17/01/2019 - International Relations | GS II |

IAS Parliament 5 years

KEY POINTS

AIIB has grown stronger

· The bank has been both a rule-maker and rule-taker, devising innovations in multilateral development finance while upholding existing best practices. Most of its projects are co-financed with the World Bank or the Asian Development Bank, suggesting a healthy mix of complementarily and competition with its peers.

· The Beijing-based development bank is giving a US$300 million loan to fund a hydropower extension project in Pakistan and a US$20 million loan for a power plant project in Myanmar.

· The two projects, both in the energy sector, will help to ease the severe power deficit in both countries and contribute to the core mandate of AIIB to support green and cost effective infrastructure.

· Moreover, the fund AIIB for India by will invest in six projects, including $500 million in the Mumbai Metro and $455 million in rural roads in Andhra Pradesh. This also includes $200 million to the National Investment and Infrastructure Fund.

· The AIIB’s lending practices have been socially conscious and prudent, attested by its triple-A credit rating secured from the three major international rating agencies.

Defects in AIIB

· The share holding in the bank is clearly dominated by China.

· China refused to grant permission to ADB staff to visit the city of Fuzhou to investigate an alleged case of non-compliance with the AIIB bank's safeguard policies. This shows lack of transparency from the Bank.

· Territorial disputes with Southeast Asian Nations especially with respect to south china sea and project of Belt Road Initiative creates confusion in the global arena about the credibility of loans obtained from the bank.

Need of the hour

· AIIB should develop a wider portfolio of projects in areas such as smart cities, renewable energy, urban transport, clean coal technology, solid waste management and urban water supply.

· Along with the New Development Bank, its uniqueness must lie in faster loan appraisal, a lean organisational structure resulting in lower cost of loans, a variety of financing instruments, including local currency financing, and flexibility in responding to its clients’ needs.

· It should leverage its unique ‘special funds mechanism’ to crowd-in infrastructure financing from external sources, including extra-regional, public and private, as well as nurture infrastructure as a profitable asset class for capital market investors.