KATHMANDU, 27 OCT 2014Â – Nepal signed a Memorandum of Understanding (MoU) along with 20 other Asian nations to establish the Asian Infrastructure Investment Bank (AIIB), in Beijing, China, on Friday. The bank is expected to come into operation by 2015.
Nepali officials expect the new bank will secure investment in Nepalâ€™s underfunded infrastructure sector and help Nepal graduate to the status of developing country from least developed country (LDC).
Other nations signing the MoU are the initiator China, India, Thailand, Malaysia, Singapore, the Philippines, Pakistan, Bangladesh, Brunei, Cambodia, Kazakhstan, Kuwait, Laos, Myanmar, Mongolia, Oman, Qatar, Sri Lanka, Uzbekistan, and Vietnam.
At the signing ceremony, Chinese President Xi Jinping stressed the bank would make available resources in an easier way for the infrastructure sector in the Asian region. During a separate meeting with the delegates, Xi also assured the bank would play a strong role to bridge the financing gap in infrastructure.
The authorised capital of the bank is expected to be $100 billion, and the initial subscribed capital of around $50 billion. The paid-in ratio will be 20 percent, according to Xinhua, Chinaâ€™s state-run news agency.
The proposed bank, to be headquartered in Beijing, has appointed Chinaâ€™s Vice Finance Minister Jin Liqun as secretary general. Jin once held the post of Vice President at Asian Development Bank (ADB).
Although the proposed bank has been considered as a direct competitor to multilateral institutions like the World Bank and ADB, the MoU, according to the Finance Ministry, states the new bank will work as a complementary institution, not competitor to the multilateral institutions.
Madhu Marasini, chief of the Finance Ministryâ€™s International Cooperation Coordination Division, who was also a member of the Nepali delegation, said talks were also held on making available certain number of free shares to the founding members. â€œHowever, how many shares a founding member will get will be ascertained based on further discussions,â€ he said.
As Nepal needs huge resources to fund in the infrastructure sector to achieve its target of graduating to a developing country, officials believe the new bank will offer a new window to meet the financing gap.
According to a study carried out by the National Planning Commission (NPC), Nepal will have to invest more than Rs 9 trillion at constant prices through 2022 to achieve the target. A World Bank study shows Nepal will require $13-18 billion from 2011 to 2020 to bridge the investment gap in infrastructure.
â€œThe new bank will invite competition among multilateral financers to fund Nepalâ€™s infrastructure projects at less strict conditions,â€ said Marasini.
However, given the domination of the US and Japan in the World Bank and ADB, the US has looked at the formation of the China-initiated bank with scepticism.
Media reports said US Secretary of State John Kerry pressured Australia to stay out of the AIIB. Quoting the Australian media, Reuters reported Kerry personally asked Australian Prime Minister Tony Abbott to keep Australia out of the AIIB. Australia, Indonesia and South Korea skipped the MoU signing in Beijing.
According to Reuters, US State Department Spokeswoman Jen Psaki clarified Kerryâ€™s concern: â€œSecretary Kerry has made clear directly to the Chinese as well as to other partners that we â€Žwelcome the idea of an infrastructure bank for Asia but we strongly urge that it meet international standards of governance and transparency. We have concerns about the ambiguous nature of the AIIB proposal as it currently stands, that we have also expressed publicly.â€
Despite the USâ€™ concern over the proposed bank, experts say financing from the World Bank and ADB, the two largest donors of Nepal, will not view Nepalâ€™s participation in AIIB negatively. â€œBecoming a founding member of AIIB will be beneficial for the country, if politics does not play a role in its financing,â€ said Shankar Sharma, former NPC vice-chairman and former ambassador to the US. He said Indiaâ€™s participation as one of signatories is an important development as it keeps India away from its usual suspicion that South Asian nations, including Nepal, could tilt towards China.
According to Reuters, ADB President Takehiko Nakao said the AIIB should function in line with international governance, labour and environmental standards. â€œI hope the new bank will adhere to these standards,â€ Nakao was quoted as saying.
It is not the first time the US and other nations having significant influence in international financing institutions have expressed reservations the new bank. According to Sharma, an attempt to establish a similar bank at the initiation of the United Nations Economic and Social Commission for Asia and the Pacific (UN-ESCAP) was aborted in early 2000s as the nations having huge influence in ADB and the World Bank favoured strengthening the existing institutions instead of creating a new one.