It is fair to say that global opinion was somewhat divided when China announced it was creating a brand new regional development bank in Asia.
For the gloom-mongers, many of whom reside in the US administration and Congress, the creation of the new Asian Infrastructure Investment Bank represents a power-grab by Beijing. It is, US officials mutter, the economic counterpart to the Chinese navy throwing its weight around in the South China Sea, and they are baffled that other western governments, led by the UK, have decided to bolster Beijing』s influence by joining it.
For optimistic souls, the AIIB represents a move towards transparency by China, which has long lent out its vast foreign exchange reserves for development projects unilaterally and without transparency. With a wide membership, including 57 founding governments, the institution may also provide a welcome alternative to the sclerotic and US-dominated World Bank.
Remarks in an interview with the Financial Times from the AIIB』s new head, Jin Liqun, will give some ammunition to both sides.
Perhaps worryingly, Mr Jin played down the impact of European influence on the institution』s governance, saying that by the time the UK and other developed economy governments had decided to join, the bank』s articles of agreement had more or less been written. More optimistically, he also pledged that the bank』s lending would adhere to tough environmental and social standards, while being faster and more nimble than the World Bank.
Other governments should not remain on the AIIB』s board if they are being used as a figleaf to cover lending made to further Chinese interests. Streamlining bureaucracy is not the same as eliminating transparency. Shrill and one-sided though their views sometimes are, campaigners in non-governmental organisations in both rich and emerging countries have helped to keep development institutions honest by scrutinising their activities. If China wants legitimacy for its lending by inviting in other countries, it should accept the norms of transparency that they bring with them.
Yet if the AIIB can manage to combine high lending standards with moving money quickly out of the door, it will serve as a useful model for how other organisations, notably the World Bank, might reform.
Although the World Bank has established a reputation as a centre of expertise over the decades, its lending operations have gathered an accretion of bureaucracy. One weakness in particular has correctly been identified by Mr Jin as a mistake to avoid in the AIIB — a resident executive board that meets frequently, sometimes several times a week, and micromanages the bank』s activities. The need to push so many decisions through a narrow gap snarled with red tape has often prevented the World Bank from reacting quickly to challenges. More freedom for management, with the board』s role limited to setting strategy and exercising an oversight function, should be able to combine accountability with efficiency.
For the moment, the AIIB is more of a pilot project rather than a full-blown alternative to the World Bank. Since the new institution will take several years to ramp up its lending capacity, it is initially likely to provide a rival model of governance rather than offering a greater volume of disbursement.
That by itself, however, could serve a valuable purpose. The AIIB has made some encouraging noises early on with its commitments to combining lending speed with high standards. Its shareholder governments have the chance to set a new standard and a good example.