Asian Infrastructure Investment Bank (AIIB) Objective, Functions, Features, Membership, Shareholding, Criticism

22/12/2020 0 By indiafreenotes

The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank that aims to improve economic and social outcomes in Asia. The bank currently has 103 members as well as 21 prospective members from around the world. The bank started operation after the agreement entered into force on 25 December 2015, after ratifications were received from 10 member states holding a total number of 50% of the initial subscriptions of the Authorized Capital Stock.

The United Nations has addressed the launch of AIIB as having potential for “scaling up financing for sustainable development” and to improve the global economic governance. The starting capital of the bank was US$100 billion, equivalent to ​2⁄3 of the capital of the Asian Development Bank and about half that of the World Bank.

The bank was proposed by China in 2013 and the initiative was launched at a ceremony in Beijing in October 2014. It received the highest credit ratings from the three biggest rating agencies in the world, and is seen as a potential rival to the World Bank and IMF.

Objective

  • Promoting sustainable economic development, creating wealth and augmenting infrastructure connectivity in Asia by investing in infrastructure & other productive sectors.
  • Fostering regional partnership & cooperation to address developmental challenges by working in tandem with other bilateral and multilateral developmental institutions.
  • Enhancing investment in private & public capital for development purposes.
  • Using the resources at its disposal for funding development in the region, including projects that will contribute to the balanced economic growth of the region.
  • Promoting private investment in enterprises, activities and projects contributing to economic development in the region wherever private capital is not available.

Membership

The 57 Prospective Founding Members can become Founding Members through:

  • Signing the Articles of Agreement in 2015
  • Ratifying the Articles of Agreement in 2015 or 2016

All Prospective Founding Members have signed the Articles, 52 of which have ratified them, comprising 92% of the shares of all PFM. The formal actions towards becoming a Founding Member are shown below, as well as the percentage of the votes and of the shares, in the event all prospective founding states become parties, and no other members are accepted.

In March 2017, 13 other states were granted prospective membership: 5 regional (Afghanistan, Armenia, Fiji, Timor Leste and Hong Kong, China) and 8 non-regional: Belgium, Canada, Ethiopia, Hungary, Ireland, Peru, Sudan and Venezuela. In May 2017, 7 states were granted prospective membership: 3 regional (Bahrain, Cyprus, Samoa) and 4 non-regional (Bolivia, Chile, Greece, Romania). In June 2017, 3 other states were granted prospective membership: 1 regional (Tonga) and 2 non-regional (Argentina, Madagascar). In 2018, 7 other states were granted prospective membership: 1 regional (Lebanon) and 6 non-regional (Algeria, Ghana, Libya, Morocco, Serbia, Togo). In 2019, 7 other states were granted prospective membership: 7 non-regional (Djibouti, Rwanda, Benin, Côte d’Ivoire, Guinea, Tunisia, Uruguay). They become members after finishing their domestic procedures. As of 16 May 2020, the total number of countries approved for membership of AIIB is 103 (Regional Members: 45, Non-Regional Members: 38, Prospective Members: 20).

Significance of AIIB:

The United Nations has addressed the launch of AIIB as having potential for “scaling up financing for sustainable development” for the concern of global economic governance. The capital of the bank is $100 billion, equivalent to ​2⁄3 of the capital of the Asian Development Bank and about half that of the World Bank.

Various organs of AIIB:

Board of Governors: The Board of Governors consists of one Governor and one Alternate Governor appointed by each member country. Governors and Alternate Governors serve at the pleasure of the appointing member.

Board of Directors: Non-resident Board of Directors is responsible for the direction of the Bank’s general operations, exercising all powers delegated to it by the Board of Governors. This includes approving the Bank’s strategy, annual plan and budget; establishing policies; taking decisions concerning Bank operations; and supervising management and operation of the Bank and establishing an oversight mechanism.

International Advisory Panel: The Bank has established an International Advisory Panel (IAP) to support the President and Senior Management on the Bank’s strategies and policies as well as on general operational issues. The Panel meets in tandem with the Bank’s Annual Meeting, or as requested by the President. The President selects and appoints members of the IAP to two-year terms. Panelists receive a small honorarium and do not receive a salary. The Bank pays the costs associated with Panel meetings.

The Authorized Capital Stock of the bank is 100 billion US Dollars, divided into 1 million shares of 100 000 dollars each. Twenty percent are paid-in shares (and thus have to be transferred to the bank), and 80% are callable shares. The allocated shares are based on the size of each member country’s economy (calculated using GDP Nominal (60%) and GDP PPP (40%)), whether they are an Asian or Non-Asian Member, and the number of shares determines the fraction of authorized capital in the bank. Of the prospective founding members, three states decided not to subscribe to all allocated shares: Malaysia, Portugal and Singapore, resulting in 98% of available shares to be subscribed.

Three categories of votes exist: basic votes, share votes and Founding Member votes. The basic votes are equal for all members and constitute 12% of the total votes, while the share votes are equal to the number of shares. Each Founding Member furthermore gets 600 votes. An overview of the shares, assuming when all 57 Prospective Founding Members have become Founding Members is shown below (values in bold do not depend on the number of members):

Vote Type % of Total Votes Total Votes Vote per Member China
(Largest PFM)
Maldives
(Smallest PFM)
Basic votes 12 138,510 2,430 2,430 2,430
Share votes 85 981,514 Varies 297,804 72
Founding Member votes 3 34,200 600 600 600
Total 100 1,154,224 varies 300,834 (26.1%) 3,102 (0.3%)

Criticism

One of the first criticisms that the AIIB faced was based not on the actions of the new institution itself but rather on general criticisms of China’s reputation regarding infrastructure projects infrastructure. Critics noted that Chinese infrastructure projects have a record of displacing local populations, damaging the environment, and corruption. Therefore, they feared that a Chinese led infrastructure bank would simply utilize foreign capital to fund reckless ventures that endanger locals to the benefit of their own interests. 

In discussing the AIIB during a joint press conference in 2015, Japanese Prime Minister Shinzo Abe and U.S. President Barack Obama echoed these worries, and also referenced the sustainability and transparency of the project despite repeated statements that they were not against the idea of a Chinese-led development bank. This criticism came from scepticism about the rigor of the not yet finalized guidelines that would regulate the organization’s operations in the future.

Another criticism came after other Western countries broke with the U.S. and joined the AIIB. U.S. critics accused European governments, especially the U.K., of ‘accommodating’ China. This fear was based on the ease with which the U.K. joined the AIIB. Unlike U.S. allies South Korea and Australia, the U.K. joined the AIIB without negotiating pre-conditions. In the eyes of U.S. critics, this suggested to the rest of the world that the U.K. was willing to recognize Chinese unilateral rule in the bank, and follow it too.