Olin Wethington and Robert Manning at the Atlantic Council have just published an important report calling for renewed engagement and by the US in the multilateral development banks. This report should be read in conjunction with its sister report, Shaping the Asia-Pacific Futurepublished in 2015. Mr. Wethington is a fluent Chinese speaker, a senior business executive with decades of Asia experience and a former Assistant Secretary of the Treasury for International Affairs. There are very few people as qualified to take on these important issues with the same level of expertise, networks in the region, and convening power in Washington.
The facts on the ground in Asia are changing and Asian countries want different things from development agencies. For example, there are only 2 countries in Asia that will be eligible by 2024 for the cheapest form of lending (akin to grant financing) – concessional lending. Most other Asian countries are able to finance their own development with tax revenue, domestic savings, and international capital markets. Asian countries want infrastructure, access to world- class technology, and innovation or global benchmarking in social and economic sectors.
According to the report, the World Bank has de-emphasized infrastructure over the last several decades. The report calls for the World Bank to re-commit to infrastructure the way the Asian Development Bank (ADB) has made infrastructure its focus. The ADB, channeling the preferences of its clients, will likely commit 90 percent of its spending in the near future to Infrastructure.
The report also covers the emergence of China’s Asian Infrastructure Investment Bank (AIIB). The AIIB quickly garnered 57 members. While both the United States and Japan opted to not join, almost every ally of the United States did join. It is still early to determine how the AIIB will operate, but it seeks to be faster, less bureaucratic, and not necessarily held to the environmental and social standards of the World Bank and others. It will be interesting to watch how the AIIB’s European shareholders react the first time that there are social problems with an AIIB project.
The report emphasizes that U.S. leadership in the MDBs does not necessarily require more money. Instead, the report stresses the importance of renewed U.S. engagement in the management of MDB money and the value of working with allies on a strategy to make policy. The report calls for creative and reasonable adjustments in how institutions are managed, suggesting that the institutions could easily operate with slightly looser lending standards while remaining more financially prudent than any international bank today.
Notably, the authors review the recent call for the MDBs to become the financiers of so-called “global public goods.” The authors of the report believe that that although global public goods are important, the MDBs should remain focused on the needs of their clients and continue to operate as banks.
One silver lining of a Chinese-led AIIB is that the United States has bought itself some more time on the issue of U.S. leadership of the World Bank. The authors note that the AIIB is led by a Chinese CEO, which takes some of the energy out of the argument in favor of appointing a non-U.S. CEO of the World Bank.
The report comes out at a moment when the United States has to decide whether it wants to continue to pay the condo fees required for global leadership. I sincerely hope we collectively decide to continue to do so. If we do, the report is the blueprint to one of several pillars of U.S. economic and soft power leadership in Asia.