1 2 Asian Infrastructure Investment Bank and the New Development Bank: Paradigm Shift or Rehashing Corporate-Led Development? Published by The Reality of Aid – Asia Pacific CSO Partnership for Development Effectiveness Asia 3/F IBON Center 114 Timog Avenue Quezon City 1103 Philippines This research would not have been possible without the contributions from members of The Reality of Aid - Asia Pacific and CSO Partnership for Development Effectiveness Asia, particularly Farida Abdyldaeva (Public Association “The Right Step”), Jiten Yumnam (Center for Research and Advocacy – Manipur), Kurniawan Sabar (Institute for National and Democracy Studies), and Jennifer Guste (Council for People’s Development and Governance). Gratitude is also extended to IBON International for its utmost support and guidance. Managing Editor: Sarah Isabelle Torres Introduction: Ivanka Custodio Layout and Cover Design: Marlon Julian Nombrado Cover Photo: Shivendu Shukla on Unsplash The Reality of Aid – Asia Pacific CSO Partnership for Development Effectiveness Asia Phone: +632 927 7060 to 62 loc 201 Telefax: +632 927 6981 Website: www.realityofaid.org March 2020 This publication has been produced with the financial assistance of the European Commission and the Swedish International Development Cooperation Agency. The contents of this publication are the sole responsibility of RoA-AP and CPDE Asia, and can under no circum- stances be regarded as reflecting the position of aforementioned donors. This book may be reproduced in whole or in part with proper acknowledgement to RoA-AP and CPDE Asia. 3 ASIAN INFRASTRUCTURE INVESTMENT BANK and the NEW DEVELOPMENT BANK Paradigm Shift or Rehashing Corporate-Led Development? 4 TABLE OF CONTENTS I. Introduction 5 II. Opportunities and Threats in Central Asia 18 Farida Abdyldaeva, Public Association “The Right Step” III. Financing Concerns on the Operations 26 of AIIB and NDB in South Asia Jiten Yumnam, Center for Research and Advocacy – Manipur IV. AIIB Financial Support for Indonesia’s 40 Mandalika SEZ Deprives People’s Rights Kurniawan Sabar, Institute for National and Democracy Studies V. China lending in the Philippines, 50 No Strings Attached? Jennifer Guste, Council for People’s Development and Governance 5 INTRODUCTION Asian Infrastructure Investment Bank and the New Development Bank: Paradigm Shift or Rehashing Corporate-Led Development? The Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB) have touted themselves as the much-needed alternatives to the Western-dominated traditional international finance institutions like the World Bank and International Monetary Fund. The two new banks entered the development financing landscape to much fanfare with their mandate of catering to the development needs of the South, particularly in building sustainable infrastructure. Five years into their operation, how do they fare in relation to commitments on sustainable development, development cooperation, and people’s rights in Asia-Pacific? 6 The AIIB and NDB are two new players in the in infrastructure development that needs multilateral development game that were to be urgently filled. An estimated USD 3.2 birthed by countries in the Global South. trillion infrastructure investment is required The impetus for their creation was a growing per year2, and even with infrastructure discontent and frustration against traditional spending of older IFIs combined, there International Finance Institutions (IFIs) such still remains a huge gap. Some emerging as the US-led International Monetary Fund economies have already moved to contribute (IMF) and World Bank Group (WBG) and the in filling this “financing gap” through bilateral Japan-led Asian Development Bank (ADB). development financing cooperation with other developing countries. For China, at whose drive the AIIB was established, and the BRICS (Brazil, Russia, However, for marginalized and vulnerable India, China and South Africa), who communities in the Asia-Pacific region, the established the NDB, the frustration is due to discontent is rooted in a more fundamental the dominance of the Global North in both the issue: these IFIs’ promotion of the leadership and decision-making processes of neoliberal agenda and the corporatization of traditional IFIs. development has led to the dispossession of Indigenous Peoples of their ancestral lands, The United States has maintained its militarization of communities by government dominance on the World Bank, Europeans and private entities, environmental have monopoly over the presidency in the degradation brought by destructive industries, IMF, and Japan has been the leader of ADB and forced displacement of rural and urban since the time of its founding. poor families are among the concrete impacts that push communities to further oppression The decision-making process is also stacked and abject poverty. against the Global South as the allocation of voting shares in these institutions are not In this context, the establishment of AIIB proportionate to the countries’ contribution to and NDB, led by emerging economies, raised the global gross domestic product (GDP). In hopes for higher standards for sustainable de- the IMF, for instance, only 10.3% of the votes velopment and easier terms for loans that are are given to the BRICS despite accounting for accessible to countries in the Global South. a quarter of global economic output between them, while China, despite being the world’s The AIIB is a multilateral bank established in second largest economy, individually has less 2015 whose mission is to “improve social and voting shares than Japan, Germany, France, economic outcomes in Asia and beyond”. A and the United Kingdom (UK)1. self-professed “lean, clean and green” bank, AIIB is focused on financing sustainable Similarly, traditional IFIs are believed to fall infrastructure development in Asia, and, to a short in addressing the need for infrastructure limited extent for now, in other parts of the development in the Global South. As the globe. Apart from sustainable infrastructure, narrative goes, there exists a financing gap AIIB’s thematic priorities include cross-bor- 1 Kasahara, S. 2017. “The New Development Bank (NDB) vs The Asian Infrastructure Investment Bank: An Analytical Compari- son from a Critical Perspective”. In Conference Paper (No. 19). 2 McKinsey. 2013. “Infrastructure Productivity: How to Save $1 Trillion a Year”. https://www.mckinsey.com/~/media/McKinsey/ Industries/Capital%20Projects%20and%20Infrastructure/Our%20Insights/Infrastructure%20productivity/MGI%20Infra- structure_Executive%20summary_Jan%202013.ashx 3 Asian Infrastructure Investment Bank (AIIB). 2015. “50 Countries Sign the Articles of Agreement for the Asian Infrastructure Bank”. https://www.aiib.org/en/news-events/ news/2015/2015 0629_001.html 4 Saldinger, A. 2019. “What’s New with the Asian Infrastructure Investment Bank?”. Devex. https://www.devex.com/news/ what-s-new-with-the-asian-infrastructure-investment-bank-95885 5 New Development Bank (NDB). 2017. “NDB’s General Strategy”. https://www.ndb.int/wp-content/uploads/2017/07/ NDB-Strategy-Final.pdf 7 der connectivity and private capital mobiliza- need to “create a fairer world order” and how tion. As of July 2019, it has a membership of the cooperation among the countries can be one hundred (100): forty-four (44) Regional strengthened. South Africa joined a year later. (Asian), thirty-one (31) Non-Regional, and twenty-five (25) Prospective Members. Among the unities of the BRICS countries were the need to improve the global econo- China was the brains and the (political) mic situation through the establishment of muscle behind the establishment of the AIIB. a new global reserve currency and to reform China’s President Xi Jinping first pitched the Western-dominated financial institutions. creation of the AIIB during the Asia-Pacific Economic Cooperation Summit held in Bali, The seeds of what would later become the Indonesia in October 2013. New Development Bank were first sown when India proposed the bank’s creation With strong push from China, the proposal during the BRICS Summit in 2012. The quickly gained traction in the region and in succeeding Summits in 2013 and 2014 were 2014, twenty-one (21) Asian countries signed devoted to concretizing the idea, and in the a Memorandum of Understanding (MoU) on 7th BRICS Summit in 2015, the NDB was the establishment of the AIIB. Non-Asian formally established with the Agreement on members soon made announcements to join the NDB entering into force. The NDB became the AIIB – including the UK, Australia, France, fully operational upon the signing of the Germany and Spain – despite the United Headquarters Agreement with the Chinese States’ attempts to persuade its allies to shun Central Government and the Memorandum the new bank, and by the time the deadline of Understanding with the Shanghai Municipal for countries to express intent to be among Government (as the host city) in February the “Prospective Founding Members” (PFMs) 2016. on March 31, 2015, fifty (57) regional and non-regional countries were already on board. By and For the Developing World?: A Look into the Governance and Power Structures The PFMs signed the Articles for Agreement in the AIIB and the NDB on 29 June 20153, and on December 25, 2015, the AIIB became fully operational The creation of the AIIB and the NDB held when the Articles for Agreement entered into much promise and hope on breaking the force after a sufficient number of members hegemony of traditional