still completing the membership process.
• Jin Liquin has been elected as the first president of the bank
• The President of the World Bank, Jim Yong Kim , told that need for developing infrastructure in developing countries is great and hence UN welcomed the establishment of the new bank
• The Chinese government has been frustrated with the slow pace of reforms and governance, and wants greater input in global established institutions like the IMF, World Bank and Asian Development Bank which it claims are dominated by American, European and Japanese interests
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