AIIB must find balance between high standards and offering cost-effective services

By Hu Weijia Source:Global Times Published: 2016-5-4 23:38:01

How does China plan to run the Asian Infrastructure Investment Bank (AIIB)? Some people were asking this question as the newly established bank reported its first co-financed project in Pakistan earlier this week.

The AIIB announced it would jointly finance a major new highway in Pakistan with the Asian Development Bank (ADB). The $273 million program is among the first batch of projects to be financed by the AIIB, which was launched at the beginning of this year with the support of numerous countries despite concerns expressed by the US.

"Will it adhere to the high standards that international financial institutions have developed? Will it protect the rights of workers and the environment?" US Treasury Secretary Jacob Lew was quoted by media reports as saying last year.

It seems the time has come to answer those questions. The AIIB said on its website that the Pakistan project is classified as category A for both the environment and involuntary resettlement by the ADB according to its Safeguard policy, which is also consistent with the AIIB's Environmental and Social Framework.

Issues regarding environmental damage and involuntary resettlement are delicate matters that have long beset multilateral development banks, because they are always the main areas of complaint and protest from local communities, and can result in suspension of the projects.

In this regard, we are pleased to see that the newly established AIIB does not need to lower its standards to run its business in a cost-effective way. Some experts have mentioned the need for the bank to explore a brand-new path of offering cost-effective financing services for developing countries, so the question of how to guarantee the quality of AIIB investment projects while also ensuring operational efficiency has long been viewed as the primary challenge for the AIIB.

Although the AIIB has showed its capability to deal with the problem in its first co-financing project, there is still a long way to go and some challenges remain for the new lender. To some extent, the AIIB got a free ride in some areas with its Pakistan project such as working out the environmental management plan, given that an environmental impact assessment for the project had been prepared and approved by the ADB and the local government back in 2007. Therefore, the newly established bank may encounter more challenges when it begins to run projects independently.

Working with some mature multilateral institutions on co-financing projects, the AIIB can learn how to adhere to the highest standards, such as drawing up strict land acquisition and resettlement plans through consultation with local communities and information disclosure. But what is more important for the new bank is to differentiate itself from other lenders and explore a more effective way to finance infrastructure projects in developing countries. This prospect will build anticipation to see the operational mode for the AIIB's first independently financed project.

The author is a reporter with the Global Times.

Posted in: Expert assessment, Eye on The Economy

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