February 15, 2016

A promising initiative for Asia

By P. Viswa Nathan

When the Indian Prime Minister Rajiv Gandhi visited China in December 1988 and held a formal meeting with the country’s paramount leader Deng Xiaoping – thus ending more than three decades of a stand-off between the two neighbours – the Chinese leader reported to have said that the next century will be the Century of Asia and the Pacific. Much has happened since. The leadership in both countries has also changed. However, the hope that Deng voiced has lived on; and now, almost three decades later, a sure initiative to realise it is made with the founding of the Asian Infrastructure Investment Bank (AIIB) in which China is the leading and India the next shareholder.

The spirit of a good relationship for peace and progress was the rallying slogan among countries in Asia and the Third World emerging from Western domination after the Second World War. That spirit was the anchor for the five principles of peaceful coexistence that the first prime ministers of China and India, Chou Enlai and Jawaharlal Nehru, jointly initiated in the early years of their leadership. But ensuing geopolitical developments and vested interests have thwarted it all, leading to a futile war between India and China over uninhabitable terrain along the undefined common border. What is now being realised is a long march away from those dark days. The first step in that march was made by President Xi Jinping, who mooted the idea for AIIB in 2013 and discussed it with various world leaders. The following year, Chinese Premier Likeqiang proposed it at the Boao Forum for Asia, the equivalent of the World Economic Forum that was initiated in 1998 by three Asia-Pacific leaders – the former president of the Philippines, President Fidel V. Ramos, the former prime minister of Australia, Bob Hawke, and the former prime minister of Japan, Morihiro Hosokawa. Since then, a global conversation on the matter has ensued.

Suspecting that AIIB will undermine the Asian Development Bank as well as the World Bank and the International Monetary Fund – all controlled by the United States and its allies – Washington tried to convince its allies not to support it. But it overlooked one important factor. That is, what in fact provided the opportunity for this idea to germinate and find space for taking root in a region where the ADB has been operating for half-a-century?

The World Bank and the International Monetary Fund, which began operations in 1945 with the initial aim of helping European countries devastated by the Second World War, had eventually turned their attention to alleviating poverty in Latin America, Africa and Asia. However, opinions differ on the question of whether or not they have indeed helped poor countries pull out of poverty or remain backward and poor. Over two decades after the founding of the World Bank and IMF, inaugurating ADB in Manila in 1966, the then president of the Philippines Ferdinand E. Marcos touched on the unfair distribution of World Bank loans. In per capita terms, World Bank loans, he said, translated as $2.80 to Asia and $4.20 to Europe.

The discrimination did not end there. With the United States as the major power behind the World Bank, no one other than an American is allowed to head WB and no one other than a European can head the IMF. That policy of control is also extended to ADB where Japan and the US as top two shareholders and together with their allies controlling more than two-thirds of the shareholdings, which has also assured that every ADB president so far has been Japanese.  With such control, these international bodies have benefitted the US and Japan in more ways than one in furthering their interest wherever they chose to do so. Losing that advantage is unpalatable, especially for the US, which is now promoting the Trans-Pacific Partnership – keeping China out of it – to strengthen its foothold in Asia that was weakened since the defeat in Vietnam and the shutting down of Clark airbase and Subic Bay naval base. There is also another fear that when AIIB is up and running China will behave exactly as the West and Japan did and will use it to drive its political and economic, even military, influence across Asia. Therefore, Washington has counselled its allies against supporting AIIB. That effort has fallen on deaf ears. Fifty-five countries, among them almost half of Washington’s NATO allies – Denmark, France, Germany, Iceland, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal, Spain, Turkey, United Kingdom – and 12 of the 18 countries that supported ADB at the start (Australia, Cambodia, India, Indonesia, South Korea, Laos, Nepal, New Zealand, Pakistan, Singapore, Thailand and Vietnam) have signed up with AIIB by the end of June 2015. Since then, Poland, Kuwait, Malaysia, the Philippines and South Africa have also joined. Obviously, they disagree with the purely speculative view that AIIB will undermine ADB and others and further China’s hidden agenda. In reality, as The Economist pointed out, “while ADB and World Bank loans support everything from environmental protection to gender equality, the AIIB will concentrate its firepower on infrastructure.” Transportation and communication facilities are sorely lacking in many parts of Asia including the Philippines, inhibiting socio-economic growth. An international institution focused sharply on financing such infrastructure building should be, therefore, good for Asia.

All indications so far suggest that whatever the speculation about China’s secret intentions, AIIB is adopting a pragmatic policy.  For example, it will use the US dollar for financial transactions although the IMF is including the renminbi, starting October this year, in the basket of currencies that make up its SDR. The reason for choosing the dollar over renminbi is simple: it is most familiar and acceptable to members.  Similarly, there is no guarantee that a Chinese will always head AIIB. China and its BRIC partners and other emerging economies have been critical of the Western domination of the existing international institutions; therefore, it is unlikely that China will want to monopolise the leadership of AIIB. Besides, no major decision in AIIB is possible without 75 percent support.

Thorny issues like border dispute between India and China as well as contesting claims over islands in the East and South China seas will not go away anytime soon. Evidently, all parties in these disputes have accepted, with their support for AIIB, that cooperation for economic growth is possible notwithstanding the contentious issues.