There's no reason to be euphoric, as some people in their over-enthusiasm apparently are, over the BRICS nations' (Brazil, Russia, India, China, and South Africa) decision to set up a development bank as if we're about to witness the birth of an alternative to the World Bank and the International Monetary Fund and an end to Western dominance on the international financial system. That's expecting too much. The New Development Bank (NDB), as the new entity is going to be called, is a good move and one more useful step towards filling the enormous worldwide gap that exists in the financing of physical and social infrastructure, and should be welcomed as such.
It would be equally unfortunate to read too much politics into another infrastructure financing initiative that's as much in the focus of international attention as the BRICS move - the proposed Asian Infrastructure Investment Bank (AIIB). It's true that AIIB is China's brainchild and Beijing has offered to pick up half its $50-billion working capital; but that, plus the fact that NDB would be headquartered in Shanghai, doesn't automatically mean that China would have a greater financial clout in the region than it already enjoys.
Over the past decade, China has strengthened its position as an international financier on its own to pursue its global commercial interests, taking full advantage of nations' immediate needs. Chinese credits are already promoting and building high-speed rail corridors in Europe and Asia, including even a daring proposal for a freight-cum-passenger corridor through Siberia, across the Bering Strait, all the way to the US itself. In Latin America alone, it has lent some $100 billion on its own between 2005 and 2013, especially to countries like Venezuela, considered by international financiers as credit pariahs because of their economic policies.
In the circumstances, suspicions about Chinese intentions aren't quite unnatural, but nations have welcomed the AIIB initiative, despite open US opposition to the idea, because they need the money to support their economic growth and would be more comfortable with an institutional set-up rather than direct intervention. Both the World Bank and the Asian Development Bank (ADB) have welcomed AIIB and offered to co-operate with it once it's formed.
AIIB was first proposed by Chinese president Xi Jinping at the last Asia-Pacific Economic Cooperation (APEC) summit in Bali in October 2013 and is set to be formally launched at the next APEC forum in Beijing later this year. China's Finance Minister Lou Jiwei has said that, while the existing multilateral development banks put more emphasis on poverty reduction, AIIB will mainly focus on infrastructure construction to promote regional connectivity and economic co-operation. Initially, members will come from Asia, but non-Asian countries could also be invited in future, giving it the shape of a full-fledged multinational development bank.
An institutional framework should also help NDB sort out knotty issues such as terms of reference, future membership, and area of operation. Down the line, questions like market borrowing would be important, too, since at the current level of commitment (an authorised capital of $100 billion), its lending might be no more than $34 billion a year and would only serve a limited purpose. But borrowing from the market has a cost and would involve a different set of lending terms than are envisaged now. That would require a consensus among the five founding members, which may not be quite easy to achieve.
Still, any additional effort to assuage the growing worldwide hunger for infrastructure funding is more than welcome. According to ADB, which is considering setting up an Asia-Pacific Infrastructure Fund, this region alone would need to spend some $800 billion a year or $8 trillion over the next decade, on infrastructure to rescue economic growth and ensure its momentum. The World Bank estimates South Asia would have to spend as much as $2.5 trillion in the next 10 years, one-third of it on transport, one-third on electricity, and the rest on water supply and sanitation, solid waste management, telecommunications and irrigation. It's a shame, the World Bank points out, that even today 41 per cent of South Asia's population defecates in the open, 75 per cent doesn't
have access to piped water, and "a staggering number of people lack access to roads and reliable electricity."
By comparison, the available kitty is puny. Even ADB and the World Bank's combined infrastructure investments in Asia amount to no more than $20 billion a year. Any additional help is, therefore, doubly welcome, especially because the new banks could play useful roles in catalysing more initiatives in this regard. In the long run, the aim should be to develop capital markets to a degree where public funds and private savings could be enticed into infrastructure. But that will only happen when there are more professional players in the field with well-defined goals and credible track records.
rbarun@gmail.com
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