Wolf: “Reject the Asian investment bank is foolish” – The Trade

Martin Wolf / chief economic commentator of the Financial Times

Britain has angered US choosing a founding member of an institution which some see as the Chinese equivalent of the World Bank. But this does not mean that the decision is wrong. On the contrary, it is sensible – but not without risks.

The Asian Infrastructure Investment (AIIb, for its acronym in English) will finance infrastructure in developing countries of Asia. AIIb have an initial capital of US $ 50 billion, which may increase to US $ 100 billion. Although China is the largest shareholder, many other Asian countries are entering. (The participation of non-Asian members is limited to 25 percent of the shares).

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Other European countries such as Germany and Italy, have decided to submit his application; Australia, Japan and South Korea are still undecided.

The new institution is potentially valuable. The developing countries of Asia, as in many other places, have an urgent need for investment in the field of infrastructure. Private financing of risky projects and long-term is too expensive or unavailable. The resources of the World Bank and the Asian Development Bank (ADB, for its acronym in English) are very deficient in relation to need.

Therefore, the fact that China want to invest a small portion of its $ 3.8 trillion in foreign exchange reserves in the AIIb is good news. That wants to do through multilateral institutions, in which his voice, though loud, be one among many, is even better. A multilateral institution will have a global staff, which would be less politicized if China provide the money directly.

USA. DECIDES NOT

For all these reasons, USA should also be part of AIIb. Maybe the White House responds that although you love to do, has no chance of getting approval of the current Congress. That may be true. But it’s not a valid argument against the participation of other countries.

However, USA has an argument, even disconcerting. Western countries, he argues, may have more influence on the institution to not be part of it. That says a US official, would be better than “incorporated at a time during which they can not rely on China not retain the powers of veto”. But who are ‘out’ will have no influence on the institution not need your money. The only hope of having influence is from the inside. True, it would have been better if the Europeans had agreed to the entry requirements. But it’s too late for that.

Jack Lew, secretary of the US Treasury has expressed concerns from the American perspective of the Asian bank not give the size in terms of the “highest global standards” regarding the governance or loans. As a former staff member of the World Bank, I smile. Lew would be interesting to study the role of the bank in financing Mobutu Sese Seko of Zaire, a gruesome example among many.

US. Nor can submit any credible arguments about competition with existing institutions. Yes, there is a risk of observing a race to the bottom in terms of standards. But there is also a possibility that unnecessary bureaucracy is removed. The real American concern is that China establish institutions that undermine their influence in the global economy. In this regard, I offer four answers.

First, the US, Europe and Japan hoard have a degree of influence in global financial institutions is increasingly out of line with his position in the world. Moreover, they have not handled such influence as they should have. And besides, they have insisted on the right to appoint leaders who have been far from excellent.

Second, five years have passed since the leading countries of the Group of 20 (G-20) agreed new quotas that would moderate his enormous influence in the International Monetary Fund (IMF). The world is waiting for the US Congress to ratify the changes. This is an abdication of responsibility.

 Thirdly, the world economy would benefit from increased flows of long-term capital to developing countries.

It also benefit from a fund from which larger sure the IMF can provide prone countries “sudden stops” in capital flows. Foreign exchange reserves have increased to nearly US $ 12 billion, from less than US $ 2 billion at the beginning of the millennium, dwarfing IMF resources of less than US $ 1 trillion. This indicates the magnitude of the deficit. The capital from China could put the world in the right direction. That would be an excellent achievement.

Lastly, USA criticizes the UK for its “constant accommodation” of the emerging superpower. But the alternative accommodation is conflict. Economic growth in China is beneficial and inevitable. What is needed, therefore, is an ideal accommodation. When China offers proposals that make sense for their country and for the world, participating is more sensible to criticize from the outside. A former US official once asked China to be a “responsible citizen”. With the creation of AIIb, this is precisely what you are doing.

Therefore, the focus of the UK and other European allies is to be applauded. Moreover, the decision of the UK joining the AIIb could even represent a beneficial shock to US

Yes, it is desirable that countries with similar interests and values, such as Britain and the US , May make statements and act in unison. And yes, the UK is risking follow a different from its main international partner address. But support should not be subservient. That has proven not to be beneficial to anyone.

On the other hand, if the choice of Britain made clear to lawmakers US leadership is not a right but an honor that has to be earned, the decision could prove beneficial. In the years after World War II, in a moment of lucidity, USA created the institutions of the modern world. But the world has changed.

new institutions are needed. The world must accommodate growth of new powers. It will not stop just because the US can no longer participate. If the results are not like US, you can only blame yourself.