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A new option in international finance

Asia has experienced unprecedented urbanisation. With the region's urban population "projected to rise by 650 million between 2010 and 2030," experts estimate that Asia will need to invest up to $11 trillion in urban infrastructure to accommodate this demographic shift.

Syed Mansur Hashim
CHINA has been toying with the idea of an international bank that would cater to addressing regional infrastructure needs and not focused on poverty reduction or alleviation. In that the Beijing-led Asia Infrastructure Investment Bank (AIIB) has found response in countries like Bangladesh that have dire need for finance without the added burden ofanswering to issues of governance and where members will have a more equitable say in the running of the institution. Needless to say, AIIB’s launching drew a lot of flak from existing institutions such as the World Bank (WB) and Asian Development Bank (ADB) on "the ambiguous nature of the AIIB proposal as it currently stands."
The two principal points of contention with AIIB is that China will use the institution to counter the ADB and WB. That possibility cannot be ruled out given that China commands less than 6% voting power at ADB against a combined voting prowess to the tune of the 26% between the United States and Japan. It will certainly give China more regional influence. The other point being that AIIB will provide it with a legitimate means to expand economically into the region supplanting western interests. Whatever may be the arguments against AIIB, there is no contending with the fact that the ADB falls far short of financial capacity to meet Asia's "need for infrastructure funding, and AIIB is not entirely in the same business as the poverty-reduction-oriented ADB."
All said and done, according to a WB report titled 'Reducing Poverty by Closing South Asia's Infrastructure Gap,' Bangladesh will have to spend anywhere between $7 billion to $10 billion a year until 2020 to upgrade its infrastructure, including power, water and road connectivity, to cater to its expanding population. The massive gap in infrastructure must be a priority policy issue for the government to propel the country's economic growth. According to the study, the country has 0.1 kilometer of road per 1,000 people, which is the lowest in the region. Only 10% of roads in the country are paved, which, again, is the lowest in the region.
Asia has experienced unprecedented urbanisation. With the region's urban population "projected to rise by 650 million between 2010 and 2030," experts estimate that Asia will need to invest up to $11 trillion in urban infrastructure to accommodate this demographic shift. Yet the capital infusion needed for such infrastructure development has not been forthcoming given the global financial meltdown of 2007-2008. With Chinese institutions having lent an estimated $670 billion in loans,guarantees and insurance over the last eight years, it is easy to see why ADB and other multilateral agencies are jittery with the rise of AIIB. Not only that, China's own infrastructure boom over the last two decades, i.e. building and servicing projects, has given it the capacity and expertise to “export” that skill to other Asian economies through such an institution. AIIB will start operating commercially at the end of 2015. It will concentrate on rail, road, power and other projects across the region.
It is no secret that very substantial foreign currency loans will be required to get infrastructure projects under the Bangladesh-China-India-Myanmar (BCIM) region. Some potentially beneficial projects have been identified from a regional perspective. These include, for instance, an oil pipeline stretching from Shiliguri (West Bengal, India) to Parbatipur (Bangladesh) that will allow Bangladesh to import diesel directly from Indian refineries in Assam. When we talk about the Sarc power grid, we are essentially talking about investments in electricity grid substations across borders, gas trading from areas such as Tripura (India) through transmission lines to Bangladesh, and construction of a power grid that will enable the country to import excess electricity from gas-rich neighbours to electricity-starved nations like Bangladesh. All such plans can become feasible if finance can be made readily available and it is here that AIIB can play a constructive role alongside multilateral agencies such as ADB.
As pointed out by The Economist in a recent article, "for other Asian countries, the attraction of the scheme is all too obvious: money. The ADB has estimated that Asia needs to invest 'about $8 trillion in national infrastructure and $290 billion in regional infrastructure between 2010 and 2020 to sustain its growth trajectory.' One of the central themes of the APEC meetings this year is improving 'connectivity' in the Asia-Pacific, including physical connectivity, i.e., infrastructure."
For Bangladesh, prospect of getting a loan to build crucial infrastructure like the proposed Padma bridge has become an issue of prestige as much as economic need. However, given the present predicament of the fallout experienced with both WB and ADB, it may be perceived that AIIB will be a viable alternative. While a loan coming out of the new bank may not be any cheaper than what the WB or ADB had to offer, the issue of "no-strings-attached" loan-sanctioning may be of particular import to the government. With China's accumulated $4 trillion of accumulated foreign reserves, it is safe to assume the country is well poised to increase the authorised capital of AIIB in the coming years as its portfolio of projects increase. The emergence of AIIB in the near future also opens up the possibility of countries like Bangladesh to "negotiate” on interest rates for large loans, which hitherto had not been possible.The writer Is Assistant Editor, The Daily Star.