Sibling Rivalry Between Newest Development Banks: The AIIB and the NDB
Last year saw the official launch of two multilateral development banks headed by emerging economies: the Asian Infrastructure Investment Bank (AIIB), led by China and backed by a shareholder membership of 57 countries; and the New Development Bank (NDB, also known as the BRICS bank), operated on an equal basis between the BRICS nations—Brazil, Russia, India, China, and South Africa.
Both banks were born of similar circumstances. First, they were set up out of a long-standing frustration with the Bretton Woods institutional lenders, namely the International Monetary Fund (IMF) and the World Bank, for refusing to accord greater voting rights to emerging markets. Second, both aim to help fill the enormous demand for infrastructure investment in the developing world and have been endowed with $100 billion-large capital bases.
Much of the conversation thus far has therefore centered on the geostrategic challenge posed by the new banks to the established Bretton Woods order, which has moulded the global architecture for development finance since the end of World War II. As a powerful showcase of the increasing strengths of developing nations, the AIIB and the NDB have been closely watched in their progress towards either upending or supporting the status quo.
In making sense of this broader, symbolic tussle, it may be useful to open up the analysis of strategic rivalry to the newcomers themselves. Given that they remain in their formative years, both banks face the same contest of proving to the world that they are worth taking seriously. In doing so, they will likely seek to measure themselves up against each other, as much as with their fully-fledged predecessors. Despite it being early days yet, some key points of comparison have begun to emerge, indicating that they are unlikely to tread a common trail.
It would seem that the AIIB has gotten off to an early head-start. Despite the NDB having first devised the idea of a multilateral lender headed by emerging markets in 2012, the AIIB was the first to frame it in compelling reality. In a show of diplomatic bravado in March of last year, the UK suddenly broke ranks with the United States to join the China-led bank. The ensuing weeks saw a landslide in accession to the bank from all across the world, including 14 of the G20 advanced economies. While the NDB sought a united front among developing nations, the AIIB chose instead to sow divisions and poach allies from the other side.
The diplomatic furore ignited by the AIIB would prove to be an enduring one. One year on, the bank has again defied expectations by making moves to model itself on its Western counterparts. The AIIB has recognised the governance practices of the Bretton Woods lenders as the industry standard and announced joint loan projects with both the World Bank and Asian Development Bank. AIIB President Mr. Jin Liqun has also moved to fill its ranks with former IMF and World Bank staffers. These developments indicate that the AIIB wants to play by existing rules rather than invent the game anew.
This leaves the NDB as the independent and reserved outlier. As a cohort restricted to emerging BRICS economies, it has likely not felt itself obliged to participate in international engagement the same way the AIIB has. Its financial capacity also appears to be more constrained, with only $50 billion of its $100 billion capital base paid up. Its first loan agreements, which will fund solar projects in each of the BRICS countries, speak to a more introverted persona, contrasting with the AIIB’s plans to co-finance larger road projects abroad in Pakistan and Kazakhstan. Furthermore, the core presumption of equality between the NDB’s members will likely be risked by the overbearing clout of China, whose GDP is almost 60 percent larger than the other four countries combined.
While the NDB continues to feel itself out, it risks the pitfalls of oblivion and inaction. Attempting to evenly accommodate the interests of its five politically and geographically diverse members can lead to a culture of stagnation and timid bureaucracy. In this regard, it should take a leaf out of the AIIB’s playbook and consider opening itself up to greater external influence, opportunity and know-how.
At the same time, the NDB should leverage its unique strengths. Its confined shareholder membership should be a boon to efficient decision-making, not an obstruction. The BRICS nations combined account for a quarter of global GDP, and can go a long way in contributing to the vast demand for infrastructure in the developing world alongside the AIIB and the Bretton Woods lenders.
Furthermore, for the first time in history, it has provided an empowered forum where multilateral lending can be tailored by developing nations, for developing nations. The special opportunity to develop deeper networks and coordination with local governmental agencies and actors in a host country may allow the NDB to achieve success where Western lenders have failed. The NDB’s original mandate to foster a nuanced world order based on shared and collective responsibility should be pronounced in both theory and practice.
Though it will likely continue to be outshined by the extroverted AIIB for now, the NDB must remember that being the black sheep in the family isn’t always a disadvantage, and in the current case, it is precisely the point.
Image: Construction of Intumak Dam on the Nura River. Kazakhstan (credit: Shynar Jetpissova / World Bank – Photo ID: SJ-KZ001)