World Bank and Asian Development Bank sign deals with new $100bn China-backed lender AIIB

Beijing // The World Bank and the Asian Development Bank (ADB) have overcome their initial reservations about the China-sponsored Asian Infrastructure Investment Bank (AIIB) and have started participating in the development of the new lender, from which the United States and Japan have distanced themselves.

The World Bank group president Jim Yong Kim signed the first co-financing deal with AIIB president Jin Liqun and the World Bank group president Jim Yong Kim for US$1.2 billion on Thursday. The AIIB has 57 member countries including some US allies such as the United Kingdom and South Korea.

“I think the new deal is going to raise the profile of AIIB. The agreements show that the two multilateral agreements are willing to cooperate in an area where there is huge demand for infrastructure investment.” Wang Huiyao, the president of the Center for China and Globalisation, and an advisor to the Chinese government, told The National today.

Officials of both World Bank and ADB had previously expressed concern over the banking and project evaluation standards of the new bank during the long months in 2013 and 2014 when the Chinese president Xi Jinping travelled the world trying to persuade world leaders to join his pet project. The bank’s opening late last year, with countries such as Germany, France and India contributing to its $100bn equity, has brought about a sea change in its image.

On Thursday, the ADB took another major step in allowing Hamid Sharif, its country director for China, to don another cap as the first director general of the AIIB’s compliance, effectiveness and integrity (CEI) unit. This is a major move because Sharif, who hails from Pakistan, handles a major ADB portfolio worth $10 billion.

The position reports to the bank’s board of directors. The CEI Unit’s mandate includes monitoring and evaluating the bank’s portfolio, ensuring policy compliance, and overseeing internal and external grievance procedures. At the ADB, Mr Sharif oversees a $10bn investment portfolio and manages one of its largest country offices. The CEI Unit’s mandate includes monitoring and evaluating the Bank’s portfolio, ensuring policy compliance, and overseeing internal and external grievance procedures.

“These moves would draw the attention of the US about the importance of the bank. I am sure other multilateral banks would now be interested in collaborating with the AIIB,” Mr Wang said adding, “and make a lot of people in the financial sector excited about the bank.”

The World Bank and the AIIB are assessing nearly a dozen projects that can be co-financed in sectors that include transport, water and energy in central Asia, South Asia and east Asia. The world body also agreed to prepare and supervise the co-financed projects in accordance with its policies and procedures in areas like procurement, environment and social safeguards.

This means the AIIB has agreed to implement World Bank’s stringent standards. The agreement is significant because there were fears in the western world that China would push the AIIB to finance Asian projects that are driven by political means and likely to violate international standards on issues such as the environment.

“I am delighted that today we are raising our partnership to a new level,” Mr Kim said. “Signing this agreement enables our institutions to finance development projects together, and that is an important first step toward working with a new partner to address the world’s huge infrastructure needs. As the world’s multilateral development banks collaborate ever more closely, leveraging each other’s financing and expertise, the people who will benefit the most will be the world’s poor.”

The AIIB is expected to begin financing projects in Asia in the coming months. It has set spending target of $1.2bn for 2016, of which joint projects with the World Bank will account for a sizable share.

“I am very pleased today to sign this co-financing agreement together with World Bank Group president Kim,” its president Jin said on Thursday. “The AIIB is very grateful for the generous and timely support offered by the World Bank Group throughout our establishment process, and we look forward to a long and fruitful relationship with ongoing cooperation in project co-financing and other areas.”

The AIIB will leverage even more private finance through new partnerships, such as the World Bank’s global infrastructure facility, and the growing portfolios of the global lender’s International Finance Corporation and its Multilateral Investment Guarantee Agency, the AIIB said today.

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