A south-led multilateral development bank, AIIB should have its ears and eyes close to the ground

infrastructure

A note on the two-day civil society-sponsored people’s convention on infrastructure finance, organized on the eve of the Asia Infrastructure Investment Bank (AIIB) board meeting, to take place in Mumbai  on June 25-26, 2018:  

Peoples Convention on Infrastructure Financing – A response to AIIB (Asian Infrastructure Investment Bank) Annual Meeting is the coming together of various groups working towards just and equitable society threatened by the massive infrastructure push resulting in displacement and dispossession of the marginalized and destruction of natural resources, on which their livelihoods depend.  There seems to be a consensus among the International Finance Institutions that infrastructure constitutes a primary element for pushing growth.  The IFIs have been perpetuating the assumption of a huge infrastructural gap in emerging countries. Such gaps could only be filled by diluting regulatory mechanisms that govern labour markets, environmental safeguards and land acquisition laws. The IFIs perceive such dilutions to improve investment climes and help improve ‘ease of doing business’ rankings.

Besides institutional and regulatory issues, lack of finance is often viewed as a major reason for the slow pace of infrastructure development in most of the developing and Less Developed Countries.

According to McKinsey, the world needs to invest the US $3.3 trillion annually (or about 4% of present annual global GDP of US $84 trillion) in economic infrastructure until 2030.  Asian Development Bank has also estimated an infrastructure gap of about $ 26 trillion over the 15-years from 2016 to 2030, or $1.7 trillion per year. It is estimated that India would require an annual infrastructure investment of US $230 billion (INR 14,95,000 crore) every year till 2020.  This is about 9% of India’s present GDP, and over 50% of the total annual budget expenditure proposed (of about INR 29,20,484 crores) in the Feb.2018 budget! Note that while the global infra investment needs are projected at about 4% of global GDP, for India, this is a huge 9% of its GDP. Over the last five years, India has been spending about 5% of its GDP on infrastructure. These huge estimates are served to propagate the need for Development Finance particularly the private finance for which nations will have to create the investment climate through deregulation and ease of doing business.

These estimates form the basis of the pitch by International Finance Institutions.  The new Development Finance Institutions like AIIB point out these infrastructure gaps to drive the point of needing more financing and financial institutions. AIIB claims its rationale in terms of focus sectors, modalities of financing for boosting economic activities in the southern countries.  While the traditional multilateral development banks were led by US, Japan, and northern countries, the emergence of AIIB with its headquarters in Beijing is seen as symbolic of the emergence of China as a major economic player in the world in the 21st century.

The new institution, AIIB, as opposed to traditional development finance agencies does not have well framed policies for lending particularly on the environment and social safeguards fronts.  Many of these safeguards got ingrained in the earlier agencies based on struggles from the ground including that of dam-affected, displacement affected communities.  With the emergence of AIIB, we are also witnessing a race to the bottom when the seemingly progressive policies which are based on universal frameworks are being overturned for country-based systems which absolve financial institutions from the responsibility of the destruction they are funding.  AIIB, for instance, started their lending without developing their key policies in place and adopting the policies of the financial institutions they co-finance with (either World Bank or Asian Development Bank).

AIIB 3rd Annual Governors Meeting, June 25-26 Mumbai

AIIB has grown since its launch and currently have about 86 approved members from around the world and will hold its 3rdAnnual Governors Meet in Mumbai India, the financial capital of the second largest shareholder in AIIB.  The Annual Governors Meeting is expected to discuss policies apart from regular business. The theme of this year is “Mobilising Finance for Infrastructure: Innovation and Collaboration” and sets out to discuss the private sector’s role in infrastructure.

As a host country, India is organising eight lead up events in various parts of the country on various themes leading up to the Annual Governors Meeting. These host country seminars push for reorienting the economy in favor of the private sector, arguing for revisiting of the regulatory ecosystem which according to them dis-incentivises the private sector.  The positions which AIIB hold on private sector bring them close to the traditional multilateral development agencies rather than challenging their roles.  The renewed push for private sector investment is coming at a time when India is witnessing a huge fall in private sector participation in infrastructure from $55 billion in 2010 to $5 billion in 2015 as nonperforming infrastructure assets of the previous public-private partnership (PPP) investments increased.

Peoples Convention on Infrastructure Financing

Peoples Convention on Infrastructure Financing has brought together groups and affected communities from across the country to discuss their vision of development and how they get affected by the infrastructure push by the dominant financial institutions.  The convention will share stories of resistance and alternate visions on development along with demanding constitutional guarantees regarding meaningful and informed consultations and rights of communities in planning and development.  The financial institutions, whether led by northern countries or southern countries could not absolve themselves from the impacts their projects inflict upon the people and environment.

AIIB currently goes by the policies of the co-funders like World Bank and Asian Development Bank in the absence of a policy of its own. Farmers affected by the land pooling scheme of  Amaravati Sustainable Capital City Development project has raised questions on AIIB and World Bank co-funded project and had to take up their grievances with the compliant mechanism of the World Bank, the co-financier of the project, in the absence of compliance mechanisms and policies of that of AIIB.

AIIB  has a co-financing model which serves AIIB well, particularly if other institutions, such as the World Bank and Asian Development Bank, do not charge the AIIB all the costs they incur for due diligence and oversight. With low-cost co-financing fees, the AIIB can make significant profits since its own loan charges can easily cover its low administrative expenses. The other institutions, with their full suite of safeguard policies, also protect the AIIB from reputational risks associated with infrastructure projects.    Two of the projects, one being the Transmission System Strengthening Project, which it is co-financing with ADB and one proposed project Amaravati CCP being co-financed with World Bank and Andhra Pradesh 24×7 – Power For All project being co-financed with World Bank; leaves AIIB absolved of any obligations. The policies, due diligence applicable are the responsibility of the lead financier and there is no clarity on the role and liability of AIIB

Concerns have also been raised regarding AIIB’s proposed investment in the National Investment and Infrastructure Fund (NIIF) as a financial intermediary which will further reduce the transparency of how this money will be spent in high-risk investments without taking proper accountability.  Various Indian groups have also joined their counterparts from across the world in raising questions on the energy policy as well as their concerns about shifting decision making power in approving projects from the Executive Board who are accountable to constituent Governments to that of the Bank Management.

The people’s convention on Infrastructure Financing organised by the ‘Working Group on IFIs’, an informal network of groups will discuss in length the policies of AIIB.  Various self-organised events are being held in Mumbai, bringing together groups working on urban development, transportation, coastal protection and coastal communities, sustainable energy, and equity, against privatisation along with groups monitoring financial institutions and their policies and projects in the country. The people’s convention also aims to bring together political actors, social movements, activists and local communities, both from urban slum communities and rural pockets to plan future action.

It also seeks to deliver a firm message to development financial institutions, particularly to the AIIB on our resolution to watch their investments and demand accountability in their investments in the country and strengthen the forces fighting for a just and equitable development.  AIIB being a south-led multilateral development bank should have its ears and eyes close to the ground feeling the pain of displacement and dispossession rather than funding projects that go against their own said mandate of clean, lean and green.

The people’s movements will keep a close eye on AIIB’s priorities, policies and investments in the country and how they respond to peoples’ voices.


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