When China began laying the groundwork for its Asian Infrastructure Investment Bank last year, the move appeared to challenge the global financial hierarchy. Beijing made no secret that it was founding the $100 billion bank and two other infrastructure financing vehicles because of Washingtons refusal to let it play a bigger role in the International Monetary Fund and the World Bank. The Obama administration tried to persuade its allies to shun the AIIB, only to see the U.K. break ranks and start a stampede of major European nations to join the new institution. The scene was set for development bank wars.
One year later cooperation rather than confrontation is the order of the day. At the spring meetings of the IMF and World Bank in Washington earlier this month, two of the most prominent attendees were Jin Liqun, president of the AIIB, and K.V. Kamath, his counterpart at the New Development Bank, the so-called BRICS bank China has launched with Brazil, Russia, India and South Africa. They participated at a daylong forum on infrastructure with all of the worlds major multilateral development banks (MDBs) and vowed to seek ways to work together. Jin talked of harmonizing policies and using standardized lending instruments; in coming weeks the AIIB is expected to announce that its first projects will be joint efforts, including the co-financing of two Central Asian highways with the European Bank for Reconstruction and Development. The bank also reportedly will co-finance a highway in Pakistan with the Asian Development Bank, a regional lender dominated by Chinas rival Japan, and the U.K.s Department for International Development. We all understand that without combining and coordinating our efforts, its hard for us to meet the needs of Asias development, Jin told his fellow bankers.
Necessity is the mother of cooperation. China wants to get the AIIB up and running as soon as possible, which means drawing on existing practices and talent rather than reinventing the development bank wheel. Jin has deep connections with the multilateral community, having served as Chinas alternate executive director at the World Bank in the 1980s. He recruited a senior World Bank executive, Joachim von Amsberg, as his vice president for policy and strategy, one of only about 70 staff at the banks Beijing headquarters. In February, the AIIB published its environmental and social standards for loan programs, which largely mirror the standards employed by the World Bank and the Asian Development Bank. That paved the way for Jin and the World Banks president, Jim Yong Kim, to sign a co-financing framework agreement at the Washington meetings. Jin said that joint projects with the World Bank will account for a signficant share of the AIIBs expected financing commitments of $1.2 billion this year.
This budding cooperation is good news to anyone concerned about the state of the global economy. The World Bank estimates the global infrastructure financing gap at $1 trillion a year. Theres plenty of willingness to start plugging that gap. Most major pension funds, endowments and sovereign wealth funds are allocating more money to infrastructure investment or considering ways of doing so. The U.K. is even reorganizing its local government pension system to foster greater investment.
Developing new roads and railways, smarter grids and renewable energy sources can juice todays economy and pay dividends well into the future. Green is suddenly becoming an economic imperative, Kamath told the Washington forum. Thats a thought worth building on.
Follow Tom Buerkle on Twitter at @tombuerkle.