AIIB Official: Regional Integration Creates Much Richer ASEAN

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AIIB Official: Regional Integration Creates Much Richer ASEAN

An interview with Joachim von Amsberg, vice president at the Asian Infrastructure Investment Bank.

AIIB Official: Regional Integration Creates Much Richer ASEAN
Credit: Boao Forum for Asia

Bangladesh, one of the world’s most briskly growing nations, has rolled out ambitious plans to further set its economic development ablaze. To help achieve more affordable electricity, the nation reached out to the Asian Infrastructure Investment Bank for the financing of a project that is expected to benefit 12.5 million people in the country’s vast rural areas.

Among a few others, Bangladesh, Indonesia, and Pakistan are the very first countries to have received financial funds from the China-led AIIB since its inception in 2016. Joachim von Amsberg, a former World Bank official, helps lead the institution with the aim to boost regional prosperity through development financing different from seen at Western banks. In this interview, Von Amsberg, the AIIB’s vice president of policy and strategy, explains various policies of the multilateral bank and shares the institution’s position on the Beijing Consensus, regional integration, and more.

The Diplomat: How do you assess the AIIB’s performance so far?

Von Amsberg: AIIB began operations in January 2016. We are very pleased with our progress to date. Our first year was a foundation building year – recruiting the right staff, establishing our policies and risk management functions, and, of course, investing in a first set of projects. To date, we have invested in 12 projects, totaling slightly over $2.0 billion, which was quite an achievement for a still very young and very small institution. The basic approach we took was one of “learning by doing,” and in this respect, co-financing with the World Bank Group, the Asian Development Bank, and the EBRD [European Bank for Reconstruction and Development] served us well. This approach has allowed us to build up our internal capacity, and at the same, immediately contribute to the financial needs to support developing countries in Asia.

We will be prioritizing sustainable infrastructure investments, promoting energy efficiency, renewables, clean transport, and other projects that meet infrastructure needs while reducing global warming. We are also very interested in projects that improve cross-border connectivity. This can be in the form of roads, rails, energy pipelines, or telecoms. Mobilization of private sector investment for infrastructure is our third thematic priority.

In terms of lending policies, what are the differences and similarities between the AIIB and other multilateral institutions such as the World Bank and the Asian Development Bank?

It is firstly important to recognize that AIIB builds on the very successful model of existing multilateral development banks, in leveraging the capital contributions of shareholders and helping member countries prepare and finance projects.

Like existing institutions, AIIB holds itself to the highest standards of project quality in terms of procurement, as well as environmental and social safeguards. We also have zero tolerance toward corruption, and we will not do business with entities that are debarred by fellow multilateral institutions. In short, there are no fundamental differences with regards to basic governance and policies, and we can quite easily cooperate with the existing multilateral institutions.

But in other ways, AIIB will be quite different. First, we are focused on infrastructure and we are focused on project finance. With this specific mandate, AIIB can be a very lean, agile, and nimble organization that responds quickly to our clients’ needs. Second, our public and private operations are from one balance sheet, with one staff. This allows us to be flexible, for example, when a project involves both public and private components. We are also able to work well with sub-national entities, or state-owned enterprises. Thirdly, we can work with all member countries regardless of their income level. We assess each project by its contributions to the member and region, as well as its economics and financial viability.

The AIIB does not impose conditions on the financial funds it provides, including matters such as the environment. How does the AIIB make environmentally safe investments without having such conditions in place?

To clarify, AIIB is a bank that invests in debt and equity, but does not provide financial aid. AIIB will not provide loans in support of policy reforms. Instead, AIIB invests in specific projects, alongside very clear policies that ensure the quality of the projects we invest in. As mentioned, we maintain a high standard for environmental and social safeguard for projects that we support, and our policies are binding. The Bank’s core values are “lean, clean, and green,” and we are committed to helping member countries transition to a low-carbon future. During the first year of operations, sustainable and green infrastructure has been identified as one of our three corporate thematic priorities. These priorities, which have been endorsed by the Board of Directors, guide and shape the Bank’s investment portfolio and other operational activities.

There is currently a draft Energy Sector Strategy, now in its second round of public consultations, which is informed by the principles underpinning the Sustainable Energy for All initiative, the 2030 Agenda for Sustainable Development, and the Paris Agreement. It lays the framework for the Bank to support its client countries to develop and improve their energy infrastructure and facilitate their transition to a less carbon-intensive energy mix meeting their goals and commitments under these global initiatives.

In the past, procurement and personnel appointments have sometimes proven to be troublesome for other multilateral development institutions. How has the AIIB formulated policy to make things tick?

AIIB is a truly multinational institution with transparent governance. Our policies reflect the multilateral nature of our organization. Our staff comes from all over the world, including non-member countries, and is recruited competitively on the basis of merit. Procurement, whether our own procurement or procurement related to projects, is also done openly and competitively. We don’t permit any tied procurement arrangements.

There is a deep and wide infrastructure gap in Asia, with various reports estimating that more than a trillion dollars a year is needed to maintain the region’s growth trajectory. Moving away from the contribution of development banks, how can governments and the private sector help meet that demand more effectively?

Even though institutional investors manage trillions of dollars of investable funds and are keenly looking for investment opportunities, very few of these funds get invested in developing country infrastructure. Why? First, the risks and returns of infrastructure projects largely depend on public policies. Stronger policies, better regulation, and predictable arrangements will reduce projects’ risks and allow more investment. Second, investors are looking for well-prepared, “bankable” projects with sufficient returns. Preparation of a quality project is a huge challenge to turn needs into projects. Third, investors are often not familiar with developing markets and reluctant to invest in individual projects. Standardization of certain project types and financial instruments that can match the risk and return appetite of institutional investors will help.

The private sector has a key role to play. For example, we need high quality sponsors that can take on and implement projects. We need financiers who can look at long term returns that infrastructure can bring. We need innovators to bring in new solutions, for example in renewable energy and sustainable city solutions. In my many conversations with industry leaders, I am very encouraged that many are indeed taking up these challenges.

The multilateral financial institutions can play a critical catalytic role to mobilize private capital. They can advise countries on their policies, help prepare projects, and provide protection from political and policy risks. AIIB is very keen to play this catalytic role through its project finance.

There have been two prevailing ideas about development: the Washington Consensus and the Beijing Consensus. In a Diplomat interview with Joshua Cooper Ramo, he stated that the Beijing Consensus is less that every nation will follow China’s development model, but that it legitimizes the notion of particularity as opposed to the universality of a Washington model. How does the AIIB look at this?

The actions needed to support infrastructure development at the necessary scale are far too complex to be captured by simplistic slogans. AIIB will be very practical in its approach to infrastructure solutions.  Our philosophy is to draw from a wide range of development lessons of different countries, and then seek out what will work in each country’s context.

We believe that trade can create wealth and other benefits for all participants. We believe that projects should be financially sustainable and supported by appropriate prices for the services they provide. Whether we ascribe this to the Washington Consensus is less important than the fact that infrastructure investment need to be economically viable so that they don’t undermine public finance or the economy.

We also believe that the successful Chinese experience of infrastructure-driven economic development provides important lessons for developing countries. China’s experience is also highly relevant, in that infrastructure investments have wider spillovers and can spur development of the country. China thus took a much more state-directed role in developing infrastructure. Yet, China has also developed and relied on markets to provide other goods and services.

However, policies and institutions are very country specific. What works in one country will not necessarily work in another.

If there is one consensus we should forge, it would be the need for governments to work together to solve both global and local challenges. For example, countries rich in renewable energy resources can sell them to others. This would require not just infrastructure connectivity, but also some regulatory cooperation in terms of providing the right cross-border pricing, guarantees on supplies and market access, etc. Working together solves not just the global challenge of climate change, but also the local challenge of providing electricity supply. We see a lot of such collaboration possibilities in Asia.

Unlike Europe, regionalism in Asia has been driven substantially more by markets in lieu of governments. What are your views on this and could you also share your vision on how to further improve regional cooperation against the backdrop of the 50th anniversary of the Association of Southeast Asian Nations (ASEAN) this year?

Asia has become more integrated economically in the past decades and much of this integration has been driven by regional supply chains and trade within the region. But it cannot be right to say that markets alone can drive integration. Well-functioning markets require the active support of governments. Further regional integration can create a much richer ASEAN. But such integration is hindered by coordination problems that markets cannot solve without the support from governments. Cross border connectivity is a case in point. AIIB was created to help connect Asia by investing in the roads, railways, pipelines, transmission lines, ports, sustainable cities, and low carbon energy sources it needs to trade and grow. And just as importantly, we are building connections, which will not only benefit the communities in which they are located, but will have far-reaching, positive impacts on markets and trade across the region. The cooperation of governments well beyond physical investments is needed to address policy constraints, harmonize regulations, and facilitate trade.

AIIB has an important role to play, as the Bank teams up with sovereign governments, international organizations, and the private sector to address large-scale regional challenges. We welcome the further integration of ASEAN to address problems that cannot be solved by one country or one institution alone.

This interview has been edited for clarity.