Jin Liqun, center, the president-elect of the AIIB, says the bank will initially focus on financing projects in power, transportation, and urban infrastructure in Asia. (Reuters Photo/Jason Lee)

Observers Hail Indonesia's Participation in China-Led AIIB

BY :JAKARTA GLOBE & REUTERS

JUNE 30, 2015

Delegates from 57 countries gathered in Beijing to witness the signing of the Asian Infrastructure Investment Bank (AIIB) agreement. (Reuters Photo)

Jakarta/Beijing. Indonesia's participation in a new China-lead development bank has been welcomed at home, with observers hailing it as a worthy alternative to western-controlled institutions.

Delegates from 57 countries gathered in Beijing to witness the signing of the Asian Infrastructure Investment Bank (AIIB) agreement, which is expected to rival institutions such as the World Bank and the Asian Development Bank.

Fifty countries signed the agreement, China's Finance Ministry said in a statement on Monday, among them Indonesia, Iran, Australia, Georgia and Britain.

Seven countries — Denmark, Kuwait, Malaysia, Philippines, the Netherlands, South Africa and Thailand — refrained from signing as they had not yet won domestic approval and are likely to do so later in the year.

China will hold a 30.34 percent stake and have 26.06 percent of voting rights in the AIIB, the ministry said, making Beijing the largest shareholder in the multilateral institution, which will project the country’s growing soft power.

India will have the second-largest share in the bank, followed by Russia, Germany and South Korea based on their capital subscriptions, according to the statement.

Indonesia's Finance Ministry said on Sunday that Indonesia would be the eighth-largest shareholder in the AIIB with an investment of $672.1 million over five years. It is not immediately clear, however, what Indonesia's share or voting rights will be.

Bandung-based international relations observer Teuku Rezasyah said he was upbeat that Indonesia's participation in the AIIB would only mean good for the country.

“We will now have a better bargaining position when dealing with western-controlled banks, because now we have a comparison,” said Rezasyah, the executive director of the Indonesian Center for Democracy, Diplomacy and Defense.

He said in the past Indonesia had been easily controlled by western development banks, citing the case of the Asian monetary crisis in 1997-98 when the International Monetary Fund had insisted the country divert shares from its banks and state enterprises.

“But China now, it doesn't request anything weird. We'll gain a lot of advantages from [the AIIB].”

Reuters, however, has raised concerns over China's veto power as the country will hold more than a quarter of votes in the AIIB.

It says China's veto rights will effectively give the country a veto on votes requiring a "supermajority," which requires approval by 75 percent of votes and two-thirds of all member countries.

A supermajority vote is needed to choose the president of the bank, provide funding outside the region and to allocate the bank's income, among other decisions.

China has maintained it will not have veto powers, unlike the World Bank where Washington has a limited veto.

Rezasyah warned that Indonesia also must ascertain that China will not fully control the new bank.

“Because we have a stake [at the bank], we can expect a concession from China. And we don't want this bank to be fully controlled by China,” he said.

“Indonesia must come out with a formula [to ensure fair representation of stakeholders].”

He added among other things to watch out for were AIIB's premature structure and China's reputation for cheap, poor-quality products and services.

Rezasyah said to address these issues, Indonesia must actively participate in good governance of the bank.

The AIIB will begin with authorized capital of $50 billion that will eventually to be raised to $100 billion. This would then be divided into shares that each will have a value of $100,000.

China's Finance Ministry said the initial stakes and voting rights of China and other founding members would be gradually diluted as other members joined.

After getting approval from the majority of the board, the AIIB can increase its legal share capital and lower the shares of countries within the region, but not lower than 70 percent, it said.

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The AIIB, first proposed by Chinese President Xi Jinping less than two years ago, has become one of China's biggest foreign policy successes. Despite opposition from Washington, almost all major US allies — Australia, Britain, German, Italy, the Philippines and South Korea — have joined.

The major holdouts in the bank are Japan, the United States and Canada.

"This proposal was designed to meet Asia's infrastructure development and promote Asia's connectivity and also deepen regional cooperation for the sake of development," Xi told delegates at the signing ceremony.

"In a relatively short period of time we have been able to reach agreement on the articles of agreement of the AIIB ... This testifies to the solemn commitment of all the AIIB countries to setting up the bank."

The bank is slated to start operations by the end of the year. It will be headquartered in Beijing, and English will be the working language.

Like the World Bank and the Asian Development Bank, the bank's officers will get tax-free salaries.

Countries defined as "within the region" will hold a 75-percent stake in the bank, the ministry said.

Johann Schneider-Ammann, head of the federal department of economic affairs, education and research for Switzerland, called the AIIB a "necessary supplement" to other multilateral development banks and stressed the need for compliance with international standards in terms of transparency and governance.

"I am thus glad to know that it is the AIIB's declared objective to position itself as a responsible player among the multilateral development banks," he said, seated next to Xi.

Meanwhile, Rezasyah asserted that despite active involvement with the AIIB, Indonesia must bear in mind its "independent and active" foreign policy principle and try not show a preference for any major power.

Since President Joko Widodo took office last October, the president and Chinese leader Xi have paid each other visits, and Joko has expressed his keenness in taking part in China's Maritime Silk Road.

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