You are here

New kid on Asia's lending block spurs infrastructure-pledge boom

What a difference some competition can make.

[HONG KONG] What a difference some competition can make.

For decades, development lending in Asia has been led by the US-led World Bank and the Japan-steered Asian Development Bank. Now, as China puts the finishing touches on the new US$100 billion Asian Infrastructure Investment Bank that's drawn backing from 56 nations so far, others are touting their leadership in providing loans to the region.

The World Bank this week pledged US$11 billion in new loans for Indonesia, described as one of its biggest financial commitments anywhere. Prime Minister Shinzo Abe unveiled a new initiative to free up to US$100 billion for infrastructure across Asia. And the ADB recently overhauled its development fund to boost its annual lending and grant approvals by 50 per cent.

The moves by the World Bank and Japan came as member nations of the AIIB meet in Singapore this week to agree on its structure - with a fast-track approval process a centerpiece of the talks.

"The China-led AIIB has thrown down the gauntlet, spurring the ADB and other multilateral financial institutions to pick up their game," said Curtis S Chin, a Milken Institute Asia Fellow and former US ambassador to the Manila-based ADB. "Asia is likely to see growing competition to fund infrastructure projects and that can be a good thing if it does not lead to a race to the bottom when it comes to environmental and other standards."

The AIIB isn't China's only initiative to fund infrastructure to help grow its clout. It's also putting together a US$40 billion Silk Road infrastructure fund that will build roads and bridges and has spearheaded the US$50 billion BRICS Bank, another development lender.

India, for its part, is planning a special purpose facility to fund roads, bridges and power plants across southern Asia and even Africa, though the size may be a fraction of the AIIB's capital.

The flood of new cash into Asia could bring problems of its own. Among the concerns: ensuring pollution controls and limiting corruption in new projects. The US, which at least for now hasn't signed up to the AIIB, has urged the new bank to uphold global standards.

There are likely to be plenty of projects in Asia to absorb the extra funding. The ADB has estimated around US$8 trillion is needed to pay for everything from new roads and bridges to ports.

And not all of the rival lending will be aimed at infrastructure. The World Bank's big new loan to Indonesia includes help for education and local services.

"While there will be an element of competition to this, there are plenty of opportunities for collaboration," said Tim Summers, a senior consulting fellow on the Asia program at think-tank Chatham House. "China has made clear that it sees the AIIB as cooperating with existing institutions."