The ‘Lean, Clean And Green’ AIIB Is Ready For More Ambitious, Independent Projects

The Asian Infrastructure Investment Bank (AIIB) has been operating for eighteen months, and, contrary to the fears of some Western analysts, the bank has tightly controlled risks, engaging in projects that are sensitive to local politics, social conditions, and the environment. While the AIIB has mainly been working closely with other multilateral development banks, the AIIB is poised to take on further projects on its own.

So far, so good

The AIIB has so far embarked upon infrastructure projects in Azerbaijan, India, Pakistan, Myanmar, Tajikistan, Georgia, Indonesia, Oman, and Bangladesh. All of these involved close cooperation with multilateral development banks, including the World Bank, Asian Development Bank, and the European Bank for Reconstruction and Development, except for a project in Myanmar launched in September 2016 and a project just launched this past June in Gujarat, India. Projects aim to construct infrastructure such as roads, natural gas pipelines and infrastructure, hydropower stations, ports, railways, and power plants and distribution systems. These projects have all been viewed as sound investments by stakeholders.

The AIIB’s operations have been so successful in this period, in fact, that Moody’s assigned the development bank a Triple-A credit rating last week after closely examining the development bank’s procedures. According to Moody’s, “The AAA rating takes into account the strength of AIIB’s governance frameworks, including its policies on risk management, capital adequacy and liquidity….We expect AIIB’s liquidity position to be as strong as that of other highly rated multilateral development banks (MDBs).”

What is more, although at its inception, some experts had expressed concern that the AIIB would become a tool of the Chinese government, this fear has not manifested itself in reality. This can be attributed in part to the close adherence to institutional principles, but also to the structure of the bank’s management. The AIIB is run by a Board of Governors and a Board of Directors, as well as senior management members and an international advisory panel. The Board of Governors come from eighty member countries, while the Board of Directors is made up of twelve representatives and alternates from world regions. The multilateral nature of these governing bodies, coupled with the experience of senior management and international advisors, has ensured that the AIIB maintains a solid reputation for fairness in project selection and implementation.

Going it alone

The AIIB is expected to maintain its strong track record of carrying out sufficient due diligence, controlling for risks, and holding substantial capital going forward. While those components of AIIB operations will not change, the infrastructure bank is beginning take on more standalone projects. Speaking on this matter, Laurel Ostfield, Head of Communication and Development at the AIIB, stated that “the intention was always to be able to do our own standalone projects.” Working closely with other development banks in the first months of operation has, in fact, helped to provide a solid foundation of experience for AIIB employees without development bank experience, and now the AIIB is ready to move forward.

Ostfield went on to say that the AIIB would take on more projects by itself, or in a leadership position with other development banks, and that the multilateral nature of the AIIB would help to negate some of the potential economic, social, and political risks. She noted that all projects will be assessed individually for risks, including those in higher risk countries.

Ms. Ostfield also stated that larger projects would require funding from various sources; in these cases, funding might come from other development banks, governments, and the private sector. “The fact of the matter is that the infrastructure gap ranges in the trillions of dollars and so it needs everybody to come to the table.”

Moving forward

The AIIB held its second annual meeting in Jeju, South Korea this past June, where AIIB President Jin Liqun stated, “the Bank has an important role to play as a facilitator and supporter of the Paris Agreement , and we thus place great emphasis on helping our members transition towards a low-carbon future.” Jin called the AIIB’s operational practices “lean, clean and green,” as in, responsive to infrastructure needs, committed to good governance, and dedicated to sustainable development practices.

Going forward, we can not only expect the AIIB to invest in more standalone projects, but also to issue bonds, particularly given Moody’s high rating. According to Soren Elbech, Treasurer of the AIIB, this could happen within a few months. Given the success of the bank so far, these are likely to be in high demand.

 

Source: The Forbes

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