Wednesday, May 6, 2015

[UPSC Interview prep feed Vol.17] AIIB and BRICS Bank.

Topics Discussed: AIIB and BRICS Bank.
In Association with Yogesh Unde.


ASIAN INFRASTRUCTURE INVESTMENT BANK(AIIB)

 AIIB is a multilateral bank development bank(AIIB). AIIB, a modern knowledge-based institution, will focus on the development of infrastructure and other productive sectors in Asia, including energy and power, transportation and telecommunications, rural infrastructure and agriculture development, water supply and sanitation, environmental protection, urban development and logistics, etc.


The MoU specifies that the authorised capital of AIIB is USD 100 billion and the initial subscribed capital is expected to be around USD 50 billion. The paid-in ratio will be 20 per cent.

AIIB will complement and cooperate with the existing MDBs to jointly address the daunting infrastructure needs in Asia. The Bank’s openness and inclusiveness reflect its multilateral nature. AIIB welcomes all regional and non-regional countries, developing and developed countries, that seek to contribute to Asian infrastructure development and regional connectivity.

 The Bank was envisaged to ‘promote interconnectivity and economic integration in the region’ and ‘cooperate with existing multilateral development banks. By end October, 2014, 22 Asian countries signed a Memorandum of Understanding (MOU) to establish the AIIB and Beijing was selected to host Bank headquarters.

There is a significant gap between the region’s infrastructure financing needs and the financial resources available from existing multilateral and bilateral development institutions. With its establishment, AIIB will increase the pool of multilateral development support available to regional economies for infrastructure development and improvement. 


The development and improvement of productive infrastructure in the Asia region is important because it encourages economic growth, private enterprise and employment and reinforces regional connectivity. Infrastructure development contributes to the reduction of poverty and enables business activity through improved access to basic services, including a reliable electricity supply, efficient transport systems, clean water supply, access to sanitation services, and modern telecommunications. The AIIB will work with its members, multilateral and bilateral development partners, the private sector and civil society to provide and enhance these services within the region.



Structure



  • Board of Governors will be the highest decision making body.
  • Voting power would be as per share-holding and eventually as per the GDP of the nation.
  • Board of Directors will be elected by the Board of Governance who will then look into the functioning of the bank. One among them will be elected as the President.



WHY CHINA WANT TO SET UP NEW BANK

(1)China, flush with the world’s biggest foreign-exchange reserves. 
(2) Anxious to convert them into “soft power”, is building an alternative architecture.
(3) It has proposed not just the AIIB, but a New Development Bank with its “BRICS” partners—Brazil, Russia, India and South Africa.
(4)a Silk Road development fund to boost “connectivity” with its Central Asian neighbours. 
(5) Failure of the existing international order to accommodate CHINA'S astonishing rise. Efforts to reform the" International Monetary Fund" are stalled in the American Congress. America retains its traditional grip on the management of the "World Bank".
(6)China sees as in its own national interest, and certainly those of its contractors: high-speed railways linking Yunnan province to South-East Asia; ports in Indonesia, Pakistan and Sri Lanka, a new Silk Road across Central Asia to Europe. 
(7) The size of Chinese and American economy are comparable and yet China only has 1/3rd the voting rights to that of USA.
(8) In ADB, both USA and Japan have a shareholding of 15.6 % whereas China stands at 6.5% only.



IT'S IMPACT ON AMERICA AND WESTERN WORLD
China has won, gaining the support of American allies not just in Asia but in Europe, and leaving America looking churlish and ineffectual. United States has chosen to remain outside the bank, seen as a rival to the U.S.-dominated World Bank. .BRITAIN,FRANCE,GERMANY and ITALY joined it.

(1)America’s reservations were at first, to discourage some of its closest Asian allies from joining the initial 21 founding members. Australia, Japan and South Korea all stayed out—though other staunch American friends such as New Zealand, Singapore and Thailand signed up.
(2) The joiners argue that China was going to launch the AIIB anyway; better to be on the inside influencing its governance. The Europeans’ accession is likely to encourage changes of heart among the refuseniks. Australia has already indicated it is reconsidering; South Korea seems almost certain to join
(3)America has, either by design or ineptitude, turned the AIIB into a test of diplomatic strength.
(4)The affair also raises the stakes in America’s increasingly frantic efforts to conclude a trade agreement, the Trans-Pacific Partnership, with Japan and ten other countries.



RESPONSE FROM JAPAN
The Manila-based Asian Development Bank (ADB) is always directed by a Japanese official. Partly for that reason—that the AIIB would amount to a diminution of Japanese influence in favour of China at a time when their relations are fraught—Japan is sniffy about the new bank. The Asian Development Bank (ADB) said  that it was ready to work with the China-led Asian Infrastructure Investment Bank (AIIB) so long as standards were met. ADB shared the importance of safeguard policies about the environmental and social protection with AIIB"



INDIAN FUTURE IN AIIB
(1)India needs infrastructure and financing, and China has money to invest. It's a perfect fit.
(2)
Secondly, because both China and India have been on the same side with their struggle at IMF. 
(3)The U.S. led IMF has not been too generous with Asian countries.Asian countries LIKE INDIA have room to grow, and when her neighbors get richer, with the investment, it means China will be growing richer with them. It makes a lot of sense economically.
(4)
Aid the infrastructure development in the Asian region and reduce the dependence on Western-dominated World Bank and IMF.
(5)Voting rights are  expected to be combination of GDP and Purchasing Power Parity (PPP). Based on this formula, India will be second largest shareholder of the bank after China. -

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BRICS BANK

The Governments of the Federative Republic of Brazil, the Russian Federation, the Republic of India, the People’s Republic of China and the Republic of South Africa, collectively the BRICS countries,RECALLING the decision taken in the fourth BRICS Summit in New Delhi in 2012 and subsequently announced in the fifth BRICS Summit in Durban in 2013 to establish a development bank.



WHY THERE IS NEED TO ESTABLISH NEW DEVELOPMENT BANK

(1).BRICS countries have no say in global economic institutions like (IMF,WB).For the past 15 years, the BRICS have been seen as the world’s best hope for sustainable growth. These five countries, representing 40 per cent of the world’s population and 25 per cent of its GDP in 2013, recorded growth rates 4 to 5 times greater than those of the US, Europe and Japan, and threatened to displace them as the world’s most important economic powers in another 20 years or so.
(2)The BRICS combined GDP grew 300 per cent in the last decade as opposed to 60 per cent growth registered by the developed world.




OBJECTIVES:
(1)The establishment of BRICS Bank would reflect the close relations among the BRICS countries, while providing a powerful instrument for increasing their economic cooperation
(2).Mindful of a context where emerging market economies and developing countries continue to face significant financing constraints to address infrastructure gaps and sustainable development needs.
(3)The new development bank is seen not only as support to economies of the five countries, but also good counterbalance to the IMF, the World Bank (International Bank for Reconstruction and Development, IBRD) and other creditors.
(4) to utilize resources at its disposal to support infrastructure and sustainable development projects,  public or private, in the BRICS and other emerging market economies and developing countries, through the provision of loans, guarantees, equity participation and other financial instruments;

(5) to cooperate as the Bank may deem appropriate, within its mandate, with international organizations, as well as national entities whether public or private, in particular with international financial institutions and national development banks;
(6) to provide technical assistance for the preparation and implementation of infrastructure and sustainable development projects to be  supported by the Bank;
(7) to support infrastructure and sustainable development projects involving more than one country;
(8) to establish, or be entrusted with the administration, of Special Funds which are designed to serve its purpose.


STRUCTURE
  • The New Development Bank shall have an initial subscribed capital of US$ 50 billion and an initial authorized capital of US$ 100 billion. 
  • The initial subscribed capital shall be equally distributed amongst the founding members. 
  • The voting power of each member shall equal its subscribed shares in the capital stock of the Bank


HEADQUARTERS, ORGANIZATION AND  MANAGEMENT

The Bank will have its Headquarters in Shanghai.The Bank shall have a Board of Governors, a Board of Directors, a President and Vice-Presidents. The President of the Bank shall be elected from one of the founding members on a rotational basis, and there shall be at least one Vice President from each of the other founding members. The operations of the Bank shall be conducted in accordance with sound banking principles.


INDIA AND BRICS BANK

(1)BRICS members especially INDIA have been emphasizing the need to reform the IMF since 2009, so that the developed countries could have a more equitable system of governance in international financial institutions.
(2)According to INDIAN GOVERNMENT STATEMENT ,"The new development bank will mobilise resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries, to supplement existing efforts of multilateral and regional financial institutions for global growth and development,”
(3)The establishment of the bank would also reflect the close relations among BRICS countries, while providing a powerful instrument for increasing their economic cooperation.It would helpful for asserting INDIAN presence in world affairs.
(4)India missed its opportunity at the end of the World War to get a bigger stake in the UN Security Council and the Bretton Woods system. Today, with its rising economic clout, India must decide whether it wishes to participate intelligently and constructively.

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