On Monday 29th June, 50 countries including Pakistan signed the Articles of Agreement (AOA) for the formal launch of Chinese-led Asian Infrastructure Investment Bank (AIIB) at an impressive ceremony held at Beijing, which determined each member’s share in the proposed capital and the Bank’s initial Capital. The AIIB will begin with an authorized capital of $50 billion, eventually to be enhanced to $100 billion. The signatories apart from Asian and Latin American nations included UK, Germany and Australia who opted to join the new financial institution despite US opposition to its launch. Seven members are expected to sign by the end of the year when the Bank is set to start its operations. The establishment of the Bank conceived by China became a reality when 21 Asian countries formally signed the MOU for setting up of the Bank on 20th October 2014. Pakistan has been actively associated with the member countries in consultations at all levels to draw up Articles for Agreement since the signing of the MOU.

Finance Minister Ishaq Dar who represented Pakistan at the signing ceremony, dilating on the significance of the AIIB said, ”We believe that the bank will be an important platform to convert the abundant savings available in the region into investment, to help regional economies achieve sustainable and rapid development and thereby contribute to the world economy. Pakistan hopes to draw financial support for communication and energy infrastructure projects including projects for construction of roads, dams and power generation”. It is indeed hard to disagree with what he has said.

The AIIB as per IMF objectives to promote international economic cooperation, international trade, exchange rate stability and to meet balance of payments needs of the member states, aims at providing finances to the member countries for the development of necessary infrastructure which is considered a vital ingredient for nudging the process of sustained economic growth in the developing countries. It would provide finances to the member countries on less stringent conditions than the IMF and also create a healthy competition among the lending institutions to the benefit of the borrowing countries. China is inclined to make the lending process hassle free, to ensure that the borrowing countries do not have to jump through hoops to get their money.

The US virtually enjoys a veto in the major decisions and policies of the existing international lending institutions by being a major contributor, especially the IMF. Thus, the policies framed by these agencies are heavily tilted towards serving the interests of the developed nations and geared to strengthening the existing global economic order. They lack recognition of the cultural sensitivities and moorings of the borrowing nations. The US and its allies view the establishment of AIIB as a threat to the existing international financial institutions. They fear that the establishment of AIIB would relax their hold on the economies of the developing countries of Asia and also undercut the international institutions like the World Bank, IMF and ADB by relaxing fiscal discipline and good governance. US reportedly also used its influence with Australia and few other countries of the region to stay away from venture. The US fails to acknowledge the fact that the Chinese President on the eve of signing of MOU in October 2014 stated in unequivocal terms that the new bank would use the best practices of the World Bank and ADB and other existing multilateral development institutions.

The AIIB would surely enhance the international stature of China. The US is also worried about any move by China to shift world attention from the existing lending institutions as both are engaged in a fierce competition for pre-eminence in Asia. Some circles believe that the establishment of AIIB was China’s reaction to being continuously relegated to second class status at the existing institutions. China also is supporting another alternative institution, the New Development Bank sponsored by BRICS countries. The idea being that if US and its allies would not make room for China at the table then Beijing could take its own initiative.

The IMF loans have political repercussions as they are given on very stringent conditions that almost dictate the borrowing countries as to the policies initiatives it should take to improve the health of the economy. It is more discernible in Pakistan where the IMF is insisting on enhancement in the prices of electricity and gas, phasing out subsidies and increase in regressive sales tax which the government finds very unpalatable in view of its political fall out because they directly affect the poor masses. Pakistan is currently spending a big chunk of its budget on debt servicing.

The establishment of AIIB is indeed a very imaginative and prudent move on part of China and member countries. China’s phenomenal rise as an economic power has generated excessive savings which can be productively employed for the benefit of all the countries of the region. The move also has the potential of building strong economic linkages and creation of a regional economic fraternity contributing to the health of the regional economies as well as the global economy.

Pakistan will greatly benefit from the establishment of AIIB as it desperately needs resources to build necessary infrastructure to revive its economy as well as to kick-start a process of sustained economic development. It also needs enormous resources to tide over the energy crisis in the country and ensure energy safety in the years to come. The entire focus of the Pak-China Economic Corridor initiative under which China would be making an investment of US$ 46 billion, is also on building the infrastructure, which would not only provide easy access for Chinese products to the littoral states of the Indian Ocean and beyond but also help in a big way to boost the economy of Pakistan. The decision by Pakistan to join hands with China and other Asian countries in the establishment of AIIB stems from the new narrative evolved by the present government for building economic and political linkages with neighbours and Asian countries. Pakistan’s security and economic progress is inextricably linked to the region where it belongs. Therefore the emphasis on finding solutions to the security and economic challenges confronting it, through collective efforts of the countries of the region is a pragmatic and visionary initiative.