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March 26, 2015 at 09:20 PM
The U.S. may not be overjoyed at the fact, but a new investment bank in Asia represents a host of new opportunities for infrastructure growth in the region.
The formation of the Asian Infrastructure Investment Bank (AIIB) was met with skepticism by the U.S. when first announced, over concerns that it would not only provide China the opportunity to exert undue influence in the region, but that it would also lack transparency and standards—financial, labor and environmental—that could endanger not just investors but a broader segment of the population in the region it intends to serve.
In fact, the U.S. lobbied hard against its allies joining the AIIB. However, in mid-March it was announced that not only would Britain become a founding member of the bank, but so would France, Italy and Germany. Australia, Japan and South Korea are also considering membership. Reports indicate that Switzerland and Luxembourg are also among the nations leaning toward joining.
The AIIB, originally intended to serve as the lender for $50 billion, has seen such enthusiasm for membership among nations that 27 countries have already signed on as founding members. In addition, not only could it see at least eight more countries join before the deadline of March 31, it will likely double its capitalization to $100 billion.
For investors, however, the news that U.S. allies are taking part in a new institution designed to boost infrastructure investment in a region that sorely needs it has to be good. According to the Asian Development Bank, there’s a need for $8 trillion in infrastructure investment in the countries in the region—everything from telecommunications to energy to transportation and beyond—by 2020. That’s considerably more than can be accommodated by current institutions, even if the ADB and the New Development Bank (formerly known as the BRICS Development Bank) are included with the likes of the World Bank and the International Monetary Fund. And the fact that U.S. allies have indeed decided to join the new institution has to be seen as a positive.
According to Dr. Homi Kharas, senior fellow and deputy director of the global economy and development program at the Brookings Institution, the very involvement of the U.K., France, Germany and Italy is likely to lead to the kind of standards the U.S. says the AIIB currently lacks. “I’m sure that [those countries] will try to ensure high standards,” Kharas said. “They are very active internationally in developing them in other areas, so they will do the same in this one.”
