When Chinese President Xi Jinping first proposed establishing a new China-led finance coalition among Asian entities in 2013, the U.S. actively lobbied other countries not to join. The American argument was that the proposed bank would be antithetical to democratic norms on issues such as the environment, transparency and accountability.
The system mostly led by the World Bank and the International Monetary Fund has been thought to dominate the global economy for decades, but the Asian Infrastructure Investment Bank, to be led by China, has risen in prominence for many less-developed countries.
American conversation on the issue tends to favor the dominance of Western institutions, but organizations like AIIB are better adapted to the needs of the current world economy.
This AIIB aims to support more infrastructure in the Asia-Pacific region and currently has 74 countries as members. Apart from the AIIB, the New Development Bank was established by the BRICS countries, Brazil, Russia, India, China and South Africa, in 2013.
This quest for alternative institutional frameworks in emerging countries represents a dissatisfaction with and search for ways to reduce reliance on the Bretton Woods paradigm, a term in economics to describe the system that places the U.S. at the center of the world economy.
First, the bank challenges the authority and legitimacy of traditionally Western rulemakers and shapers of global agenda. Countries looking for alternatives after IMF’s mismanagement of regional financial crises in East Asia, combined with the steady decline of the legitimacy and authority of the World Bank and IMF in middle-income countries, reduce the mostly democratic hegemony of the West.
As these emerging institutions expand their footprint by incorporating more economies into their business, frameworks connecting middle-income nations such as Singapore or the Philippines in Asia may become less dependent on Western consumers. AIIB distances itself from the domestic affairs of other nations by preventing their business from influencing political affairs, drawing nations that do not align with liberal Western ideologies to approach AIIB for their development financing.
For this reason and more, China has become a crucial actor in East Asian, South American, African and South Asian trade. While America and Japan are where emerging countries look to export goods, China’s emergence is creating new dependencies on Chinese buyers. For example, the recent slowing of Chinese economic growth has caused downturns in developing countries from which it imported primary raw materials, reflecting a structural change in global economic development and its politics.
In addition to the rise of China, trade between emerging countries such as Nepal trying to expand their exports has risen dramatically as opposed to a decline in trade between developed countries. Smaller economies now look beyond America, Europe or Japan for their exports as a strategy for economic development.
In this context, multilateral institutional frameworks provide a new forum for emerging and poorer countries to interlink their development strategies and provide reciprocal markets for trade. This has become especially significant in light of the political volatility regarding international cooperation in the U.S. and economic slowdown in advanced economies.
While the IMF and the World Bank have played important and useful roles in global development, international politics and economics around it have changed dramatically. The institutions that emerge from these differences will define the priorities and mechanisms of future development. It is crucial that lessons learned from the limitations of Bretton Woods institutions be addressed in the new frameworks and their resultant international politics.
Great article. Though I do agree that the IMF and the World Bank are multilateral organizations that are outdated in the current global politics, I do not think that the AIIB is the sustainable answer to providing an alternative to the WB and the IMF. The AIIB as I see it a strategic political response to the Western oriented global financial system that was developed out of the Bretton Woods system after World War II such as the IMF and the World Bank. It is important to realize that even though the AIIB is labeled as a multilateral organization, China and the Chinese Communist Party have unilateral ability within the organization (China still holds the unilateral veto power for example). Further, the motivations behind the AIIB investment decisions doesn’t seem to be clear: it is often difficult to determine if AIIB’s financing projects are strictly financially motivated or if there are political aspirations as well. I think the AIIB overall is an attempt to bring back some international financial clout to East Asia and balance the western hegemony but the AIIB and China have a long way to go before proving itself to the global community.
I agree that “it is often difficult to determine whether AIIB’s financing projects are strictly financially motivated or if there are political aspirations as well” but the point is that the same can be said of the projects of World Bank or IMF. I don’t think that AIIB and China are even trying to prove anything to the global community (if there is one right now), they are catering to the places where western multilateral institutions have neglected or failed. As far as veto power is concerned, US has de facto veto power in most multilateral institutions. I agree that China is no better in that respect.