‘Don’t pre-judge China-led AIIB’: World Bank MD

World Bank MD Bertrand Badré visits a rural women's self-employment group in India AFP

The impending creation of the Chinese-led Asian Infrastructure Investment Bank (AIIB) has been applauded by World Bank managing director Betrand Badré, despite United States objections to the new development financing vehicle.

SwitzerlandExternal link is one of 56 countries to have expressed an interest in joining China as an AIIBExternal link founding member. Dubbed the ‘Chinese World Bank’ by the media, the AIIB aims to get off the ground by the end of the year once it has established a set of operating ground rules.

The US and Japan have so far snubbed the Beijing-based institution, doubting China’s ability to apply proper corporate governance. But the stand-off has been widely interpreted as a wider struggle for political influence in Asia.

In an interview with swissinfo.ch at the St Gallen Symposium, Badré said the AIIB could have a lot to offer and urged the US to “engage in discussions”. The 45^thSt Gallen SymposiumExternal link, organised by students at the University of St Gallen, gathered leaders from around the world to discuss global issues under the banner “Proudly Small”.

swissinfo.ch: Does the World Bank welcome the AIIB?

Betrand Badré: The World Bank does welcome the AIIB for a number of reasons. We have to be consistent with what we say. We are saying first of all that the needs are enormous, we say that we want to eradicate poverty [and] we say that there are up to $2 trillion of unmet infrastructure finance every year. We alone, or even with all our partners, cannot handle this, so additional resources are always welcome. We need to stimulate projects, and the more people you have focusing on projects and raising issues the better. So I think there is room for everybody.

swissinfo.ch: How closely will the World Bank and the AIIB cooperate?

B.B.: We don’t have an official contract, but we are working with them. China, just like the US in 1945, is trying to put together a system by which they are they dominant, but they [also] need to share.

The AIIB has 58 potential members. How do you organise that? That is a very practical question. The World Bank can help them because we have been doing this for more than 70 years.

swissinfo.ch: Is the US/Japan spat with China an unwelcome political diversion? 

B.B.: I am not a spokesperson for Japan or the US. I don’t think you can pre-judge what people are going to do. If we work together it is the best way to converge. If we ignore China they will do it on their own and we will have no control. I think it’s better to work together.

This is a critical moment for the US and they have to engage in discussions.

swissinfo.ch: Is it right therefore that so many other countries (56 including Switzerland) have been so quick to sign up alongside China as AIIB founding members?

The likes of Britain, Australia and France have said that they want to join to make sure it’s working properly. These shareholders will want it to be consistent with what they are doing in other places [such as the World Bank]. This is introducing multilateralism to an extent that perhaps China did not have in mind at the beginning. When you bring multilateralism, these countries will get a vote and express their views.

swissinfo.ch: Is there not a danger of the AIIB and World Bank treading on each other’s toes?

B.B.: This is a healthy competition for us. The very fact you have this new form of competition is incentive for us to do an even more and that helps our reform.

It will take a little bit of time for the AIIB to reach the same level of funding as the World Bank. It is not just money, it is expertise, the capacity to strike a deal, set and supervise a project and to make it work. It will take many years for AIIB to reach that level, so we have time to adjust ourselves.

swissinfo.ch: The AIIB will concentrate on infrastructure projects. Is this the right approach?

B.B.: Getting infrastructure up and running is absolutely necessary to solving the problem of eradicating poverty. You will not get there if you don’t have infrastructure. We need three types of infrastructure: social (mainly education), physical (transportation, energy, telecommunications etc) and financial infrastructure.

swissinfo.ch: Is it true that China set up the AIIB because it was frustrated at having so little say at the World Bank?

B.B.: Emerging economies have 48% of voting power at the World Bank [since reform in 2010], so it is not that unbalanced. Voting rights are not just based on the economic and GDP size of countries, the formula is more complex.

The World Bank is a development institution that works with grants. The truth is that, for the time being, the largest grants are being provided by Europe (and Switzerland is a big donor), the US, Japan and Australia and less so by China and others.

There is a frustration by the BRICS [Brazil, Russia, India, China and South Africa] about IMF voting reform being stalled by the US Congress. That is the real irritant. That is where tensions are at a maximum.

The second element [of the AIIB’s formation] was real need for infrastructure development in Asia and the central role of China in the region. You don’t do something like this [form the AIIB] just to prove that the Bretton Woods institutions are wrong. There is more to it than that.

The Asian Infrastructure Investment Bank

The AIIB got off the ground in October last year when 21 Asian countries, including main sponsor China, signed a memorandum of understanding to set up the project. China initially pledged $50 billion to the AIIB’s central fund and later promised to increase this pot to $100 billion. It will focus on funding a range of infrastructure projects in the region, including energy, power, transport, communication, water and sanitation.

On March 20, 2015, Switzerland announced it had formally applied to become one of 57 founder members of the AIIB. The government statement said that a final decision will be taken on Swiss membership once the AIIB’s articles of association have been approved later this year.

The World Bank

The International Bank for Reconstruction and Development (now known as the World Bank) was set up, alongside the International Monetary Fund, by the 1944 Bretton Woods conference. The initial purpose of both institutions was to stimulate rebuilding in countries ravaged by WWII. It currently has two stated goals: to erase extreme poverty (reducing the percentage of people earning less than $1.25 a day to 3% by 2030) and boosting income for the bottom 40% in every country. Last year it pledged more than $40 billion to help fund various projects around the world.

The Washington-based World Bank has 10,000 staff based in 120 countries worldwide. The US has the largest vote and is the only member country to have the power of veto over changes to the way the institution operates. Switzerland joined the World Bank in 1992.