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Economy

The Asian Infrastructure Investment Bank gets off the ground

BEIJING   With $100 billion in capital and a staff of 500, the Asian Infrastructure Investment Bank was formally launched on Dec. 25 and seeks to make its first loan as early as spring 2016.

     The Beijing-based multilateral lender aims to help Asia build roads, power grids and other essential infrastructure. It will hold the first meetings of its board and executive council on Jan. 16-18. The AIIB counts 57 founding members.

     For the agreement to take effect, it had to be ratified by at least 10 members, accounting for at least 50% of the bank's capital. Both conditions have been met, China's Ministry of Finance said. At the time of the launch, 17 members had ratified, including top contributor China, the U.K. and Germany. They together represent more than half the bank's share capital, according to the ministry.

     The Philippines was the last country to meet the year-end deadline to become a founding member. President Benigno Aquino's eleventh-hour decision highlights his mistrust of China, which is locked in a bitter territorial dispute with the Philippines over islands and reefs in the South China Sea.

    Hiccups aside, pulling in 57 members to a multilateral bank that it will lead was a diplomatic triumph for China. Brunei, Malaysia and Vietnam, which all have territorial conflicts with China, joined the lender earlier.

     Philippine Finance Secretary Cesar Purisima said his country, which needs an estimated $127 billion from 2010 to 2020 for infrastructure, is expected to benefit from AIIB projects. The indicative paid-in capital of the Philippines is $196 million.

 CHINA LEADS   The AIIB will serve as a guidepost for reforming governance of the global economy, Chinese Finance Minister Lou Jiwei said in a statement, stressing the bank will work with existing institutions such as the World Bank and the Asian Development Bank, to contribute to sustainable growth in the region.

     President-designate Jin Liqun, a former high-ranking Chinese financial official, will be formally voted into office in January. The rest of the management team will also come together at that time.

     The AIIB is the first multilateral lender in which China will play a central role. China holds 26% of the voting rights, giving it a de facto veto over important decisions. Around 30 more countries want to join the AIIB, Jin told reporters in November. The bank will consider capital increases to accommodate new members.

     The AIIB is already discussing coordinated lending with the World Bank, the ADB and other institutions, and it aims to finance its first project in the spring or summer. It expects to lend around $2 billion in its first fiscal year.

     The new bank hopes to meet developing countries' needs by disbursing loans quickly. But with Japan and the U.S. remaining aloof, many observers believe the AIIB will struggle to obtain a top credit rating. This may add to funding costs and, in turn, the interest rates paid by borrowers.

Nikkei staff writer Cliff Venzon in Manila contributed to this report.

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