AIIB And US Development Leadership: A Path Forward

By Dan Runde | APRIL 30, 2015

The rapid rise of China’s Asian Infrastructure Investment Bank (AIIB) should be a wakeup call for the United States, and requires a well thought out response. The AIIB and other Chinese development agencies represent a new form of strategic competition that can help to drive progress at the multilateral level. Its emergence was spurred forward by growing infrastructure needs in Asia, and a lack of strategic vision to ensure that our existing multilateral institutions fit the changing global landscape.

The AIIB, however, will undoubtedly face challenges and growing pains. There is an opportunity for the United States and its partners to help the new institution face these implementation challenges, and establish the fledgling infrastructure fund as a positive player in global development. An effective approach will require coordinated action with Japan and other allies. The good news is that with some legislative actions, increased U.S. leadership within existing multilateral development banks (MDBs), and relatively small amounts of money, the United States could respond in a serious and constructive way to the AIIB.

The AIIB was just an idea two years ago. Its rapid success is a result of major gaps in what the established international architecture is offering in terms of global progress, China’s new status as one of the top trading partners to dozens of countries, and unmet development needs around the world. Tone deaf efforts by the U.S. to pressure allies into steering clear of AIIB membership represent both bad policy and lack of understanding for the global context which led to the AIIB’s creation. Apart from these broad conditions, however, there are two specific U.S. (in)decisions which served to create political cover and practical demand for the new institution.

First, the United States has failed to pass Quota Reform at the International Monetary Fund (IMF) since 2010. As agreed to in 2010, IMF quota reform would result in a slight rejiggering of IMF shareholder votes away from Europe to emerging economies, and a doubling of the money available for global crises. The United States would see its voting share drop from 17.7 percent to 17.3 percent, but would remain the largest shareholder and retain its veto.

Although the United States agreed to these terms at the 2010 summit, it has so far failed to implement them because it requires Congressional approval. IMF Quota Reform has been mishandled by the Administration, which has been reluctant to address concerns, and the issue has been largely ignored by the Republican-controlled Congress. The possible $300 million dollar impact related to changes from one IMF account to another has not helped. Unfortunately, China has used IMF quota reform as political cover to create the AIIB.

Originally published in Forbes