The new Asian Infrastructure Investment Bank (AIIB), launched in Beijing last week with a near US$ 50 billion commitment from China, will provide easy access to unconditional credit for countries like Sri Lanka but at higher interest rates, senior Sri Lankan economists said yesterday. “It will provide unconditional loans, unlike credit from other agencies (the [...]

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AIIB to rival WB, ADB; loans with no questions asked

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The new Asian Infrastructure Investment Bank (AIIB), launched in Beijing last week with a near US$ 50 billion commitment from China, will provide easy access to unconditional credit for countries like Sri Lanka but at higher interest rates, senior Sri Lankan economists said yesterday.

“It will provide unconditional loans, unlike credit from other agencies (the IMF, the World Bank or the Asian Development Bank), but interest rates would be higher,” a top economist said, adding: “The choice is left to Sri Lanka: either seek credit with no questions asked at high commercial interest rates or go for low cost funds with conditions.”

The new bank, launched on 0ctober 24, with 21 Asian countries including Sri Lanka signing up as founder members, is a huge boost to the region which requires a lot of infrastructure funds particularly in India and other countries. India is expected to provide a larger part of the balance $50 billion to make up the $100 billion start-up capital. Member countries will also make a contribution, the amount of which is yet to be finalised.

Central Bank officials said they were not involved in this process while senior Finance Ministry officials were not immediately available for comment. China’s Vice Finance Minister Jin Liqun, who was also the former Vice-President of the Asian Development Bank, is the Secretary General of AIIB which will be operational next year. Highly-placed Government sources said Treasury Secretary P.B. Jayasundera is among Asian economists and officials tipped to be offered top positions in the bank.

Drawing reference to the new bank in his Budget speech, President Mahinda Rajapaksa said, “This year, we supported the initiative taken by the Peoples Republic of China to set up an Asian Infrastructure Investment Bank to meet infrastructure financing needs of Asia. I am pleased to inform this House that today we signed as a founder member of AIIB with several other member countries to set up this bank”.

The economist, who declined to be named but who is familiar with the developments, said some part of China’s massive US$3 trillion worth of investment in US Treasury Bills and bonds would shift to the new bank and through it funding of infrastructure projects across Asia. “This process is like what Japan did in 1967 when it launched the Asian Development Bank. Now China is taking the lead in an infrastructure fund for Asia because Asia is growing faster than any other region,” he said.

The founder members of the bank are China, India, Thailand, Malaysia, Singapore, the Philippines, Pakistan, Bangladesh, Brunei, Cambodia, Kazakhstan, Kuwait, Laos, Myanmar, Mongolia, Nepal, Oman, Qatar, Sri Lanka, Uzbekistan and Vietnam.

The purpose of the multilateral development bank is to provide finance to infrastructure projects in the Asia Pacific region. Economists said that the AIIB is also perceived by some as a rival to the IMF, the World Bank and the ADB — institutions which are dominated by United States and Japan — and seen as China’s stamping its authority in the region.

The shift of some of China’s investments in the US could have an impact on the latter’s economy, the economist said.

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