After reigning supreme for over seven decades, exercising uncontested political and financial dominance worldwide, the World Bank Group (WB) and IMF have now a competitor known as Asian Infrastructure Investment Bank (AIIB) established at Beijing last year with the mandate much similar to that of the WB and the IMF.
The WB and the IMF, headquartered at Washington DC and founded in 1944 by John Maryland Keynes and Harry Dexter White at the Bretton Woods Conference in the US, are United Nations international financial institutions with WB providing loans to developing countries for capital programmes aimed at reducing poverty and promoting foreign investment, international trade and facilitating the capital investment, while IMF promotes global economic growth through international trade and country’s financial stability. The first country to receive WB loan was France who was provided US $250 million, half the amount requested, and it came with strict financial and political conditions and controls as per the dictates of the US policies – a practice still in vogue. When the Marshall Plan went into effect in 1947, many European countries began receiving aid from other sources and in no time their economy grew in leaps and bounds gaining financial and political independence. Faced with this competition, the WB and the IMF shifted its focus to non-European countries and the emerging markets to fund income-producing infrastructure projects. Many of the dynamic emerging countries worked hard, became self-sustainable and soon moved out of the WB and the IMF programme.
The emergence of AIIB, as a competitor, pose a challenge to WB and IMF and the necessity for it once again realign its strategy to retain its standing in this changing financial and political world order, which is no longer the exclusive domain of USA and Europe.
AIIB is an international financial institution sponsored by the government of China as a multilateral development bank to provide finance to infrastructure projects in the Asia region. There are 45 members as of 28th March 2015, which largely includes Asian countries. As most of the economic growth is happening in Asia, Europe does not want to be left out as Asia is one of its largest markets. Accordingly, much to the dislike of USA, in the first go Briton, Germany, France and Italy have signed up to join AIIB, whereas, many other European, Africans and Middle eastern countries and Canada are considering to join the Asian club under the same business consideration.
The Asian Development Bank (ADB) published a report in 2010, which said that the region requires US $8 trillion to be invested from 2010 to 2020 in infrastructure for the region to continue economic development. China and some Asian countries consider the funding from WB and ADB to be slow and tied on account of compliance to environment, governance and social standards set by these institutions and in some cases on account of political considerations. Further, China and Asian countries view these institutions to be politically dominated by USA, Europe and Japan with not much say of theirs in spite of being the main stakeholders in the growth of Asia.
The year 2015 has witnessed an unprecedented emergence of two seats of global financial and political power with AIIB, headquartered at Beijing, as a challenging financial power at one end of the globe and WB and IMF, headquartered at Washington DC, a defending financial and political power at the other end of the globe.
Both US and China have much in common. Both are worlds largest economies with China inching up to be the number one. Both are world’s largest polluters and largely responsible for global warming. Both are exponents of free economy and globalisation but with much different political system of state governance. Both experienced phenomenal growth of their economies in a much shorter period of time. In years to come both will influence the future economical and political world order either severally or jointly.
AIIB is expected to compete well with WB, IMF and ADB. The influence of AIIB will not be limited to Asia. It is expected to soon extend to Europe, Americas, Africa and the Middle East with the growing Chinese businesses in these countries.
What WB and IMF provided to USA to extend its global financial and political clout in shaping world affairs the AIIB now provides the same to China to extend its global financial clout in the first go and political clout in the second phase.
The international community has a stake in seeing the AIIB complement the existing architecture and to work effectively alongside the WB, IMF and ADB. The UN has termed the launch of AIIB as “scaling up financial for sustainable development”. The US has expressed concerns whether the AIIB will meet the high standards of the WB, particularly related to governance, environment and social safeguards. The president of WB has said the need for infrastructure in developing countries is great so the activities of new organisations would be welcome.
With the strong presence of Europe’s leading economies as part of AIIB, nothing revolutionary is expected to happen in economic and financial world order. It’s only that much more money will be available with easy excess and devoid of political strings to Asian economies, which are inhabited by world’s poorest population demanding better life, education, health care and infrastructure.
The WB, IMF and ADB will continue to remain much relevant as funds required to reduce poverty and enhance infrastructure is so great that the emergence of AIIB will compliment the efforts of these traditional institutions. With not much reduction in population growth the war against poverty is not even half won. Voices of decent against the present economic world order are heard from the villages in Asia right up to the serene resort of Davos Switzerland where the world business and political leaders meet each year to discuss at length the fates of the haves and have-nots.
Competition encourages better quality in products and services. The WB, IMF and ADB have to realign its products, costs and services to retain its status as a prime funding institution in the changed economic world order.
Pakistan is one of the few unfortunate countries that hooked to the IMF programme for the last five decades. Many emerging countries who started much later built up their economies, made them sustainable on the strength of WB and IMF and then went out of the program. Unless Pakistan manage to invest loans in revenue generation segments and exercise good governance in achieving positive results it will continue to be subservient to IMF bailouts. Securing loans from AIIB will be no different in spite of our relations with China as business is business especially in the Chinese philosophy.
(The writer is Chairman Avant Ventures and former President of OICCI and ABB- Asea Brown Boverie Pakistan)
Farhat Ali, "Changing political and global economic dynamics: Relevance of WB and IMF," Business recorder. 2015-04-01.Keywords: Economics , Economic issues , Economic policy , Banks and banking , Economic systems , IMF programme , International economics , Social issues , Political issues , World Bank