AIIB & The Changing World Order
AIIB set to lend Pakistan $500 million
From UPSC perspective, the following things are important :
Prelims level : AIIB
Mains level : Not Much
The Asian Infrastructure Investment Bank (AIIB) is scheduled to lend $500 million to Pakistan in this month.
Asian Infrastructure Investment Bank (AIIB)
- The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank with a mission to improve social and economic outcomes in Asia, began operations in January 2016.
- It aims to stimulate growth and improve access to basic services by furthering interconnectivity and economic development in the region through advancements in infrastructure.
- AIIB has now grown to 102 approved members worldwide.
- The US & Japan are not its members.
- It is a brainchild of China. It has invested in 13 member regions.
Capital and shareholding of AIIB
- It has authorized capital of US 100 billion dollars and subscribed capital of USD 50 billion.
- It offers sovereign and non-sovereign finance for projects in various sectors with an interest rate of London Interbank Offered Rate (LIBOR) plus 1.15 % and a repayment period of 25 years with 5 years in grace period.
- China is the largest shareholder in AIIB with a 26.06% voting power, followed by India with 7.62% and Russia with 5.92% voting power.
Try this question from CSP 2019
Q.With reference to Asian Infrastructure Investment Bank (AIIB), consider the following statements
- AIIB has more than 80 member nations.
- India is the largest shareholder in AIIB.
- AIIB does not have any members from outside Asia.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Post your answers here.
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AIIB & The Changing World Order
Asian Development Outlook Report
From UPSC perspective, the following things are important :
Prelims level : Asian Development Outlook Report, ADB
Mains level : Not Much
The Asian Development Bank (ADB) forecasts has provided some useful insights about India’s GDP growth.
About Asian Development Bank (ADB)
- The ADB is a regional development bank established on 19 December 1966 which is headquartered in Philippines.
- ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty.
- The bank admits the members of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP).
- The ADB was modelled closely on the World Bank, and has a similar weighted voting system where votes are distributed in proportion with members’ capital subscriptions.
- The president has a term of office lasting five years, and may be re-elected.
- Traditionally, and because Japan is one of the largest shareholders of the bank, the president has always been Japanese.
- ADB is an official United Nations Observer.
Highlights of the ADB Outlook Report 2020
- India’s GDP growth will moderate to 7.5% in 2022-23, from an estimated 8.9% in 2021-22.
- It has factored in the Russia-Ukraine conflict’s implications for India, which would be largely indirect through higher oil prices
- The severity of the COVID-19 pandemic would subside with a rise in vaccination rates.
- Higher public capital spending is expected to improve the efficiency of India’s logistics infrastructure, crowd-in private investment, generate jobs in construction and sustain growth.
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AIIB & The Changing World Order
Asian Infrastructure Investment Bank (AIIB)
From UPSC perspective, the following things are important :
Prelims level : AIIB
Mains level : Not Much
The Beijing-based Asian Infrastructure Investment Bank (AIIB) said it was putting on hold and reviewing all projects in Russia and Belarus.
About AIIB
- The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank with a mission to improve social and economic outcomes in Asia, began operations in January 2016.
- It aims to stimulate growth and improve access to basic services by furthering interconnectivity and economic development in the region through advancements in infrastructure.
- AIIB has now grown to 102 approved members worldwide. US & Japan are not its members.
- It is a brainchild of China. It has invested in 13 member regions.
Capital and shareholding of AIIB
- It has authorized capital of US 100 billion dollars and subscribed capital of USD 50 billion.
- It offers sovereign and non-sovereign finance for projects in various sectors with an interest rate of London Interbank Offered Rate (LIBOR) plus 1.15 % and a repayment period of 25 years with 5 years in grace period.
- China is the largest shareholder in AIIB with a 26.06% voting power, followed by India with 7.62% and Russia with 5.92% voting power.
Try this question from CSP 2019
Q.With reference to Asian Infrastructure Investment Bank (AIIB), consider the following statements
- AIIB has more than 80 member nations.
- India is the largest shareholder in AIIB.
- AIIB does not have any members from outside Asia.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Post your answers here.
UPSC 2022 countdown has begun! Get your personal guidance plan now! (Click here)
AIIB & The Changing World Order
APVAX Initiative
From UPSC perspective, the following things are important :
Prelims level : ADB, AIIB
Mains level : Not Much
The Government of India has applied for loans from the Asian Development Bank (ADB) and the Asian Infrastructure Investment Bank (AIIB) to procure as many as 667 million doses of COVID-19 vaccines under the APVAX initiative.
Try this question from CSP 2019
Q.With reference to Asian Infrastructure Investment Bank (AIIB), consider the following statements:
- AIIB has more than 80 member nations.
- India is the largest shareholder in AIIB.
- AIIB does not have any members from outside Asia.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Post your answers here.
APVAX Initiative
- The ADB is expected to lend $1.5 billion and the AIIB around $500 million for the vaccine purchase by India.
- It which has been made under the ADB’s Asia Pacific Vaccine Access Facility (APVAX) initiative.
- Launched in December 2020, APVAX offers “rapid and equitable support to its developing member countries as they procure and deliver effective and safe COVID-19 vaccines”.
- The Beijing-headquartered AIIB will co-finance the vaccine procurement.
About Asian Development Bank (ADB)
- The ADB is a regional development bank established on 19 December 1966.
- It is headquartered in the Ortigas Center located in the city of Mandaluyong, Metro Manila, Philippines.
- From 31 members at its establishment, ADB now has 68 members.
- The ADB was modelled closely on the World Bank, and has a similar weighted voting system where votes are distributed in proportion with members’ capital subscriptions.
- ADB is an official United Nations Observer.
- As of 31 December 2020, Japan and the UN each holds the largest proportion of shares at 15.571%.
- China holds 6.429%, India holds 6.317%, and Australia holds 5.773%.
Asian Infrastructure Investment Bank (AIIB)
- The AIIB is a multilateral development bank that aims to improve economic and social outcomes in Asia.
- The bank was proposed by China in 2013 and the initiative was launched at a ceremony in Beijing in October 2014.
- The bank currently has 103 members, including 16 prospective members from around the world.
- The starting capital of the bank was US$100 billion, equivalent to 2⁄3 of the capital of the Asian Development Bank and about half that of the World Bank.
- It received the highest credit ratings from the three biggest rating agencies in the world, and is seen as a potential rival to the World Bank and IMF.
AIIB and India
- So far, the AIIB has approved loans for 28 projects in India amounting to $6.7 billion, more than for any other member of the multilateral bank.
- India is the second-largest shareholder after China in the bank, which does not count the U.S. and Japan among its members.
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AIIB & The Changing World Order
Asian Infrastructure Investment Bank (AIIB)
From UPSC perspective, the following things are important :
Prelims level : AIIB, ADB
Mains level : Not Much
The Government of India and the Asian Infrastructure Investment Bank (AIIB) has signed a $750 million agreement for “COVID-19 Active Response and Expenditure Support Programme”.
Try this question from CSP 2019
Q.With reference to Asian Infrastructure Investment Bank (AIIB), consider the following statements
- AIIB has more than 80 member nations.
- India is the largest shareholder in AIIB.
- AIIB does not have any members from outside Asia.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
What’s so special about this assistance?
- This is the first-ever budgetary support programme from the AIIB to India.
- The project is being financed by the AIIB and Asian Development Bank (ADB) in the amount of $2.250 billion, of which $750 million will be provided by AIIB and $1.5 billion will be provided by ADB.
- The package aims to assist India to strengthen its response to the adverse impacts of the COVID-19 pandemic on poor and vulnerable households.
- The current loan will be the second to India from AIIB under its COVID-19 crisis recovery facility apart from the earlier approved $500 million loans.
- The primary beneficiaries would be families below the poverty line, farmers, healthcare workers, women, women’s SHGs, widows, PWDs, senior citizens, low wage earners etc.
About AIIB
- The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank with a mission to improve social and economic outcomes in Asia, began operations in January 2016.
- AIIB has now grown to 102 approved members worldwide.
- AIIB is a brainchild of China. The prime aim of the AIIB is infrastructure development.
- By establishing interconnectivity across Asia through advancement in the construction of infrastructure and other productive services, the AIIB can stimulate growth and economic development in the Asian Region.
Must read:
The Asian Infrastructure Investment Bank (AIIB) is an international financial institution proposed by China. AIIB is regarded as a rival for the IMF, the World Bank and the Asian Development Bank (ADB) which the AIIB says are dominated by developed countries like the USA and Japan. In this Article We will explain everything about AIIB and also why India has joined it and the likely challenges AIIB will face in future.
What is AIIB?
- The ‘AIIB’ is the Asian Infrastructure Investment Bank, a new multilateral development bank first proposed by Xi Jinping in a speech to the Indonesian parliament in October 2013.
- At the time, Xi explained that ‘to support the process of interconnection and integration of the economic development in the region, China has proposed to build the Asia infrastructure investment bank and provide financial support to infrastructure development in developing countries in the region.’
- The bank was formally established on October 24, 2014 in a ceremony in Beijing where 21 founding members signed the bill.
Functions of the AIIB:
The AIIB has broad functions, similar to other MDBs. Under its Articles of Agreement, the AIIB’s functions include:
(i) Promoting public and private investment in the Asia region for development, in particular for infrastructure and other productive sectors;
(ii) Utilizing the resources at its disposal for financing such development in the region; and
(iii) Encouraging private investment that contributes to economic development in the Asia region, in particular in infrastructure and other productive sectors, and supplementing private investment when private capital is not available on reasonable terms and conditions
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Why was AIIB is established when the IMF and World Bank are already there?
The Asian Infrastructure Investment bank (AIIB), the new kid in the development lender’s neighbourhood is a both the result and reflection of changing political economic equation of an increasing multi polar world. The necessity and the differential design of AIIB can be enumerated as follows:
#1. Economic
- To begin with China is sitting on a huge pile of unutilised cash and is looking for markets to invest it to earn from the otherwise idle money. Funding projects through AIIB is a structured way to do it.
- Investment focus of AIIB will be sector and region specific unlike IMFs and ADBs of the world. AIIB specifically will be an financial enabler for sponsoring infrastructure in Asia
- With Yuan’s entry in SDR it makes sense to loan Yuan to spread its global availability.
- Asian infrastructure development needs huge investment (estimated $ 800 Bn annually) which certainly cannot be supplied by IMF alone.
- The boost to Asian Infrastructure provides a market for Chinese firms with excess capacity in cement and steel lying ideal post slowdown.
#2. Political
- Unlike IMF, AIIB does not adopts quota system ie decision making power is not proportionate to contribution, thus it is more democratic. Well, err, China and democracy do not go hand in hand, undeniably Chinese interest will be loudest.
- IMF and ADB funding comes with the vested interest of western world like “free” market economy, forced structural reforms, skewed intellectual property rights etc. AIIB’s loan provides an alternative to circumvent western influence during financial emergency.
- IMF is increasingly going green with increasing western focus on cleaner and renewable energy (off course with only limited heed to CBDR call), which might not be appealing to nations which are yet to release their quota of developmental pollution. Well, AIIB is here to help.
- Presents the benevolent face (most possibly farcical) of the otherwise ruthlessly pragmatic and openly aggressive china.
Why has India joined the AIIB?
There are many reasons for it, a few of them being:
- India is preparing to start a large number of infrastructure projects, but they’re short of money, so they need help from China. Of course they can get money from ADB or WB, but they also need to find a balance between China and USA.
- It’s a great chance to develop economy links between India and China. These two countries both have huge market, and they also keep a rapid growth of economy.
- Though AIIB is a Chinese-lead financial institution, India is welcomed to play a important role in it. It’s the reason why the UK, Germany and France all want to be a member of AIIB.
- The AIIB gives countries like India and China the historical opportunity to enter and reform a bastion where they have been traditionally denied entry.
Difference between AIIB and NDB
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Challenges that AIIB may likely face in Future?
China will face many challenges in future while implementing the AIIB .The major challenges include:
- Non Participation of USA and Japan: The United States and Japan remain non-committal to the AIIB, althoughthat is an improvement from their previous firm opposition. The AIIB will probably function well without the participation of the United States and Japan. But the participation of these two countries is important for China since it will help improve the new bank’s credit rating and give it added legitimacy.
- Security issues: Security will be another major challenge. For example, most of the loans which will be given under AIIB would be to projects in central Asia however there is a challenge of who is going to protect so many projects covering so many countries as this region has some of theworld’s most vulnerable and conflict-ridden territory.
- Fear of NPA: Many recipient countries in Asia have poor credit, which means many projects may be promising at the beginning but will be difficult to pursue. Agreement and consensus are reached at the top levels of government, but implementation is at the local level. Local governments often do not care about the central government’s policies and do not always cooperate with foreign investors.
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