It appears the China-led Asian Infrastructure Investment Bank (AIIB) has become a dilemma for the Abbott Government.
Cabinet division over the invitation for Australia to be a founding backer of the bank reflects the Abbott Government’s uncertainty about our nation’s future in Asia.
Australia should participate in the Fund and use its recognised expertise in infrastructure planning and financing to help ensure the AIIB matches the established transparency, human rights and environmental standards of the other major multilateral funds.
Our involvement can ensure that the right governance structures are in place to deliver the best outcomes for the region.
We are better in, than out.
While the AIIB is yet to include any Pacific nations, this is an area in which Australia can be a vocal campaigner for bringing increased multilateral-backed infrastructure investment to the region.
It is proposed that the AIIB will be a new multilateral fund to focus on projects in areas such as energy, telecommunications and transport for Asia’s underdeveloped countries.
The idea is to harness some of China’s vast financial resources, along with the expertise acquired in recent decades of its own massive infrastructure development, in order to improve projects in the region.
Beijing will provide at least 50 percent of the capital needed for the Bank, estimated to be between $50 billion and $100 billion. With those funds, the AIIB would already be nearly two-thirds the size of the $165 billion Asian Development Bank.
Chinese President Xi Jinping has stated that the AIIB will follow multilateral rules and procedures adopting the best practices of the World Bank and Asian Development Bank.
The Bank was officially launched in Beijing last year at a ceremony attended by 21 countries including India, Thailand and Malaysia. Australia was invited to be a founding partner and initially showed interest but has since been mute on involvement.
The Bank can play an important role in promoting infrastructure development and growth in our backyard-the Asia Pacific- and Australian cannot afford to miss the opportunity to play an active role in regional development and trade.
There is a large infrastructure deficit in Asia. The existing institutions seem unable to meet the real needs for infrastructure across Asia, both presently and into the future.
Estimates are that from now to 2020, Asia needs some $8 trillion for infrastructure. Indonesia alone is said to need $230 billion. The Greater Mekong Subregion, linking less developed parts of Vietnam, Laos, Cambodia and Thailand, is estimated to need $50 billion. The AIIB will play a vital role in financing and coordinating much needed projects in our region.
As the recent Chair of the G20 Treasurer Joe Hockey has been promoting infrastructure investment by member nations as the key to increasing world growth.
His argument for the world to unbridle growth through infrastructure becomes a little hollow if we baulk at being part of the biggest shake up of global development finance since Bretton Woods.
Opponents of our involvement in the AIIB claim potential governance problems and fears it will be a vehicle for China’s strategic interests in the region mean we should not be involved.
Such criticisms however have failed to prove decisive for a growing number of nations with France, Germany and Italy now reportedly preparing to follow Britain’s lead and join the Bank.
And in terms of Australia’s relationship with the United States, Labor believes joining the AIIB does not necessarily present an either/or dichotomy. It is within our capacity to foster close relationships with both economic powerhouses.
Chinese investment in our region is not going to dissipate. In November 2013, Beijing announced a new assistance package for the Pacific Islands, potentially worth more than US$2 billion. The package is made up of two loan facilities for use in infrastructure development, of up to US$1 billion each.
Already Chinese development aid associated with infrastructure in the region has led to problems through vanity projects with no real development value and soft loans raising levels of indebtedness. Chinese insistence on the use of their companies for projects has led to social unrest and claims of insufficient environmental protection, not to mention a lack of transparency and accountability.
These factors points to the need for more multilateral coordination and commercial discipline for infrastructure projects in the region. For Australia, China's development assistance should be viewed not as a threat, but as an opportunity.
Australia's dominance in the region means it is in a strong position to work with China, for the sake of good development outcomes and to strengthen our bilateral relationship.
This is a global financial system shake up we should be a part of.
This article was first published on the Guardian website on Monday the 23rd of March 2015.