by Phyllis Johnson – SANF 15 no 15
African and Asian leaders meeting in Indonesia last week called for a new world economic order to increase the economic and political power of emerging nations of the South and leave the “obsolete ideas” of Bretton Woods institutions in the past.
A major step in this direction is the Asian Infrastructure Investment Bank to be launched before the end of this year to finance infrastructure development in the region, hosted by China with 57 countries as charter members.
While Asia may seem far away, and another bank is being initiated by the BRICS countries of Brazil, Russia, India, China and South Africa to finance development in Africa, this initiative should attract keen interest as the construction of modern infrastructure in Asia can facilitate closer trade with Africa and competitive markets.
This advances the vision of African leaders who established the African Union, and of the South Commission led by Mwalimu Julius Nyerere of Tanzania.
The current chair of the African Union, President Robert Mugabe, has been among the outspoken leaders of the global debate on retooling the international financial system which imposes stringent conditions on development support to Zimbabwe and elsewhere in Africa.
President Mugabe, who co-chaired the Asia-Africa Commemorative Conference, repeated his insistence that the United States-dominated World Bank and the International Monetary Fund (IMF) – the global institutions that control large-scale financial and development loans backed by the US and Europe – are unbalanced and selective in their approach.
The AIIB is a challenge to these institutions, in which China has limited voting power despite being the world’s second-largest economy. The AIIB will give China’s economy a greater role in shaping global economic governance and will be a competitor to the Asia Development Bank (ADB), founded in 1966 by the World Bank.
The charter members of the AIIB, to be launched later this year, include most of Asia except Japan, Taiwan and North Korea, and key members of the European Union and the UN Security Council such as United Kingdom, France and Germany, as well as Australia, and other strong economies such as Saudi Arabia, United Arab Emirates and Qatar.
The United States has not taken lightly this challenge to its global financial power, and some senior American officials have accused Britain of “constant accommodation of China”.
Former US Treasury Secretary Larry Summers said the creation of the AIIB will undermine the leadership role the US has long enjoyed in global finance, adding that this is “a major institution in which the United States has no role, that the United States made substantial efforts to stop — and failed.”
Summers told Reuters news agency that this is a self-inflicted wound because Congress refused to approve governance reforms that would have given Beijing more power at the IMF.
Since its formation in 1944 at Bretton Woods in the US, the World Bank presidency is traditionally American, the IMF is headed by a European, and the ADB’s presidency is reserved for Japan.
The US Congress has yet to ratify a 2010 agreement to increase China’s voting share and those of other emerging economies. Yet the Chinese yuan has now become the second most commonly used currency in foreign trade in Asia after the US dollar.
“In a world where we have had trouble meeting our obligations and living up to and ratifying our agreements, we have lost influence,” Summers said.
Scholars such as Dr John Daly of John Hopkins University said the US considers the AIIB a rival to the Western-dominated financial institutions.
“By urging allies to shun the AIIB,” Daly said, “the US has turned a regional development bank into a test case for its global influence.”
But Professor Joseph Stiglitz, a well-known American economics professor and former Senior Vice-President of the World Bank, sees positive results in this move.
“China itself is a testament to the extent to which infrastructure investment can contribute to development,” Stiglitz said.
“Last month, I visited formerly remote areas of the country that are now prosperous as a result of the connectivity – and thus the freer flow of people, goods, and ideas – that such investments have delivered.”
He wrote in The Guardian newspaper that, “President Barack Obama’s administration is championing the virtues of trade; but, in developing countries, lack of infrastructure is a far more serious barrier to trade than tariffs.”
Stiglitz confirmed that World Bank assistance is “overburdened by prevailing ideology; for example, the free-market Washington Consensus policies foisted on recipients actually led to deindustrialization and declining income in Sub-Saharan Africa.”
“The problem is a financial system that has excelled at enabling market manipulation, speculation, and insider trading, but has failed at its core task: intermediating savings and investment on a global scale. That is why the AIIB could bring a small but badly needed boost to global aggregate demand.”
While the World Bank has a capital base of US$223 billion and ADB US$160 billion, the AIIB is expected to have an authorized capital of US$100 billion, and AIIB chief Jin Liqun, a former deputy finance minister of China, has promised it will be “lean, clean and green”.
While the US administration is concerned about competition, the leaders of those institutions don’t seem too worried. The World Bank President, Dr Jim Yong Kim, who is an American citizen born in South Korea, told reporters that he welcomes the new bank, saying there is plenty of need for infrastructure spending.
“Our full expectation is that we’ll continue to work with them very closely and that there are many projects that I can foresee either co-financing or working together on,” he told the semi-annual meetings of the World Bank and IMF in Washington.
The estimated shortfall in infrastructure finance funding in Asia alone is US$8 trillion between 2010 and 2020. While other institutions fund a diverse range of products, the AIIB will concentrate on infrastructure.
Zimbabwe’s Minister of Welfare Services for Liberation War Veterans, War Collaborators, Former Political Detainees and Restrictees, Christopher Mutsvangwa, a former ambassador to China, said, “Thank you China and the AIIB. You have broken the back of the iniquitous Bretton Woods institutions that had benighted and blighted Africa.
“Capital is the lifeblood of the modern nation state,” Mutsvangwa said, “and America has used capital as soft power to thwart the development of the African continent.
“Now with the advent of China and other BRICS countries, capital is liberalized and available in an open market. Good. The continent can now cut business deals. This can spur the renaissance of Africa.” sardc.net
