When 50 of 57 prospective founding members of the new Chinese-led Asian Infrastructure Investment Bank (AIIB) in late June signed on in Beijing to the new international financial institution’s Articles of Agreement, Thailand was among seven nations that held back. Three of them are from Asean.
Denmark, Kuwait, Malaysia, the Philippines, Poland and South Africa also did not sign the accord. Reasons vary, and all have until the end of the year to join. The Chinese government, however, noted some countries may have domestic procedures still to complete.
This may well be the case for Thailand given the government's focus on a new constitution and other domestic issues. As for the Philippines, officially that nation continues to “study” the costs and benefits of membership.
Philippines President Benigno Aquino said at a Nikkei event in Tokyo on June 3: “I think it behooves our sense of fiscal responsibility to look at how the governance structure of the AIIB will be, so that the economic help that is supposed to be afforded will not be subject to vagaries of politics between our countries and the lead proponent.”
More simply? The context and the “cost of membership” are clear. The Philippines has brought its territorial dispute with Beijing over islands in the South China Sea to a United Nations arbitration tribunal. In such times, why give China another “easy win” and a communications victory in its efforts to establish what might well prove to be a rival to the Manila-based Asian Development Bank (ADB) and a route to further strengthened economic engagement and political involvement across the region.
Yet, with or without the Philippines or Thailand — both those nations shareholding and voice at the new AIIB would be well below those of largest shareholders China, India and Russia — the new international institution still has some important questions to answer.
For those who have joined the AIIB club, now comes the challenge of translating what is on paper into a world-class financial institution that will help meet Asia’s infrastructure financing needs while also safeguarding the environment and the livelihoods of impacted people.
China has made clear its plans for an institution that will act more quickly than bureaucracy-bound rivals. That’s music to the ears of borrowing nations — including some in Thailand who might benefit from funds that the country could access by joining the new development bank. Recent Thai governments have limited the nation’s borrowings from both the World Bank and ADB — both of which maintain a range of safeguards to protect the environment and communities as well as to fight corruption on bank-funded initiatives.
So what should the world ask as the AIIB moves forward? Here are three questions.
First, can the AIIB move from rhetoric to reality in building a “lean, clean and green” international financial institution? Execution matters. Clear metrics, strong safeguards and a strategy for implementation are essential.
This will not be easy if shareholders are caught up in the battle for procurement and personnel appointments that has at times plagued other multilateral organisations. One clear indicator of the unwritten influence of China will be what percentage of AIIB staff and leadership will go to Chinese citizens, as well as what share of future procurement on AIIB-financed projects goes to Chinese state-owned enterprises.
Transparency and accountability will be true tests of the AIIB once it is up and running.
Second, can China act as consensus builder and respect all AIIB shareholders even as it continues to pursue its national interests. This is of particular importance to Southeast Asian nations locked in territorial disputes with China.
Indeed, China's increasingly assertive stance has brought it into conflict with not just the Philippines, Malaysia, Vietnam and Indonesia but also India among other potential borrowers from the AIIB.
Here, China’s past actions at the ADB underscore why there is legitimate concern over China's future behaviour at this newest of international financial institutions.
During my time on the ADB board of directors, I saw firsthand how China's domestic and international political agenda forced the ADB at times to change course.
In one case, China refused to grant permission to ADB staff to visit the city of Fuzhou to investigate an alleged case of non-compliance with the bank's safeguard policies. In another case, efforts to provide assistance in one of the poorest parts of India, known as Arunachal Pradesh but claimed in part by the Chinese, also were stymied by China.
Third, to what degree will the AIIB focus not simply on lending more money faster but also on results by addressing the “little bric” — the bureaucracy, regulation, interventionism and corruption — that holds back much of Asia’s sustainable development. This will include encouraging a rule of law and a system of good governance essential to the private-sector led growth.
Thailand should also take this to heart, particularly amidst ongoing economic and political challenges. The long-term solution to filling Asia's and Thailand’s infrastructure financing gap goes beyond any international financial institution no matter how big the AIIB, or ADB for that might matter, might eventually become.
Ultimately, the AIIB may well force other multilateral organisations to be more efficient and more effective.
The challenge is to ensure that competition driven by the AIIB over projects and programmes does not result in a race to the bottom when it comes to social, environmental and other safeguards.
In the run-up to the recent signing ceremony, numerous western nations were won over to join the AIIB as founding members despite the reported objections of the United States and Japan, the only two major global economies who declined to join the AIIB.
The challenge to all shareholders will be to show now that their commitment to shaping the AIIB from the inside into a better bank is more than words alone.
Sceptics who maintain that founding members were driven primarily by hopes for future personnel placements and procurement awards will need to be proven wrong.
Results will matter more than anything else in silencing critics.
The American comedian Groucho Marx once famously declared: “I don’t want to belong to any club that will accept me as a member.” Going forward, Thailand by year’s end is expected to sign on formally to the AIIB. That decision to “join the club” must go beyond factoring in the costs of capital committed or the “privilege” of loans the country might hope to receive in return.
All of the major international financial institutions are ultimately political creations of their lead proponents — despite any soaring language to the contrary. That too is what Thailand will be signing up for.
Curtis S Chin, a former US ambassador to the Asian Development Bank, is managing director of advisory firm RiverPeak Group, LLC. Follow him on Twitter at @CurtisSChin.