Source: TeleSUR English
“With friends like this, who needs enemies.” This must be what Washington policymakers muttered to themselves following the decision of London, Paris, Rome, and Berlin to join a new development bank proposed by Beijing.
The anger in Washington most likely mounted when its main Pacific allies, Japan, Australia, and South Korea, also gave strong indications that they would join the bandwagon. By the end of March, more than 35 countries are expected to be enlisted as founding members of the Asian Infrastructure Investment Bank (AIIB).
$50 billion of the initial target capitalization of $100 has been committed by China.
Washington fears that it would rival the World Bank and the Asian Development Bank as sources of development finance in the region. There is a strong basis to Washington’s concerns. Despite the efforts of World Bank President Jim Yong Kim to change the image of the Bank, the widespread perception of the institution is that it carries out Washington’s priorities. As for the Japanese-controlled Asian Development Bank (ADB), it is seen as following the World Bank’s lead, much like Tokyo broadly follows Washington’s directions in foreign policy.
Beijing’s Latest Multilateral Initiative
China’s move to found the AIIP is the third major initiative it has been involved with in less than a year to establish multilateral alternatives to the World Bank and the International Monetary Fund (IMF). Last July, during the BRICS (Brazil, Russia, India, China, South Africa) summit in Fortaleza, Brazil, it was central in setting up the New Development Bank, to which it and its partners would contribute $100 billion as initial capitalization for the institution. At the same gathering, China and its BRIC partners also set up the Contingency Reserve Arrangement, a thinly veiled alternative to the IMF to assist BRICS and eventually other developing countries suffering from balance of payments crises.
Washington’s disapproval of its traditional allies joining the AIIP could not compete with the disadvantages of not being Beijing’s partners in the new enterprise. Construction companies and suppliers promoted by non-partner governments would have much less chances of winning the hundreds of billions of dollars worth of bids for AIIP-funded infrastructural projects. For ailing economies like Britain, France, and Japan, the possibility of being sidelined from winning juicy contracts in a period of global stagnation was simply too awful to contemplate. Australian Treasurer Joe Hockey was candid about how material benefits derived from China trumped traditional friendship ties with Washington: “The United States understands that this is a bank that’s going to be operating in our region. It’s going to be using contractors in our region. We want Australian contractors involved, we want work for Australians out of this bank.”
Hegemony Breeds Dissatisfaction
To many analysts, Washington and its western allies,have only themselves to blame for China’s increasingly assertive push to build new multilateral institutions. According to the New York Times, the US Congress’ refusal to approve legislation giving greater voting rights at the IMF and World Bank following the Asian financial crisis led to Beijing’s disenchantment with the two institutions, often referred to as the Bretton Woods twins. The United States and 15 developed countries control 52 per cent of voting rights at the IMF, with 48 per cent for the 168 other member countries. China, now the world’s biggest economy, has only 3.8 per cent of voting power, smaller than the shares of the UK, France, Germany, or Japan. Brazil, South Korea, or Mexico each have less voting power than Belgium. Despite much protest from the BRICS and other developing economies, there has only been a shift of 6 per cent of voting power to them in the last 20 years. The proportions and trends have been roughly the same at the World Bank.
The US and the Europeans have also held tightly to what has been characterized as their “feudal” prerogatives of filling the presidency with a US citizen in the case of the World Bank and the post of Managing Director with a European in the case of the IMF. With some 17 per cent of the vote in both institutions, the US also exercises veto power over key policy decisions.
But policies have had an equal if not greater role in fueling Chinese and developing country dissatisfaction with the two institutions than the issue of voting rights, veto powers, or feudal prerogatives. The IMF has never been able to shake off its reputation of helping to trigger the Asian financial crisis by promoting capital account liberalization, then worsening the plight of the affected countries by imposing harsh austerity policies during the crisis. The World Bank has also failed to live down its having been a partner of the IMF in the imposition of painful but ineffective structural adjustment policies in over 90 developing countries in the 1980’s and 1990’s. Hardly any of these programs succeeded in bringing about growth and reducing poverty.
A few years ago, the IMF leadership announced it was moving towards a less neoliberal and more Keynesian approach to economic growth and development. This was belied, however, by the Fund’s enlisting in the so-called “Troika,” alongside the European Central Bank and the European Commission, to push savage austerity policies on Greece, Portugal, and Ireland following the eruption of the global financial crisis in 2008. The Bank, meanwhile, tried to reinvent itself as the “climate bank” under former President Robert Zoellick, only to be accused by developing countries of seeking to centralize funding for climate adaptation efforts. Under Jim Yong Kim, a Korean-American appointed by President Barack Obama, the Bank has tried to erect itself as an advocate of massive cuts in greenhouse gas emissions by the developed countries and as a key actor in the containment of deadly diseases like the Ebola virus. However, conservative economics and US geoeconomic interests continue to govern implementation of most of its policies and projects.
With the institutions it controls having such dismal records in managing the global economy and promoting development, the US should have expected that at some point, the world would begin looking elsewhere for institutions that could deliver. It is clear that Beijing is now stepping into the vacuum with its multilateral initiatives. To show that it did not want to replicate the Americans’ behavior at the World Bank, Beijing announced that despite its contributing the largest share of capital to the AIIB, it would not demand veto power over policy decisions.
Until he resigned in early March to protest at the bloody consequences of a US-directed raid on a Muslim community in the Southern Philippines, Walden Bello was a member of the House of Representatives of the Philippines.