Philippine President Benigno Aquino (L) shakes hands with China’s President Xi Jinping as he arrives for the Asia-Pacific Economic Cooperation (APEC) summit in Beijing in 2014 [Xinhua]

by Lady Michelle Jennifer Santos

31 December 2015 MANILA (TSR) – Few days after the China-led Asian Infrastructure Investment Bank (AIIB) formally established on Christmas Day in Beijing, the Republic of the Philippines joined other US allies and defied American pressure by formalising its Founding Member status to the new lender.

Presidential Communications Operations Office Secretary Herminio Coloma Jr. said on Wednesday President Benigno S. Aquino III has approved the Philippines’ participation in the AIIB following the recommendation of Finance Secretary Cesar Purisima.

In a separate statement, Purisima said the Philippines will be signing the Articles of Agreement (AOA) of the AIIB by today.

The Philippine government believes that the AIIB will augment and complement existing multilateral institutions in accelerating economic growth, he said.

“Our shared pursuit of growth and development has only become more challenging as the global environment becomes increasingly complex. We thus welcome platforms where countries can work towards shared development goals in the spirit of partnership,” Purisima said.

In a globalized world, connectivity is the name of the game. The AIIB is a “promising institution” addressing investment needs, and will help close financing gaps in many countries, he said.

“I also see this as a chance for greater collaboration with member countries, especially with ASEAN, on regional infrastructure goals,” he added.

The AIIB is aimed to help fund infrastructure and development projects in the Asian region, which is regarded as a significant opportunity for developing countries to improve their infrastructure through the new lender.

According to the Asian Development Bank (ADB), the infrastructure needs in the region is projected at USD 750 billion in investments annually until 2020. The ADB’s annual lending approval of an estimated USD 13 billion is not enough to address the region’s infrastructure deficit.

China’s Finance Ministry announced that AIIB is expected to start operations early next year.

“The AIIB is legally established as the Articles of Agreement take effect today,” said Lou Jiwei, China’s Minister of Finance.

 

 

The government believes that the AIIB will augment and complement existing multilateral institutions in accelerating economic growth, he said.

“Our shared pursuit of growth and development has only become more challenging as the global environment becomes increasingly complex. We thus welcome platforms where countries can work towards shared development goals in the spirit of partnership,” Purisima said.

In a globalized world, connectivity is the name of the game. The AIIB is a “promising institution” addressing investment needs, and will help close financing gaps in many countries, he said.

“I also see this as a chance for greater collaboration with member countries, especially with ASEAN, on regional infrastructure goals,” he added.

The Asian Development Bank has estimated Philippine infrastructure financing needs from 2010 through 2020 to be at 127.12 billion U.S. dollars, requiring an annual investment of 11.56 billion U.S. dollars.

The total capital stock of the AIIB is 100 billion U.S. dollars, 20 percent of which is paid-in. The indicative paid-in capital of the Philippines is 196 million U.S. dollars (payable in five years or 39 million U.S. dollars per annum).

“The Philippines has taken the matter of our membership in AIIB very seriously,” Purisima said, adding, “We are confident that the Bank’s organization design and oversight mechanisms are committed to transparency, independence, openness, and accountability.”

“We are likewise optimistic that AIIB’s decision-making processes are geared towards making it a lean, clean, green institution run like a true multilateral.”

Full powers to sign the AOA on behalf of the Philippines were granted by Aquino to Purisima, or in his absence, Philippine Ambassador to the People’s Republic of China Erlina F. Basilio.

“The Philippines stands to gain from signing on as a Founding Member. We can look forward to deepening our country’s technical expertise in infrastructure as we expand bankable projects.

“Further, as the AIIB has no restriction on the procurement of goods and services from any country, we may foresee market expansion for infrastructure-related industries, widening job and business growth opportunities,” Purisima added.

The opening ceremony and inaugural meeting of the Board of Governors and the Board of Directors in Beijing will take place on the third week of January 2016. Members have until December 2016 to complete domestic ratification and other approval processes, as well as to pay the initial tranche of the corresponding paid-in capital.

 

It’s Business, Not Personal

 

Since President Xi Jinping launched the bank initiative in late 2013, the United States sees the AIIB as a lending rival that will reduce the leverage the Americans gets through domination of the World Bank.  Japan has kept out of AIIB for the same reason: it too will suffer erosion of its leverage as chief financier of the Asian Development Bank.

The new AIIB symbolizes China’s rise as a financial superpower, guiding the world’s biggest infrastructure financing institution. Whatever their reservations about China’s financial rise, most countries see it as a fact of life that cannot be stalled by staying out of the AIIB. They would rather be inside it, getting a share of the infrastructure orders that the AIIB will finance.

U.S. President Barack Obama says China has a hidden agenda to steer AIIB loans to meet their political or strategic considerations rather than economic and that the AIIB lower lending standards than existing multilateral institutions like the World Bank and Asian Development Bank, and undercut their effectiveness is just a bait. Japan echoes this sentiment.

The World Bank and ADB have always had the highest lending standards. But the U.S. as chief shareholder of the World Bank has always used it as a foreign policy tool and happily backed loans to Third World kleptocrats willing to toe U.S. foreign policy.

As chief shareholder of the ADB, Japan pushed their foreign policy as well.

But other donor countries, long used to playing second fiddle to the U.S. and Japan in these two institutions, are eager for change and just as willing to play second fiddle to China in the AIIB.

Like the Philippines, many countries are not worried about the AIIB’s lending standards, and have happily signed up. They acknowledge the emergence of China as a new financial power, and seek a slice of the economic action financed by that new power.

The Philippines has encountered controversies surrounding the infrastructure projects that were financed by China like the North Rail Project and the National Broadband Network. These high-profile Chinese-funded projects were eventually cancelled due to allegations of corruption and irregularities. These projects produced national embarrassment for the Philippines and painted a negative image for China.

Despite these concerns, the Philippines has signed up with the AIIB to finance its needed infrastructure projects such as dams, railways, highways, and electricity grids. The country’s decision to be one of the bank’s founding members demonstrates the Aquino government’s high priority for its economic development regardless of previous controversies in investment deals and current security issues with China.

The Asian Development Bank has estimated Philippine infrastructure financing needs from 2010 through 2020 to be at 127.12 billion U.S. dollars, requiring an annual investment of 11.56 billion U.S. dollars.

China’s President Xi Jinping assured the international community that the AIIB will follow multilateral rules and procedures and will adhere to “good practices” of existing international lending institutions.

In October 2014, the Asian Infrastructure Investment Bank (AIIB) was formally launched in Beijing. The Philippines, along with 20 other countries, signed the Memorandum of Understanding on the establishment of the AIIB as founding members.

The AIIB is the first Asian-based international bank to be independent from the Western-dominated Bretton Woods institutions, the International Monetary Fund (IMF) and the World Bank.

Founding members per today include the BRICS, half of the European Union, Denmark, Norway and all of the Asian bloc, ASEAN. The China-led Asian Infrastructure Investment Bank (AIIB) has officially approved 57 nations – China, India, Malaysia, United Kingdom, Indonesia, Singapore, Saudi Arabia, Brunei, Myanmar, the Philippines, Pakistan, Britain, Australia, Brazil, France, Germany and Spain, as well as prospective founding members, with Sweden, Israel, South Africa, Azerbaijan, Iceland, Portugal and Poland.

Asian Investment Infrastructure Bank Founding Members.
Asian Investment Infrastructure Bank Founding Members.

Founding members have priority over nations that sign up later because they will have the right to set the rules for the bank.

The 60-article agreement outlines the financial shares of each founding member as well as rules for policymaking, governance structure, and business and operational systems.

The agreement became effective once the parliaments of 17 members, who hold a combined 50.1 per cent stake in the bank, ratified the agreement.

President Benigno Aquino III also wants to join the 12-country Trans-Pacific Partnership (TPP), spearheaded by the US. Aquino sought President Barack Obama’s support on the Philippines’ bid to join during their bilateral meeting on November 18. TPP’s aim is to create the world’s largest free trade area comprising 40% of the global economy.

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