Wednesday, March 25, 2015

China's Infrastructure Bank can't be thwarted

The US is miffed with the UK for agreeing to join China's proposed Asian Infrastructure Investment Bank. India too is expected to be among the 35 countries that will join.

Infrastructure in Asia needs enormous funding. The World Bank cannot meet its needs nor the ADB. The IMF/ World Bank have refused to change their governance structure in line with the changing realities of the world. China is sitting on foreign exchange reserves of $ 3.8 trillion. The AIIB is inevitable under the circumstances.

The AIIB will be dominated by China, unlike the proposed Brics Bank where all the founding shareholders will have equal votes. There's every prospect that China may reserve veto powers for itself. Still, Martin Wolf of the FT thinks the rest of the world should join- he spells out his reasons for saying so:
First, the US, Europeans and Japanese treasure a degree of influence on global financial institutions that is increasingly out of line with their position in the world. Moreover, they have failed to exercise that stewardship as well as they ought to have done. Not least, they have insisted on the right to appoint leaders who have been far from consistently excellent.
Second, it is five years since the Group of 20 leading economies agreed on new quotas that would moderate their outsized influence at the International Monetary Fund. The world is still waiting for the US Congress to ratify the changes. This is an abdication of responsibility.
Third, the world economy would benefit from larger flows of long-term capital to developing countries as well as from a bigger insurance fund than the IMF can offer to countries exposed to “sudden stops” in capital flows. 

1 comment:

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