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U.S. urges allies to think twice before joining China-led bank
March 17, 2015 / 12:23 AM / 3 years ago

U.S. urges allies to think twice before joining China-led bank

BERLIN/WASHINGTON (Reuters) - The United States urged countries on Tuesday to think twice about signing up to a new China-led Asian development bank that Washington sees as a rival to the World Bank, after Germany, France and Italy followed Britain in saying they would join.

The concerted move by U.S. allies to participate in Beijing’s flagship economic outreach project is a diplomatic blow to the United States and its efforts to counter the fast-growing economic and diplomatic influence of China.

Europe’s participation reflects the eagerness to partner with China’s economy, the world’s second largest, and comes amid prickly trade negotiations between Brussels and Washington.

European Union and Asian governments are frustrated that the U.S. Congress has held up a reform of voting rights in the International Monetary Fund that would give China and other emerging powers more say in global economic governance.

Washington insists it has not actively discouraged countries from joining the new bank, but it has questioned whether the Asian Infrastructure Investment Bank (AIIB) will have sufficient standards of governance and environmental and social safeguards.

“I hope before the final commitments are made anyone who lends their name to this organization will make sure that the governance is appropriate,” Treasury Secretary Jack Lew told U.S. lawmakers.

Lew warned the Republican-dominated Congress that China and other rising powers were challenging American leadership in global financial institutions, and he urged lawmakers to swiftly ratify stalled reform of the IMF.

German Finance Minister Wolfgang Schaeuble announced at a joint news conference with visiting Chinese Vice Premier Ma Kai that Germany, Europe’s biggest economy and a major trade partner of Beijing, would be a founding member of the AIIB.

In a joint statement, the foreign and finance ministers of Germany, France and Italy said they would work to ensure the new institution “follows the best standards and practices in terms of governance, safeguards, debt and procurement policies.”

Luxembourg’s Finance Ministry confirmed the country, a big financial centre, has also applied to be a founding member of the $50 billion AIIB.

The AIIB was launched in Beijing last year to spur investment in Asia in transportation, energy, telecommunications and other infrastructure. It was seen as a rival to the Western-dominated World Bank and the Asian Development Bank. China has said it will use the best practices of those institutions.

A spokeswoman for the European Commission, the EU’s executive arm, endorsed member states’ participation in the AIIB as a way of tackling global investment needs and as an opportunity for EU companies.

The World Bank is traditionally run by a U.S. nominee and Washington also has the most influence at the IMF.

The adjustment of shares and voting rights in the IMF was brokered by Britain at a Group of 20 summit in 2010, and European countries ratified it long ago.

Lew told lawmakers that the U.S. delay in ratifying the agreement was undermining its credibility and influence as countries question the United States’ commitment to international institutions.

“It’s not an accident that emerging economies are looking at other places because they are frustrated that, frankly, the United States has stalled a very mild and reasonable set of reforms in the IMF,” Lew said.

German Finance Minister Wolfgang Schaeuble (R) and China's Vice Premier Ma Kai attend a joint news conference in Berlin, March 17, 2015. Schaeuble said on Tuesday that Germany is going to be a founding member of a new international development bank backed by China along with other European countries. REUTERS/Axel Schmidt

The reforms would double the fund’s resources and hand more IMF voting power to countries such as the BRICS - Brazil, Russia, India, China and South Africa.

Some Republicans have complained the changes would cost too much at a time Washington is running big budget deficits. The reforms have also ran afoul of a growing isolationist trend among the party’s influential Tea Party wing.

“HIGH WATERMARK”

China said earlier this year a total of 26 countries had been included as AIIB founder members, mostly from Asia and the Middle East. It plans to finalise the articles of agreement by the end of the year.

China’s state-owned Xinhua news agency said South Korea and Switzerland were also considering joining.

Slideshow (2 Images)

Chinese Foreign Ministry spokesman Hong Lei would not comment on which countries had applied, and repeated that the bank would be “open, inclusive, transparent and responsible.”

Washington says it sees a role for the IAAB given Asia’s immense infrastructure needs and regards it as a potential partner for established institutions like the ADB.

But its strategy of questioning the IAAB’s standards has drawn criticism from some observers, who say the administration should have been more accepting of the new bank or offered alternatives within the existing institutions.

“If you try to fight the rising power’s peaceful ascent you sow big problems in the future,” said Fred Bergsten, a former top international affairs official at the U.S. Treasury and currently a fellow at the Peterson Institute in Washington.

Scott Morris, a former U.S. Treasury official who led U.S. engagement with the multilateral development banks during the first Obama administration, said Washington was paying the price for delay on IMF reform.

“It’s a clear sentiment among a pretty diverse group of countries: We would like to mobilize more capital for infrastructure through MDBs (multilateral development banks),” said Morris, now with the Washington-based Center for Global Development.

”And the U.S. stands in the way of that and now finds itself increasingly isolated as a result.”

A government official in India, which also has joined, said the members of the AIIB would meet in Almaty, Kazakhstan, on March 29-31 to discuss the articles of agreement.

China has said March 31 is the deadline for accepting founder-members into the organization.

Japan, Australia and South Korea remain notable regional absentees from the AIIB. Australian Prime Minister Tony Abbott said at the weekend he would make a final decision on membership soon. South Korea has said it is still in discussions with China and other countries about possible participation.

Japan is unlikely to join the AIIB, but ADB head Takehiko Nakao told the Nikkei Asian Review that the two institutions were in discussions and could work together.

Additional reporting by David Brunnstrom, Anna Yukhananov, and Douwe Miedema in Washington; Yann Le Guernigou and Marine Pennetier in Paris; Erik Kirschbaum in Berlin; James Mackenzie in Rome; Ju-min Park in Seoul; Michael Martina and Ben Blanchard in Beijing; Manoj Kumar in Delhi; and Leika Kihara in Tokyo; Writing by Paul Taylor and Stuart Grudgings; Editing by Gareth Jones and Leslie Adler

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