Asian Infrastructure Investment bank uPSC

asian infrastructure investment bank upsc

If you aspire to become an IAS officer, you should know about the Asian Infrastructure Investment Bank (AIIB).

This institution aims to foster sustainable economic development, build regional wealth, and promote regional cooperation and partnership to address regional development challenges. The Asian Infrastructure Investment Bank (AIIB) is a new financial institution that was first proposed by Chinese leader Xi Jinping during the APEC summit in Bali in 2013. Many observers saw this bank as a direct challenge to the international lending institutions and saw it as a matter of American foreign policy.

This article on the topic of Asian infrastructure investment bank UPSC will be beneficial for UPSC Preparation. Here we look at the AIIB and its role in the world economy. You’ll find out why it’s important for India to join.

Apart from being an important topic for the UPSC CSE, the Asian infrastructure investment bank is also a key partner of several multilateral development institutions and improving the lives of billions.

What Is The Asian Infrastructure Investment Bank?

The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank whose mission is to improve Asia’s social and economic outcomes. It is established by the AIIB Articles of Agreement, which became effective on December 25, 2015. The Bank’s membership is made up of the parties to the agreement (57 founding members). Its headquarters are in Beijing, and it began operations in January 2016.

The Bank’s membership has now grown to 103 approved members worldwide representing 65% of Global GDP and 79% of the global population. AIIB members include France, Germany, Italy, and the United Kingdom, among other G-20 nations.

Investing in sustainable infrastructure and other productive sectors in Asia and beyond, AIIB aims to better connect people, services, and markets, affecting the lives of billions and laying the groundwork for a better future.

Objectives Of AIIB

  1. Investing in infrastructure and other productive sectors to promote long-term economic development, wealth creation, and elevate infrastructure connectivity in Asia.
  2. Fostering regional partnership and cooperation to address developmental challenges by collaborating with other bilateral and multilateral development organizations.
  3. Increasing private and public capital investment for development purposes.
  4. Using the resources at its disposal to fund regional development, including projects that will contribute to the region’s balanced economic growth.
  5. Promoting private investment in enterprises, activities, and projects that contribute to regional economic development where private capital is unavailable.

Governance Of AIIB

Board of Governors:

  1. Each member country appoints one Governor and one Alternate Governor to the Board of Governors.
    • Governors and Alternate Governors are appointed by a member and serve at the pleasure of that member. The Board of Governors has complete authority over the AIIB.
  2. The Board of Governors may delegate any or all of its powers to the Board of Directors, except:
    • The power to admit new members and determine their admission conditions
    • Authority to increase or decrease the Bank’s authorized capital stock.
    • Electing the Bank’s Directors and setting the expenses and remuneration for Directors and Alternate Directors.
    • The power to elect the President, suspend or remove him from office, and set his remuneration and other working conditions.
    • After reviewing the auditors’ report, approve the Bank’s general balance sheet and profit and loss statement.
    • modifying the ‘AIIB Articles of Agreement.’
  3. Annual Meetings of the Asian Infrastructure Investment Bank:
    • In 2016, the AIIB Board of Governors met for the first time in Beijing, China.
    • The second took place in Jeju, Korea in 2017, and the third in Mumbai, India in 2018.
    • The AIIB’s first Annual Meeting outside of Asia was held in Luxembourg on July 12-13, 2019.
    • 2020 saw the first annual meeting to be held Virtually. In this meeting of stakeholders and experts steps towards building a more resilient and inclusive tomorrow were discussed.
    • On October 26-28, 2021, the United Arab Emirates hosted the Sixth Annual Meeting of the Board of Governors via electronic means.

Capital And Shareholding Of AIIB

  1. The AIIB’s initial total capital is USD 100 billion, which is divided into 1 million shares of $100,000 each, with 20% paid-in and 80% callable.
  2. China is the Bank’s largest contributor, with USD 50 billion, or half of the initial subscribed capital.
  3. India is the second-largest shareholder, with USD 8.4 billion in contributions.

Voting Rights

  1. China is the largest shareholder in the bank, holding 26.61 percent of voting shares, followed by India (7.6 percent), Russia (6.01 percent), and Germany (4.2 percent).
  2. Regional members control 75% of the Bank’s total voting power.

Various Organs Of AIIB

The Asian Infrastructure Investment Bank’s composition is as follows:

The Board Of Directors

  1. The Board of Directors consists of twelve members, nine of whom are elected by the Governors to represent regional members and three of whom are elected by the Governors to represent non-regional members. These twelve members shall not include any members of the Board of Governors.
  2. These Directors must be well-versed in finance and economics.
  3. The primary function of the Board of Directors is to carry out all of the powers vested in them by the Governors.
  4. They are also in charge of the general bank operations, as well as the annual strategy and budget.

Senior Management

  1. The AIIB shareholders elect a President for a five-year term. The President is in charge of the AIIB’s staff.
  2. A Vice President is appointed to assist the President and carry out important Bank decisions.
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International Advisory Panel

  1. The President and Senior Management are also assisted by an International Advisory Panel (IAP) established by AIIB. The President appoints each member of IAP for a two-year term.
  2. This Panel attends the annual AIIB meeting and also meets annually at the AIIB headquarters in Beijing.

Overall, AIIB members are divided into two categories: regional and non-regional members, and membership is open to all World Bank and Asian Development Bank members. Unlike other MDBs (multilateral development banks), the AIIB accepts applications from non-sovereign entities if their home country is a member.

Accomplishments Of AIIB

  1. Rapid Global Membership Growth: The AIIB began operations in 2016 with 57 founding Members (37 regional and 20 non-regional). It had 103 approved Members by the end of 2020.
  2. Highest Credit Ratings: Since 2017, AIIB has received AAA ratings with a stable outlook from the top credit rating agencies, including Standard & Poor’s, Moody’s, and Fitch.
    • Because of the industry’s recognition of its strong financial standing, it has been able to expand its presence in international capital markets.
  3. Permanent Observer Status in the United Nations: In 2018, AIIB was granted Permanent Observer status in the United Nations General Assembly and the Economic and Social Council, the global body’s two development-focused principal organs.
  4. Enhancing Efficiency and Accountability through Governance: AIIB has created an effective environment for its Board of Directors to take a strategic approach to direct and oversee the work of accountable management.
    • The Accountability Framework of the Bank is an innovative governance model that positions AIIB to embed an accountability culture throughout the organization.
  5. Policies and strategies have been developed or finalized for all major infrastructure sectors, as well as for investing in equity, mobilizing private capital, and financing operations in non-regional members.

What Is The Relationship Between India And The AIIB?

  1. The AIIB has approved the most loans for India of any member of the bank.
  2. China is the company’s largest shareholder, with India coming in second.
  3. The AIIB has invested USD6.7 billion in 28 projects in India.
  4. It has recently prioritized green projects and public health initiatives during the Covid-19 pandemic, in addition to infrastructure.
  5. Under the ADB’s Asia Pacific Vaccine Access Facility (APVAX) initiative, India applied for loans from the AIIB and Asian Development Bank (ADB) in October 2021 to purchase 667 million doses of Covid-19 vaccines. The AIIB approved USD500 million.
  6. The AIIB also approved a USD356.67 million loan to the Indian government in 2021 to support the expansion of the Chennai metro rail system.

Objections Against AIIB

Some of the world’s most powerful economies, including the United States and Japan, are not members of the bank. The United States opposes the bank because it sees it as an unwelcome intrusion into the multilateral financial system. There is a perception that a bank is a tool for the Chinese government’s expansionist agenda. There is also a widespread belief, echoed by AIIB’s non-resident board, that the Chinese government can exert tight control over the bank’s operations.

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Conclusion

The AIIB may carve out its own niche by contributing to long-term economic growth that raises the living standards of millions of poor people in Asia and other parts of the world.

The AIIB is still in its developing phase, and it must be nurtured with democratic values to avoid single-country leadership (Chinese dominance).

India, as an emerging economy, has the potential to shape the AIIB’s basis for the benefit of underprivileged people in developing countries.

FAQs On Asian Infrastructure Investment Bank UPSC

What Are Paid-Up Capital And Callable Capital?

  1. Paid-Up Share Capital: This is the amount of money that investors have already paid in exchange for stock shares.
  2. Called-Up Share Capital: Some businesses may issue shares to investors with the expectation that they will be paid later.
    • This allows for more flexible investment terms and may entice investors to contribute more share capital than they would if funds had to be provided upfront.

What Are The Differences Between AIIB And MDBs Governance Structures?

The AIIB has a governance structure similar to other MDBs (multilateral development banks), with two key differences:

  1. It does not have a resident board of executive directors that represents the interests of member countries on a daily basis.
  2. The AIIB delegated more decision-making authority to regional countries and its largest shareholder, China.
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