With AIIB, Nation Diversifies Funding Options

Though it’s extremely early days, experts this week welcomed Cambodia’s membership to the nascent China-led Asian Infrastructure Investment Bank (AIIB), saying it would provide much-needed diversity of funding for the nation’s infrastructure and connectivity needs.

Launched in Beijing last weekend, the multilateral development bank aims to support infrastructure growth in the Asia-Pacific region through the provision of loans, and supports China’s ambitious “One Belt, One Road” initiative to boost trade and connectivity across the Eurasian landmass.

– Business Analysis

Last week, the National Assembly ratified a $62.3 million investment proposal in the $100 billion capitalized bank, making Cambodia one of 57 prospective founding member states throughout the world.

“The more institutions that Cambodia can tap into for funding the better,” David Van, managing director at consultancy firm Bower Group Asia, said in an email.

“It wouldn’t be surprising if the AIIB becomes the largest donor [to Cambodia] considering the funds available…[and because] they are keen to develop the Greater Mekong Sub-region.”

The bank is expected to approve its first loan within six months, and thereafter to lend between $10 billion to $15 billion per year to members for at least five years, according to its newly elected president, Jin Liqun.

Its launch comes during a decade in which the Asian Development Bank (ADB)—dominated by Japan—estimates that developing countries in Asia will require nearly $8 trillion worth of infrastructure investments to sustain development.

Phay Siphan, Council of Ministers spokesman, has strong hopes that the AIIB will not only help to fund the country’s road and rail needs, but also support its ambitions to enhance the country’s regional connectivity.

“Infrastructure is a key policy for the government, both domestically and regionally,” he said.

“We want to connect rural areas in provinces to cities, boost connections between markets and consumers, and connect better to regional markets like Thailand and Laos.”

The government’s National Strategic Development Plan 2014-2018 allocates about $1.6 billion for infrastructure—including transportation, water, sanitation, power and telecommunications—accounting for 21 percent of the period’s total budgeted allocation of capital expenditures.

Though reducing reliance on external funding sources is equally important for the country, Sophal Ear, author of “Aid Dependence in Cambodia,” said he welcomed the AIIB for diversifying the country’s access to more official multilateral sources of finance.

“I expect that the AIIB will be an improvement on the current system of aid from China,” Mr. Ear said in an email.

“It’s an improvement in transparency from going bilateral with China. Bilateral aid is usually the most selfish kind of aid. Studies have shown multilateral aid is better.”

Because loans provided through the bank comply with the same monitoring, regulatory and transparency standards as the International Monetary Fund, World Bank and ADB, Mr. Ear said, more multilateral channels would hopefully crowd out unofficial and often wasteful bilateral funds—particularly from China, Cambodia’s largest provider of external finance since 2010.

“Without aid transparency…you get mis-procurement, corruption and conflicts of interest. That’s what we currently have with existing bilateral Chinese aid,” he said, adding that the bank might bring positive competition for the World Bank and ADB in Cambodia, and thereby spur them to become more regionally relevant and efficient.

Multilateral banks in Cambodia have not had a spotless record, however. After the World Bank mismanaged a nationwide land-titling project, thousands of families were evicted from Phnom Penh’s Boeng Kak neighborhood by the government. The ADB, meanwhile, has drawn condemnation for its handling of families evicted by a project to rehabilitate the country’s abandoned railway tracks.

The AIIB, headquartered in Beijing, is seen as a rival to the U.S. and Japan-dominated institutions —with China holding about a quarter of its voting power.

Neither the U.S. nor Japan has joined the AIIB, though their allies in Asia, South Korea and the Philippines, and others, including the U.K., Germany, Italy and Australia, are among its founding members.

With the AIIB still in its infancy, it is not expected to replace the role of other multilaterals in Cambodia given that the bank aims to collaborate with existing regional lenders.

That said, Cambodia’s membership reflects the country’s need to continually align itself as global economic powers compete for influence, Mr. Van said.

“Some world powers are waking up to the reality of the ‘new world order,’” he said. “We are graduating into a multipolar world and no longer a unipolar one.”

For Hal Hill, a professor of Southeast Asian economies at Australian National University, the AIIB is essentially a vehicle to bring much-needed new funding sources and expertise to Cambodia and Asia.

“It’s good news all round…providing a multilateral mechanism for recycling China’s balance of payments surplus,” Mr. Hill said in an email. “[It reflects] China’s legitimate aspirations to regional and global leadership [and] its proven effectiveness as an infrastructure supplier.”

[email protected]

Related Stories

Latest News