AIIB founding members rise to 57 (China Daily) | Lao Tribune

AIIB founding members rise to 57 (China Daily)

China’s Minister of Finance Lou Jiwei, front third left, and other representatives of founding member countries attend the signing ceremony of memorandum of understanding on establishing the Asian Infrastructure Investment Bank (AIIB) in Beijing, Oct 24 2014. [Photo/IC]

Sweden, Israel, South Africa, Azerbaijan, Iceland, Portugal and Poland have been approved as prospective founding members of the Asian Infrastructure Investment Bank (AIIB), China’s Ministry of Finance said on Wednesday.

The latest approval brings the number of prospective founders to 57, the ministry said.

Productive negotiations have been held among the prospective founders on the new bank’s draft rules, according to official sources. The rules are expected to be finalized and signed in the middle of the year after a final session planned for May.

With an authorized capital of $100 billion, the AIIB aims at spurring investment in Asian energy, transportation, telecommunications and other infrastructures.

The 57 AIIB founding members include Bangladesh, Brunei, Cambodia, China, India, Kazakhstan, Kuwait, Laos, Malaysia, Mongolia, Myanmar, Nepal, Oman, Pakistan, the Philippines, Qatar, Singapore, Sri Lanka, Thailand, Uzbekistan, Vietnam, Indonesia, New Zealand, Maldives, Saudi Arabia, Tajikistan, Jordan, UK, Germany, France, Italy, Luxembourg, Switzerland, South Korea, Turkey, Austria, Brazil, Georgia, the Netherlands, Denmark, Australia, Russia, Finland, Egypt, Kyrghyzstan, Sweden, Norway, Iceland, Israel, Portugal, Poland, Spain, Iran, UAE, Malta, Azerbaijan and South Africa.

The bank is expected to be set up at the end of this year.

Related Story:

Laying foundations for a successful AIIB by Zhang Chunyan from China Daily

The distribution of shares, the rules for governance and the use of capital are the main issues that the Asian Infrastructure Investment Bank must resolve well.

The new bank received applications to be founding members from 56 countries and regions before the March 31 deadline.

China aims to draw up the articles of agreement, which will be the basic rules governing the bank, by the end of June and have the bank operating by the end of this year.

With so many founding members, one of the thorniest issues is how voting shares in the bank will be allocated among them.

In October, the initial 21 members, including China, India and Singapore, signed an agreement in Beijing on setting up the bank. They agreed that GDP will be the basic criterion in determining share allocations among member countries and regions.

While the bank’s shareholding structure is subject to negotiation, there will be different arrangements for Asian members and non-Asian members.

One option is for the bank’s Asian members to have 75 percent of the voting shares, with the right of each of those members potentially depending on the size of their GDP. The remaining 25 percent of the voting shares would then go to non-Asian members.

The final formula will be agreed by the founding members, but it is clear that a responsible and transparent formula for setting members’ voting shares will create a balanced structure to ensure the institution’s credibility and legitimacy.

The allocation of shares will also have a direct impact on the institution’s efficiency and decision-making process.

It is a positive development that China will not seek veto power over bank decisions.

The bank will have a three-tier management structure: a board of governors, a board of directors and a president.

The board of governors, as the highest decision-making body, will elect a nonresident board of directors, which will determine budgets and projects.

Even if China has more members on these boards than other countries, it will be unable to treat the institution as a Chinese policy bank and dictate its decisions.

Indeed, if China tries to push for unpopular loan or procurement decisions to advance its economic or strategic agenda, an unbiased board of directors is likely to push back.

But how to share the board membership will also be a problem. Countries and regions that have applied to be founding members will seek a greater voice in running the AIIB, including the right to join the board and frame the bank’s rules of governance.

Members that join after the deadline will have voting rights but less say in making the rules.

The fact that major European economies such as the United Kingdom, Germany and France became involved with the bank early shows that they are keen on gaining board membership. Many are expected to push for one of their cities to host the bank’s European office.

There are also questions over how the bank will provide loans, who receives them and the type of companies that benefit from them.

It will be difficult to form relationships for cross-border investment projects that will be equally beneficial to all parties.

For example, standards and regulations governing the bank may lead to conflicts over upholding standards and making practical decisions.

The AIIB aims to use a variety of channels, including loans, equity investments and guarantees, to boost investment in many sectors such as agriculture, energy, telecommunications, transport and urban development.

And while it is widely accepted that infrastructure projects involve a certain amount of corruption, the bank should try to minimize corruption through a monitoring process.

Only with lots of discussion, experience and wise decisions can China then play the leading role while helping the members find their proper roles.

The new bank can then create a governance structure that avoids many of the problems present in existing multilateral institutions.

It can then set higher standards for international governance and even prompt reforms in existing institutions.