Asian Infrastructure Investment Bank

[Magda Hassan]

3 European Powers Say They Will Join China-Led Bank

By ANDREW HIGGINS and DAVID E. SANGERMARCH 17, 2015

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Germany to Join Asia Infrastructure Bank

Germany to Join Asia Infrastructure Bank

Wolfgang Schäuble, the German finance minister, announced Tuesday that Germany, with France and Italy, would become a founding member of the Asian Infrastructure Investment Bank.

Video by Reuters on Publish Date March 17, 2015. Photo by Axel Schmidt/Reuters.


BRUSSELS Ignoring direct pleas from the Obama administration, Europe's biggest economies have declared their desire to become founding members of a new Chinese-led Asian investment bank that the United States views as a rival to the World Bank and other institutions set up at the height of American power after World War II.
The announcement on Tuesday by Germany, France and Italy that they would follow Britain and join the Chinese-led venture delivered a stinging rebuke to Washington from some of its closest allies. It also called into question whether the World Bank and the International Monetary Fund, which grew out of a multination conference in Bretton Woods, N.H., in 1944 and established an economic pecking order that lasted 70 years, will find their influence diminished.
The announcement by Germany, Europe's largest economy, came only six days after Secretary of State John Kerry asked his German counterpart, Frank Walter-Steinmeier, to resist the Chinese overtures until the Chinese agreed to a number of conditions about transparency and governing of the new entity. But Germany came to the same conclusion that Britain did: China is such a large export and investment market for it that it cannot afford to stay on the sidelines.
American officials have fumed that China never approached the Group of 7 the consortium of economic powers that the United States has led but rather decided to pick off individual members, setting a deadline of the end of March for them to decide whether to join the new organization, the Asian Infrastructure Investment Bank, which many refer to by its initials, the A.I.I.B.
China, in turn, has long chafed at the idea that the World Bank's president is traditionally an American, and that France appoints the head of the I.M.F.
"This has been a power struggle," one senior European official said. "And we have moved from the world of 1945."
In Washington, Jen Psaki, the State Department spokeswoman, declined to criticize the countries that announced they would seek to participate, but expressed reservations. "It will be important for prospective members of the A.I.I.B. to push for the adoption of those same high standards that other international institutions abide by, including strong board oversight and safeguards," she said.
The European decision is bound to help efforts by Xi Jinping, China's president and Communist Party chief, to reshape the global balance of power, starting with the institutions that underpin it.
Mr. Xi's predecessors chose to join some of those institutions, including the World Trade Organization, and work from within to amend some of their rules more to China's liking. But with the new bank, China appears to be stepping up previously halting efforts to also build new, Sino-centric institutions from scratch. China's control of the bank, however, will face constraints. Britain has insisted on a senior post on its board, and Germany will do the same.
China has worked for years to break what it regards as an unfair grip by the United States on global political and financial institutions and to set up rival structures more responsive to Chinese demands for a voice in international affairs commensurate with its status as the world's second-biggest economy.
"China is shaping an alternative universe and getting America's European allies to support it," said Theresa Fallon, a China expert at the European Institute for Asian Studies, a Brussels research group.
The United States lobbied its allies not to join the new China-based bank. The United States has argued that the bank at best duplicates, and at worst undermines, the role of the Washington-based World Bank and the Asian Development Bank, which has its headquarters in the Philippines, a close American ally at odds with Beijing over the South China Sea. The I.M.F., which manages financial crises, is less directly affected.
Ms. Fallon said she expected that South Korea, another close American ally, would also sign up for the new bank and that "in the end, only Japan won't say yes." China, she said, is offering a "whole economic and political package that provides an alternative to the creaking international structures shaped by the U.S. in the postwar period."
Western officials and anticorruption groups have long criticized China's lending practices, particularly for infrastructure projects in Africa involving Chinese companies, saying they foster corruption and undercut efforts by the World Bank and I.M.F. to link loans to demands for good governing. China rejects such complaints, pointing to its success in building roads and railway lines quickly in countries bereft of Western capital.
In an apparent reference to such concerns, France, Germany and Italy, in a statement declaring their eagerness to join the Asian Infrastructure Investment Bank, said they were "keen to work with the A.I.I.B. founding members to establish an institution that follows the best standards and practices in terms of governance, safeguards, debt and procurement policies."
Snubbing the bank would have angered Beijing, but aside from earning Chinese good will, it was not immediately clear what European countries would gain by joining other than the right to endorse and help finance infrastructure projects that, in many case, are likely to be dominated by Chinese, not European, construction companies.
Europe's defiance of pressure from Washington over the bank does not signal a major rupture, analysts said. But, they say, it does add friction at a time when the marquee project of trans-Atlantic solidarity, a proposed free trade deal, has lost much of its momentum in the face of fierce hostility from European politicians and activists opposed to American-style capitalism.
While heavily dependent on the United States for security, especially since the crisis in Ukraine erupted last year, European countries, Ms. Fallon said, "tend to take the U.S. for granted," while "China is very good at lobbying them and promising them things." But she said Washington had been unwise to expend diplomatic and political capital over the bank when it was clear that even staunch allies like Britain wanted to join it.
The bank was first proposed by Mr. Xi to help fund infrastructure projects in poor Asian countries, something the World Bank and the Asian Development Bank already do. China has pledged a large part of the initial $50 billion of capital, and Beijing hopes the institution will contribute to the expansion of its Asian power base, even as its growing might, economic and military, reshapes the political dynamics of the region and beyond.
Since taking over leadership of the Chinese Communist Party in 2012, Mr. Xi has steadily expanded a longstanding Chinese policy of seeking political influence through lending and investment, putting his weight behind an ambitious plan to build maritime and land links between China and Europe that span the Eurasian continent. China began the plan after a 2011 call by Hillary Rodham Clinton, who was then secretary of state, for a "new silk road" to help Afghanistan's economy.
Miffed that Washington had appropriated a term China considers an inseparable part of its own heritage, Mr. Xi in 2013 put forward his own "silk road" plan. This was initially called the Silk Road Economic Belt but, since expanded and shorn of any echoes of the American proposal, is now known in China as the "Belt and Road" scheme, said Ms. Fallon, who has studied the evolution of China's minutely calibrated nomenclature.
China first signaled its desire to set up its own alternative structures as its economy took off in the 1990s. In 1996, in Shanghai, it established a security grouping comprising China, Russia, Kazakhstan, Kyrgyzstan and Tajikistan.
The body, since joined by Uzbekistan and known as the Shanghai Cooperation Council, has Chinese and Russian as its working languages instead of English, the lingua franca of most international organizations set up under the auspices of the United States.
Under Mr. Xi, Beijing has also put itself at the center of a four-year-old grouping of 16 Eastern and Central European countries, promising investment to the region in a push for economic and political influence that has raised eyebrows in Brussels, the headquarters of the European Union.
Some see the venture as an attempt to divide the European Union and circumvent the bloc's rigid rules and standards. Eleven of the nations courted by China in Eastern and Central Europe belong to the union.
But China has voiced annoyance at what it derides as "Cold War thinking" that divides the world into fixed camps, promoting its efforts to win friends and also contracts in formerly Communist Eastern Europe and elsewhere as part of a "win-win strategy" beneficial to all.
Commenting in Beijing on the decision by European countries to join the new investment bank, a Foreign Ministry spokesman, Hong Lei, said China "wants to work together with all parties to set up a mutually beneficial, professional infrastructure investment and financing platform to contribute to regional infrastructure and economic development."
While China has risen over the last decades to become the second-largest economy or even the largest, by some measures it is still sidelined at the international level by the reluctance of developed nations to relinquish their privileged places.
In one such case, the United States and its partners at the International Monetary Fund agreed in 2010 to give emerging nations an expanded role in the institution. Congress has so far refused to sign on.
Speaking on Tuesday in Washington, Treasury Secretary Jacob J. Lew said it was "urgent that we address prior unmet commitments, which have grown to levels that raise significant questions about U.S. credibility and leadership in the multilateral system."
Failure to do so, he added, could "result in a loss of U.S. shareholding at a time when new players are challenging U.S. leadership in the multilateral system."
http://www.nytimes.com/2015/03/18/busine...bank.html?

[Magda Hassan]

Who's Afraid of the Asian Infrastructure Investment Bank?

The U.S. is outraged that European governments are joining China's alternative to the IMF and the World Bank, but America has no one to blame but itself.


This week, Germany, France, Italy, and the U.K. all signed up to join the Asian Infrastructure Investment Bank. The AIIB, a Chinese-led multilateral fund with about $50 billion in capital to invest in public infrastructure, is opposed by the U.S. because it will compete with institutions where America has considerably more influenceorganizations such as the World Bank and the International Monetary Fund. An Obama administration official complained about "constant accommodation" of China by the U.S.'s European allies, and the president's National Security Council issued a statement expressing concern over the AIIB's environmental and governance standards.

The complaints, however, ring hollow. Washington has singularly failed to play its part in building up the capacity of existing multilateral institutions, including the World Bank and the IMF, while blocking attempts by the rest of the world to fill the gap. If the Obama administration can't get Congress to put up the cash required, it should at the very least get out of the way of other countries willing and able to lead on multilateral expansion and reform. International financial institutions are too important to global growth and stability to be held hostage by America's inflated sense of entitlement.
Moving toward more global funding for development is good for everyoneincluding the U.S. The AIIB will provide funds that can support the rollout of infrastructure, providing electricity, clean water, and improved communications to millions. That will save lives and foster growth, whether the funding is in yuan or dollars. And the presence of European members on the AIIB's board, who are advocates of good governance and environmental standards, should be reassuring to the U.S., not a reason for censure.

The administration argues that the money going to create the AIIB would be better spent by the World Bank or another existing international finance institution. But there's a simple answer for why that isn't happening: Washington. China's move to set up a series of new multilateral banks including the AIIB has followed years of frustrated attempts to reform the existing international financial institutions to better reflect the new shape of the global economy.
It's been five years since the World Bank last got a capital increaseand that was its first since 1988. Under pressure from the U.S. to keep funding requirements small and changes in voting shares limited, the capital boost added a mere 30 percent to the institution's lending capacity. That headroom has been eaten up already by the bank's operations during the global financial crisis. When it comes to the IMF, there have been four failed attempts by the Obama administration to get congressional approval and funding for the U.S. share of a financing and reform package.
Thanks to the U.S.'s stonewalling, America still has veto power on major decisions made by both the IMF and the World Bank, and a lock on selecting the president of the World Bank. Both institutions are increasingly unrepresentative of the global economyand undersize compared with the demands they face. It's hardly surprising that countries such as China and India are simply moving on.
The Obama administration recognizes the link between the creation of the AIIB and Washington's pathetic performance on multilateral funding. As Treasury Secretary Jack Lew pointed out in recent congressional testimony: "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." The failure to act, suggested Lew, raised "significant questions about U.S. credibility and leadership in the multilateral system."
If the U.S. is going to regain that credibility, it's past time to do something. Finding more money from Congress appears hopeless. Instead, the executive branch should take matters into its own hands. The Treasury should instruct U.S. representatives on the boards of the IMF and the World Bank to vote in favor of reforms that will allow the rest of the world to get on with making those institutions stronger. If the U.S. would allow its voting share at the IMF and the bank to be reduced as other countries provided additional resources, that would enable the creation of a far stronger international financial architecturegood for everyone and cost-free to a skinflint superpower. Best of all: There would be no need for congressional approval.
The U.S. is acting like a disgraced ambassador from a tin-pot dictatorship in demanding perquisites out of all proportion to its role. The whole world is paying the price, but America will be the biggest loser in terms of influence when other countries simply bypass it and the institutions it did so much to build in the first place. If the U.S. wants to deter the growth of new multilateral institutions, it has to support the growth of the old ones.
(Corrects reference to Obama Administration's attempts to win Congressional approval for funding package for International Monetary Fund.)

http://www.bloomberg.com/news/articles/2...ment-bank-

[David Guyatt]

More on the wave farewell to US global economic dominance.

It's happening: more US allies join the anti-dollar alliance
by
Simon Black
on
March 18, 2015
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March 18, 2015
Santiago, Chile
The United States government just went from "Please, baby, don't leave me," to frustrated threats and whining.
After the UK announced it will join new China-led Asian Infrastructure Investment Bank (AIIB) as a founding member late last week, Germany, France and Italy decided yesterday to follow Britain's lead and join as well.
Welcome to the beginning of the end of the US dollar's domination. It's happening.
For the past few decades America was the undisputed global economic and political superpower.
The entire world happily used the US dollar, and hence, the US banking system. More importantly, the world happily placed its trust in the US government.
But there's a limit to how irresponsible, reckless, and threatening you can be. Eventually such behavior catches up to you.
That time has now come.
The US government is now drowning in debt that can never be repaid. The US government's own numbers, in fact, estimate its level of insolvency at roughly $60 trillion.
This means that when you add up all the assets of the United Statesevery acre of land, every tank, every drone, every drop of oil in the strategic reserve… and subtract all the debt and liabilities, the result is MINUS $60 trillion.
That is the net worth of the United States government.
On top of that, the US government has chosen to use its once-trusted currency and banking system as weapons to blackmail the rest of the world.
FATCA (the Foreign Account Tax Compliance Act) is probably the best recent example.
FATCA's provisions require every single bank in the world to jump into bed with the Internal Revenue Service and agree to all sorts of expensive, debilitating information-sharing agreements.
And any bank which dares to defy the US government gets effectively blackballed from the US banking system and subject to a 30% withholding tax.
On top of that, the US government has taken to slamming foreign banks with the most astonishing fines$9 billion, for example, in the case of French Bank BNP Paribas.
BNP's wrongdoing was conducting business with countries, like Cuba and Iran, that the US government doesn't like.
Bear in mind, BNP is a French bank and broke no French law whatsoever.
Moreover, the business was done through its Swiss subsidiary, and they broke no Swiss law either.
That didn't matter to Uncle Sam, which fined the bank $9 billion under threat of being kicked out of the US banking system.
Blackmail. Extortion. Intimidation. This isn't the behavior of a trusted friend. It's the behavior of an arrogant sociopath.
And the rest of the world is sick of it.
Other countrieseven allied nationssee that times are changing. There are new players on the rise, and the US isn't the only option anymore.
Increasingly they're turning to China, who, by some metrics, is already the largest economy in the world.
And the US government can't do anything about it.
This is happening now with increasing speed. It's mainstream news everywhere: the US is being shunned by its allies for the new kid on the block.
This has major implications for the United States. History shows that when reserve currencies change, the losing country almost invariably goes through significant turmoil.
But here's the thingthe world is changing. But it's not coming to an end.
Yes, things will change dramatically in the West in the coming years.
The standard of living that was attainable in the US because of its economic dominance will diminish.
For cues, look to Europe to see how unsustainable policies unravel when you don't have the backing of the world's reserve currency.
But people who recognize and embrace these changes early will prosper, for there will be tremendous opportunities throughout this process.
Modern technology means that all of our lives don't have to be trapped within one single bankrupt country.
You can move your savings abroad to safety.
You can structure your business and assets so that you keep more of your hard-earned income for yourself and your family.
You can seek out investment opportunities out there that aren't subjected to chasing bubbles induced by world central banks.
You can plan ahead and establish an alternative residency in a safe and thriving place, and perhaps even qualify for a second passport.
Bottom line the world is changing. We can't stop the end of the dollar's dominance. All we can control is how we react to it… and when.
This is a real opportunity. Either an opportunity to gain, or an opportunity to lose. The choice is ours to make.
Our goal is simple: To help you achieve personal liberty and financial prosperity no matter what happens.
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About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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