By Tristram Sainsbury Source: the interpreter Published: 2016-4-28
`Only one of these institutions sounds like a new bank`. That was the conclusion of one attendee at the Think20 Conference in Shanghai in February after a session featuring four international financial institutions: the Asian Infrastructure Investment Bank (AIIB), the New Development Bank BRICS (NDB), the Asian Development Bank, and the OECD.
The first loans from the BRICS NDB will fund solar projects (Photo courtesy Flick user minoru karamatsu)
What made the remark noteworthy was that the speaker wasn`t referring to the AIIB. He was talking about the NDB.
Given how the creation of the two new institutions came so close together — as SIIS and Lowy Institute nonresident fellow Ye Yu has noted, progress on the NDB helped inspire the AIIB — comparisons are hard to resist. To date, the AIIB that has captured the lion`s share of headlines and geopolitical discussion. So no doubt remarks such as that made at the February conference would be music to the ears of NDB management.
Both institutions are entering the next phase of their operations and are expected to announce their first projects by June.
The head of the AIIB, Jin Liqun, talks about being part of the Multilateral Development Bank family, working with other countries, and to international practice, and has drawn heavily on the expertise of recently-retired employees of established Bretton Woods institutions. The AIIB also has hectares of Beijing real estate that may eventually house some 6000 staff (about double the ADB`s current staffing); a testament to a vision marked in centuries.
In contrast, the Shanghai-based NDB is eager to promote itself as an independent friend, rather than a member of the family. Philosophically, it wants to be smaller, faster and more agile, with shorter (six months) loan approval processes and lighter procedures. It will leave environmental and social safeguards to projects` host jurisdictions (at this stage, this means BRICS countries).
It has prioritised memorandum of understandings with private banks, and aims to bring in bright young talent from BRICS countries. It is in recruitment mode but does not see itself as a `knowledge bank`. It eschews a staff-heavy approach and will supplement research teams for its five executive directors through partnerships with advanced economies and academic institutions.
It`s instructive to look at the type of projects being discussed at the two institutions. Solar projects are the subject of the first tranche of loans for the NDB; one each in China, Brazil, India and South Africa, with Russian projects still in the appraisal stage.
This is an interesting contrast with the three rumored road projects that have grabbed the headlines for the `lean, clean and green` AIIB. That said, this is by no means the end of the story for AIIB projects; for example, the World Bank and the AIIB are discussing nearly a dozen co-financed projects in transport, water and energy sectors in Asia.
The scale of ambition seems to be very different between the two institutions. AIIB financing of US$1billion -$2 billion in 2016 should scale up to US$10 billion in 2018. And the membership base, currently 57 countries, has the potential to increase to 100.
The NDB`s capital base appears more constrained, with the initial $10 billion of paid-in capital (the Bank has $50 billion of subscribed capital and $100 billion of authorised capital split evenly among its members) to be contributed over seven installments (and over seven years). And despite occasional calls for additions such as Greece, new NDB members are unlikely, at least in the near term. Making the most of its balance sheet will therefore be a necessity if the NDB is to be relevant.
When I attended the launch of the NDB in Shanghai a year ago, I was struck by the optimism of this policy experiment. This optimism was still there when it officially `opened for business` last month. We still don`t know how particular governments will want to intervene in bank activities, or how they would react to mistakes. With this in mind, starting small with discrete projects is sensible, as is the rhetoric of being independent from the influence of individual nations.
The AIIB seems destined to become a rock and to retain its long-term vision, one that enshrines a defining leadership role for China in a substantive multilateral institution. But it is the NDB that may end up providing enduring lessons for the multilateral development banking.
The author is a visiting fellow at Chongyang Institute for Financial Studies, Renmin University of China.