Why Australia should have joined the AIIB last November
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If Australia is serious about infrastructure then it should have signed up to the Chinese bank months ago, writes Susan Harris-Rimmer.
Australia has announced that it is signing on to the China-led Asian Infrastructure Investment Bank (AIIB).
But for a country that apparently cares so about infrastructure investment in Asia, the real question is why didn’t we join the new AIIB last November when we would have received most political benefit?
And now that we have committed, why are we still asking the wrong questions about the bank?
The Abbott government made infrastructure investment a headline for the November 2014 G20 Summit in Brisbane. A legacy outcome of the Summit was the establishment of a Global Infrastructure Hub in Sydney with a four-year mandate.
Australia is now part of the troika for the future G20 Summits in Turkey and China, and it is clear infrastructure investment is a major priority for the three nations, in particular financing the New Silk Road.
So why on earth did we take so long to join the AIIB? There are three plausible reasons.
One, many of our closest allies and comparators have joined already, so we could shuffle in behind and avoid US censure. First India and Singapore, then the United Kingdom and New Zealand, now France, Germany and Italy have all announced plans to join the AIIB. Waiting to get on board with the rest of the gang ensured safety in numbers. But it’s disappointing in terms of Australian ‘leadership’.
Two, domestic opinion is uniformly in favour, but there were some real concerns. Among infrastructure experts, bankers, economists, business groups, foreign policy experts, governance advisers, there is barely a word of dissent about the low risk and general reward of being involved as a strategic level. And no Australian seems unduly concerned about China taking a stronger leadership role in economic governance. It is simply expected of the globe’s second largest economy.
But the US was asking the right questions about safeguards and governance, even if for the wrong reasons. Infrastructure investment for macroeconomic growth does not automatically benefit people living in extreme poverty, as they can be affected by displacement, environmental damage or by being forced to pay more for basic services.
Those attuned to human rights and social protection concerns in China have felt that early accession might give more opportunity to push for the same level of environmental and social safeguards as have been hard-won in the World Bank and Asian Development Bank, but need to go further. We do need to ask about AIIB plans for transparency, human rights standards, alleviation of extreme poverty, and climate change mitigation and adaptation in project selection and design.
Heaven knows it is not that Multilateral Development Banks (MDBs) have been so perfect in their interventions in our region in the past. They have improved because they were forced to hear concerns by civil society actors, and change. And the governance of those banks has not represented the reality of shifting power for about a decade. The US and Japan have only themselves to blame for that.
China should take the safeguards concerns on board, improve them where possible, and leapfrog the previous pitfalls. In the AIIB, China’s global governance reputation will be on the line, and at the same moment that China assumes the G20 Presidency with the world watching on.
Third, Australia put enormous diplomatic effort into its G20 year and the Infrastructure Hub in Sydney is an important legacy, and we would have needed to examine the synergies with the AIIB. The current Asian Development Banks estimates suggest that Asia will need $8 trillion in national infrastructure and $290 billion in regional infrastructure through 2020 to sustain the region’s growth trajectory.
On its merits, the AIIB in not a sufficient response to that deficit, but it is a response, and a creative one. In AIIB’s case, the consensus seems to be that the initial target is around $100 billion of new capital. The test is how that capital will be employed. Most development experts agree there is an underinvestment in pro-poor infrastructure globally. The International Energy Agency also estimated that adapting to and mitigating the effects of climate change over the next 40 years out to 2050 will require around USD 45 trillion or around USD 1 trillion a year. Will the AIIB invest in pro-poor, green infrastructure?
So what could Australia get from its involvement in the AIIB?
Put simply, Australia gets to take part in one of the most important conversations about the future of our own interconnected region, the wellbeing of our neighbours. The strategic space is invaluable.
The issue is not to stop China taking a leadership role in global economic governance. The issue is to do everything possible to make sure that China in that role benefits the rest of the world.
For the first time China is not joining a global institution, China is creating one. The responsibility and reputational risk will be high, but real-world problems need creative governance. Time to forget the mind games, and get on with it.
Dr Susan Harris Rimmer is an Australian Research Council Future Fellow in the Asia-Pacific College of Diplomacy at the Coral Bell School of Asia Pacific Affairs.
This is an edited version of an article first published The Global Times.