Countries in region need the AIIB

Despite its territorial dispute with China, it’s possible for the Philippines to have strong trade and investment relations with the global economic powerhouse. One major avenue for this is the Asian Infrastructure Investment Bank (AIIB), which the Philippines joined at the last minute in December. Since its launch in January, the Beijing-based bank has approved four loans worth US$509 million (Bt17.9 billion) for projects in Pakistan, Tajikistan, Indonesia and Bangladesh. Multilateral lenders such as the World Bank usually take more than a year to approve loans.

Given China’s bullying of smaller nations contesting territories in the South China Sea, the infrastructure lending programme through the AIIB has been met with suspicion. But while China is its single biggest shareholder, there are 56 other countries that account for more than two-thirds of the AIIB. 

Still, being the proponent and the biggest shareholder with a 26-per-cent stake, China designed the bank to tie in with its economic agenda, particularly the “New Silk Road” initiative, which aims to link Asia, Europe and Africa through the construction of massive infrastructure such as railways and ports, with the AIIB financing many projects.

Also called the “One Belt One Road” programme, the New Silk Road is believed by some experts to even help ease tension around the South China Sea as it expands economic cooperation among neighbours in the region, including those with which China is in dispute, such as the Philippines and Vietnam. Billions of dollars in investments are expected to pour into the construction of railway facilities, airports and sea ports and power plants that, in turn, would trigger the growth of job-generating factories. Besides, while it is true that the AIIB is linked to China’s own economic and strategic goals, what is wrong in having better China-funded infrastructure  in the country?

Even without the New Silk Road, the Philippines and other developing countries in the region need the AIIB. The Asian Development Bank (ADB) has estimated the infrastructure needs in the region as requiring $750 billion in investments annually until 2020, which it cannot finance on its own. The AIIB has been described as modern and multilateral, or China’s “21st-century” answer to lenders like the World Bank, which has always been led by Americans, and the ADB, which is dominated by Japan. And the Philippines will be better off borrowing through a more transparent AIIB lending window now, especially after the controversies that surrounded past infrastructure projects funded by China through bilateral agreements. The other international economic cooperation programme open to the Philippines is the Trans-Pacific Partnership (TPP) spearheaded by the United States. Although it looks inspiring, the TPP still has a long way to go before it can take off: The US Congress has yet to approve its framework. The Philippines also has to amend its  constitution to ease the restriction on foreign ownership.

Those who push for membership in the TPP usually cite one big disadvantage of being outside the agreement: The Philippines will suffer a decline in exports as TPP members buy more from, and have zero or near-zero tariff for, one another, while the old tariff and non-tariff barriers will remain for non-TPP members. But this might no longer hold true because tariffs have all but been removed through the World Trade Organisation, of which the Philippines is a member.

While the TPP is being processed by its founding members, the Philippines can work on building its infrastructure base  through the AIIB. With an adequate infrastructure system, it will then be ready to take on increased trade that could be brought about by the TPP.