U.S. slammed for lack of engagement in Asian infrastructure bank

Chinese President Xi Jinping (C, front) and representatives of countries ready to join the Asian Infrastructure Investment Bank line up for a group photo at the Great Hall of the People in Beijing in October 2014. (Kyodo)

More than 40 countries joined China in forming the Asian Infrastructure Investment Bank (AIIB). Notably absent from the body meant to support infrastructure projects across Asia were the United States and Japan.

The decision by the two countries not to participate has come under scrutiny. Some people are arguing that the United State should have done more to participate and others say it should have done more to prevent it from happening.

“By setting up and then losing a power struggle with China, Washington has sent an unintended signal about the drift of power and influence in the 21st century,” wrote Gideon Rachman in the Financial Times. “There was a time when the world was said to bow down before the mighty dollar. But the story of the AIIB suggests that these days, even many of America’s closest allies, have renminbi signs in their eyes.”

A similar story in the Washington Times makes the case that the U.S. is losing global power by allowing the bank to form. They argue it competes against existing institutions backed by the United States, such as the World Bank and International Monetary Fund.

But the sentiment is far from a consensus. World Bank President Jim Yong Kim articulated a cautious welcome to the new bank, last week. He said further infrastructure investments were needed, but the AIIB must uphold high standards for how it does business, environmental impact and labor rights.

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“My position on it has been the same from the very beginning,” said Kim in a conversation held by the think tank the Center for Strategic and International Studies. “My goodness.  We have so much need for infrastructure that we welcome any new players. The Chinese government has been very clear to us that this is not competition for us, they have been very, very clear they want to cooperate, and we have already been cooperating.”

Between $1 trillion and $1.5 trillion is needed annually for infrastructure investments in developing countries each year, said Kim. Asia alone is estimated to need $8 trillion in money over the next 10 years for expanding access to energy, transportation, telecommunication and water/sanitation, according to the Asian Development Bank.  Current investments total only $24 billion per year in Asia, some $700 billion short annually of the estimated need.

Existing banks are only able to support a portion of that investment. The emergence of the AIIB  is evidence that more money is needed, argued Georgetown University professors Raj M. Desai and James Vreeland on the Monkey Cage blog for the Washington Post. They pin the formation of the AIIB on the inability of the United States and others to push needed reforms in the World Bank and IMF. And it may soon overshadow infrastructure spending by the World Bank, given its potential to provide $30 billion in loans each year.

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Desai and Vreeland say that the actions by Washington to sideline the AIIB harms itself. Unlike the argument that steps should have been taken to stop the AIIB, the two make the case for engagement in a body backed by the likes of the U.K., Germany and France.

“Asia, the United States — and for that matter, the whole world — would be better off if the United States were to participate in the AIIB. What better way to encourage the Chinese to implement a transparent regime that adopts global best practices in financing infrastructure than to be a voting member?” they write.

China being the largest financial backer of the AIIB gives it stronger powers over how it is run. While there is disagreement over what the United States should have done, there is agreement that it blew a big opportunity.

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Tom Murphy

Tom Murphy is a New Hampshire-based reporter for Humanosphere. Before joining Humanosphere, Tom founded and edited the aid blog A View From the Cave. His work has appeared in Foreign Policy, the Huffington Post, the Guardian, GlobalPost and Christian Science Monitor. He tweets at @viewfromthecave. Contact him at tmurphy[at]humanosphere.org.