Asian Infrastructure Investment Bank

        Asian Infrastructure Investment Bank

    The Asian Infrastructure Investment Bank (AIIB) is a multilateral

development bank that aims to support the building of infrastructure in the Asia-Pacific region. The bank currently has 69 members as well as 24 prospective members from around the world [7]. The bank started operation after the agreement entered into force on 25 December 2015, after ratifications were received from 10 member states holding

a total number of 50% of the initial subscriptions of the Authorized Capital Stock.[8]The United Nations has addressed the launch of AIIB as having potential for "scaling up financing for sustainable development"[9] and to improve the global economic governance.[10] The starting capital of the bank was $100 billion, equivalent to 2⁄3 of the capital of the Asian Development Bank and about half that of the World Bank.[11]The bank was proposed by China in 2013[12] and the initiative was launched at a ceremony in Beijing in October 2014.[13] It received the highest credit ratings from the three biggest rating agencies in the world, and is seen as a potential rival to the World Bank and IMF.[14][15] The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank headquartered in Beijing. Like other development banks, its mission is to improve social and economic outcomes in its region, Asia, and beyond. The bank opened in January 2016 and now has 86 approved members worldwide.

The History of the Asian Infrastructure Investment Bank:

China's leader Xi Jinping first proposed an Asian infrastructure bank at an APEC summit in Bali in 2013. Many observers have interpreted the bank as a way challenge to international lending bodies that some consider reflect American foreign policy interests such as the

International Monetary Fund (IMF), the World Bank and the Asian Development Bank. In this bank's case, China controls half of the bank's voting shares, which gives the perception that the AIIB will function in the interests of the Chinese government. The U.S. has questioned the bank's governing standards and its social and environmental safeguards, perhaps pressuring allies not to apply for membership. However, despite American objections, approximately half of NATO has signed on, as has nearly every large Asian country, with the exception of

Japan. The result is widely considered in an indicator of China's growing international influence at the expense of the United States.

The Structure of the Asian Infrastructure Investment Bank:

The bank is headed by a Board of Governors composed of one Governor and one Alternate Governor appointed by each of the 86 member countries. A non-resident Board of Directors is responsible

for the direction and management of the Bank such as the Bank’s strategy, annual plan and budget and establishing policies and oversight procedures. The bank staff is headed by a President who is elected by AIIB shareholders for a five-year term and is eligible for re-election once. The President is supported by Senior Management including five Vice

Presidents for policy and strategy, investment operations, finance,

administration and the corporate secretariat and the General Counsel

and Chief Risk Officer. Mr. Jin Liqun is the current President.

Asian Infrastructure Investment Bank 

Priorities:

The bank's priorities are projects that promote sustainable Infrastructure and to support countries who are striving to meet

environmental and development goals. The bank funds projects that link countries in the region and cross border infrastructure projects for roads, rail, ports, energy pipelines and telecoms across Central Asia and maritime routes in South East and South Asia and the Middle

East. The bank's priorities also include private capital mobilization and encouraging partnerships that stimulate private capital investment such as those with other multi-lateral development banks, governments and private financiers.An example of an AIIB project is a rural road connectivity initiative that will benefit approximately 1.5 million rural residents in Madhya Pradesh, India. In April 2018, the AIIB announced the project, which is also expected to improve the

livelihoods, education and mobility of the residents of 5,640 villages. The project is a U.S. $140-million jointly financed by the AIIB and theWorld Bank.

• Why the need for new multilateral organization aroused?

The reasons are:

a) Western dominance:

The presence of western dominance in the IMF, the World Bank and the Asian Development Bank (ADB) has been considered as the major factor behind formation of AIIB. It is a set norm that the president of WB will be a person chosen by the US, where as the IMF chief would be an European.

b) Lack of reform in IMF & World Bank:

This means that there is no reflection of current economic situation in the quota politics dominates economics. The World Bank violated its Articles of Agreement in denying India fresh loans after India tested

nuclear weapons in May 1998. As per its Articles, political issues should not influence.

c) Huge demand of infrastructure fund in Asia:

According to report by ADB, till 2020 Asia needs $800bn per annum for infrastructure projects(ADB can provide only $10 bn).Global impact of the initiative

a) It will catalyze the reforms in global financial institutions as more competition among these banks will catalyze the long awaited reform in Bretton wood twins.

b) According to ADB, Asia needs $800 bn of investment every year. AIIB can play a significant role in providing funding for it.

c) Economic and political power may shift to Asia as key European members and allies of USA has joined the Bank.

Relevance for India

a) India is a founding member of the AIIB and is expected to have the second-largest shareholding after China.

b) Establishment of the AIIB will help India and other signatory countries to raise and avail resources for their infrastructure and

sustainable development projects.

It is expected that with membership in AIIB, India would be able to raise and obtain more resources for much needed infrastructure development. As per 12th FYP ,India needs $1 trn for infrastructure

funding thus India can leverage its membership in AIIB to avail cheap loan.

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. Recently Former Chief Secretary of Gujarat D.J Pandian has been appointed as Vice-President and Chief Investment Officer of newly created AIIB. This along with the positive engagement of AIIB

President Jin Liqun with PM Modi has created a positive sentiment among the political and business sphere regarding the future engagement and role of India with AIIB. As India plays significant role

in providing credibility to the bank it must leverage its position to ensure transparency and democracy in the management of affairs. The Board of Directors of the Asian Infrastructure Investment Bank (AIIB) has approved an equity investment of USD 100 million in India’s National Investment and Infrastructure Fund’s (NIIF) Fund of Funds as Phase I for the NIIF Fund of Funds initial closing. AIIB is considering a

further investment of USD 100 million as part of Phase II for the final closing, which would bring the bank’s total commitment to USD 200 million. NIIF, anchored by the Government of India, is a collaborative

investment platform for international and domestic investors that are keen on investing in commercially viable Indian infrastructure projects. NIIF’s Fund of Funds will anchor and/or invest in funds managed by fund managers who have good track records in infrastructure and

associated sectors in India. Some of the sectors of focus include Green Infrastructure, Mid-Income & Affordable Housing, Infrastructure services and allied sectors. NIIF Fund of Funds recently announced its first investment, Green Growth Equity Fund, which will invest in

renewable energy, clean transportation, water, sanitation and waste management. AIIB will provide expertise to enhance NIIF’s environmental and social risk management capabilities to improve and

monitor environmental and social performance across the portfolio

investments. "Our investment in the NIIF reflects AIIB’s commitment to support the

Government of India in its efforts to promote investment in infrastructure and to mobilize private capital for development," said AIIB Vice President and Chief Investment Officer D.J. Pandian.

"The NIIF will provide access to a diversified range of Sub-Funds and trigger a multiplier effect in attracting capital," said AIIB Director General of Investment Operations Dong-Ik Lee. "With AIIB’s investment in the NIIF, we will help pool commitments from long-term investors such as multilateral institutions, sovereign wealth funds, pension funds and insurance companies—within and outside India—to

make investments in the country’s infrastructure sector."