Smart are the nations who see for gains and not act as sheep of - TopicsExpress



          

Smart are the nations who see for gains and not act as sheep of herd that is directionless. NEW INITIATIVE ASIAN INFRASTRUCTURE INVESTMENT BANK ( AIIB ) China pushes back at US’ Asia pivot Twenty countries have joined China as ‘founding members’ of the Asian Infrastructure Investment Bank [AIIB] being set up by Beijing. The intergovernmental Memorandum of Understanding was signed in Beijing earlier today. The 20 countries include 10 ASEAN countries plus five countries from South Asia — India, Pakistan, Bangladesh, Sri Lanka and Nepal — two from Central Asia (Kazakhstan and Uzbekistan) and three GCC states (Qatar, Kuwait and Oman). From Asia, the notable absentees are three — Australia, Indonesia and South Korea — which are looking in, unable to make up their mind after having come under heavy American pressure to keep away from the Chinese initiative. Beijing is keen on having South Korea in and hopes to persuade it, and seems indifferent about Australia. There is still time for South Korea and Indonesia to join the AIIB before it gets formally established by end-2015, Presidents Park Geun-hye and Xi Jinping are scheduled to meet on the sidelines of the APEC summit in Beijing on November 10-11 (where Xi is expected to announce the setting up of the AIIB). To be sure, China has scored a major diplomatic victory. More so, as this has happened in the teeth of opposition from the United States (and Japan). One way of looking at it is that economics has trumped geopolitics, but then, economics is never quite devoid of politics, either. That is to say, Asian countries — including Vietnam, Philippines or India that may have territorial disputes with China — have given primacy to development in their regional policy and they comprehend the importance of China as a driver of growth. Put differently, the US’ ‘pivot’ strategy aimed at the containment of China has fallen flat on its backside. On the other hand, US opposition wasn’t entirely based on its containment strategy toward China. The heart of the matter is that the AIIB strikes a spear into the heart of the international financial institutions that were formed under the Bretton Woods system. The AIIB’s rules of governance and lending practices will be carefully watched. The high probability is that the AIIB will not follow the footsteps of the IMF and the World Bank and prescribe the conditionalities (crafted by Washington from time to time) — be it on grounds of human rights, child labor, environment and so on — on the borrowers. As an indignant US Treasury Secretary Jacob Law put it at a conference earlier this month in Washington, “The critical question os, ‘Do they [AIIB] follow the same kinds of practices that are working to help economies grow and to maintain strong and stable foundations?” That China is leading the pincer movement challenging the US-dominated global financial system is brought home by the fact that Beijing will be hosting the AIIB while the BRICS development bank agreed upon in July will be based in Shanghai. Indeed, what China is aiming at is a highly complex matrix — it is by no means torpedoing the existing international economic architecture but it wants to introduce new rules of governance that are in sync with the transformed global economy. Thus, AIIB will both cooperate and compete against the existing development banks. It will be “leaner and faster” and will provide healthy competition to the existing banks. To quote David Dollar, a former US Treasury and World Bank representative in China, “And hopefully the success of the bank [AIIB] will encourage more rapid reform of the old institutions. That would be the best global outcome of all.” (here). No doubt, Tokyo is seething with anger. The AIIB is starting with $50 billion in capital, largely from China, but clearly aims to increase this amount over time. Whereas, after all these decades of its existence, al that the Asian Development Bank, which US and Japan control, had was $175 billion in capital at the end of 2013 — and it has 67 members. Clearly, the AIIB has a role to play competing with the ADB insofar as Asia needs around $8 trillion in investment by 2020 to improve the region’s battered infrastructure or face slowing economic growth, apart from forcing the entrenched IMF-World Bank-ADB cartel to reduce red tape and the political strings attached to the disbursements. China’s finance minister Lou Jiwei said in Beijing on Wednesday after the APEC finance ministers’ meeting that AIIB will make “commercial investments” in infrastructure, rather than link the loans to ‘poverty-alleviation’ concerns in the recipients. Having said this, of course, the fact remains that the setting up the AIIB is also a “strategic necessity” for China for more than one compelling reason — providing a platform for exerting influence in Asia; moving far, far beyond its labor intensive manufacturing economy; enhancing the prospects of renminbi’s role as an international trading currency; creating a new channel to diversify China’s massive 3 trillion renminbi in foreign reserves; counterbalancing Japan’s power and US’ presence in the Asian region (to begin with) and so on. To my mind, however, in all of this many-splendored thing that happened this morning, the most fascinating sight has been the bespectacled Indian lady representing the Finance Ministry in North Block showing up in Beijing this morning behind the Indian flag at the conference table to sign the MOU on AIIB. How come India didn’t end up with Japan and Australia? No sooner than the Narendra Modi government took office in May, Beijing deputed Foreign Minister Wang Yi to visit Delhi and the AIIB was an agenda item in his talks with the new Indian leadership. At the BRICS summit in July, Xi extended an invitation to Modi for India to be a ‘founding member’. Modi was clear in his mind right from that point that India should be part of the AIIB and he viewed the evolution of that idea exclusively through the prism of national interests. India’s considerations may be summed up as follows: a) India shares China’s apathy toward the inequities of the global financial architecture; b) India chaffs at the lending practices of the existing banks to tie loans to non-economic issues such as human rights, environment, etc; c) Partnership in the AIIB enables India to access yet another (scarce) source of infrastructural funding; d) Simply put, India warms up to China’s offer which also contains a geopolitical signal that Beijing regards Delhi as a partner in an interlocking politico-economic network of neighboring countries. In the ultimate analysis, India stuck to an independent foreign policy. By M K Bhadrakumar – October 24, 2014
Posted on: Mon, 27 Oct 2014 07:55:10 +0000

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