IMF, ADB add to supporters for China-led development bank

(GNN) - China received critical support from the International Monetary Forum and Asian Development Bank on Sunday for its goal of establishing a new Chinese-led multilateral lender, adding to a growing wave of endorsements that has worried the United States.

Leaders of the IMF and ADB, speaking at a conference in Beijing, said they were in talks with or happy to cooperate with the Asian Infrastructure Investment Bank (AIIB), a $50 billion lender to be majority funded by China that is seen by some as a rival to these established international financial institutions.

The United States, concerned about China's growing diplomatic clout, has urged countries to think twice about signing up and questioned whether the AIIB will have sufficient standards of governance and environmental and social safeguards.

Some 27 countries have already signed up to participate in the AIIB, China's Finance Minister Lou Jiwei told China National Radio on Saturday. It will provide project loans to developing countries and is slated to begin operations at the end of 2015.

The United States' key strategic allies in the region, Australia, Japan and South Korea, are also considering joining the proposed Beijing-based bank.

Early opposition to the AIIB from Western countries partially dissolved after Britain said this month it would join, with France, Germany and Italy swiftly following suit.

Canberra could formally decide to sign up to the AIIB when the full cabinet meets on Monday, Australian media have said.

At least eight more countries may join the lender by the March 31 deadline, Jin Liqun, secretary-general of the interim secretariat that is establishing the AIIB, told a panel at the conference on Sunday.

The fund will have approval from its shareholders at the start to double its capitalization to $100 billion, he said.

"China will follow the rules of the international community and will not bully other members but work together with them and try to reach consensus in all the decisions we make without brandishing the majority shareholder status," he said.

BANDWAGON

In an editorial published on the same day, China's official Xinhua news agency suggested that the United States might be embarrassed that many of its allies had not heeded its warnings.

"For decision-makers in the United States, they really have to be reminded that if they do not jump on the bandwagon of change in time, they will soon be overrun by the bandwagon itself," it said.

IMF Managing Director Christine Lagarde said on Sunday that the fund would be "delighted" to cooperate with the AIIB.

China's Lou and ADB President Takehiko Nakao said at the conference they had held discussions on possible cooperation, with the Chinese finance minister adding that topics discussed included safeguard standards.

Lou has previously said AIIB would complement rather than compete with other institutions such as the ADB, the Manila-based multilateral lender dominated by Japan and the United States.

The AIIB's Jin said developing countries in Asia would receive the bulk of loans for infrastructure projects, which could be co-provided with commercial banks and pension funds.

Non-Asian countries would also only hold 25 percent of the AIIB's shareholding, lower than their stakes at the founding of the ADB, he said.

(Reuters)(Additional Reporting by Dominique Patton and Kevin Yao; Editing by Paul Tait and Alex Richardson)

Australia signals approval of China-based AIIB; Japan divided

(GNN) - Australia said on Friday there was a lot of merit in the China-led Asian Infrastructure Investment Bank (AIIB) while Japan's finance minister signalled cautious approval of the institution that the United States has warned against.

However, other top officials in Tokyo were more sceptical, reflecting a split in the government of Prime Minister Shinzo Abe over

whether joining an institution launched by Japan's main rival would help or hinder its interests.

The Sydney Morning Herald newspaper reported that Canberra could formally decide to sign up to the AIIB when the full cabinet meets on Monday.

Japan, Australia and the South Korea, all major U.S. allies, are the notable regional absentees from the AIIB. The United States, worried about China's growing diplomatic clout, has questioned whether the AIIB will have sufficient standards of governance and environmental and social safeguards.

But the opposition to the AIIB began crumbling after Britain said earlier this month that it would join the institution, maintaining it was in its national interest. France, Germany and Italy swiftly followed suit.

Australia now appears close to joining, although no formal decision has been made, and Beijing said Japan and South Korea were also considering the possibility.

China's Finance Minister Lou Jiwei said the bank would be set up by the end of the year and would complement rather than compete with other institutions, including the World Bank and the Asian Development Bank (ADB), the Manila-based multilateral institution dominated by Japan and the United States.

"All parties will by the middle of this year complete talks and sign the charter for the AIIB, and by year-end will make the charter effective and officially establish the AIIB," Lou said in an interview with state media, adding that Beijing was "maintaining communication" with the United States and Japan.

Asked about Australia, South Korea and Japan joining the bank, China's Foreign Ministry said it was "open" to it.

"They have all already expressed that they are contemplating the issue at hand," ministry spokesman Hong Lei told a daily briefing. "We are open to them making the relevant decision."

Japanese Finance Minister Taro Aso said Tokyo could consider joining the China-led bank if it could guarantee a credible mechanism for providing loans.

"We have been asking to ensure debt sustainability taking into account its impact on environment and society," he told reporters after a cabinet meeting.

"We could (consider to participate) if these issues are guaranteed. There could be a chance that we would go inside and discuss. But so far we have not heard any responses."

Other officials were more leery, reflecting Tokyo's concern over China-led lending practices, its relations with major ally Washington and the AIIB's potential rivalry with the ADB.

"We have a cautious position about participation," said top government spokesman Yoshihide Suga.

But a source familiar with Japan's policy-making said Tokyo should get involved to help ensure best practices and to avoid being left out. "Now it has become awkward as Europe joins but the U.S. and Japan stay out," the source said.

According to one senior official in the ruling coalition, the result of the differences is that Japan's participation "is not going to happen under the Abe administration".

OUR NEIGHBOURHOOD

Australian Treasurer Joe Hockey said no final decision had been made on Australia's involvement but the matter had been under careful consideration.

"More than 30 countries have already signed up. This is going to operate in our region, in our neighbourhood," he told a radio station in Brisbane.

"There is a lot of merit in it, but we want to make sure there are proper governance procedures. That there's transparency, that no one country is able to control the entity."

The Sydney Morning Herald said Canberra could invest as much as A$3 billion ($2.3 billion) in the bank and that the National Security Committee has cleared the way for the investment.

South Korean government officials denied a newspaper report that Seoul had decided to join in exchange for a five percent stake in the AIIB and the position of deputy chief.

The finance ministry said in a statement South Korea will make a decision on whether to join the bank "through close consultation with major countries and after considering various factors such as economic advantages and disadvantages".

Hockey said joining the AIIB would not affect Australia's close relationship with the United States and also referred to the gains that Australian companies could reap.

"The United States understands that this is a bank that's going to be operating in our region. It's going to be using contractors in our region. We want Australian contractors involved, we want work for Australians out of this bank," he said.

"And because it's operating in our region, in our neighbourhood, it is important that Australia fully understand and look at participating in this Bank."

($1 = 1.3067 Australian dollars)

(Reuters)(Additional reporting by Leika Kihara, Yuko Yoshikawa and Kaori Kaneko in TOKYO and Megha Rajagopalan and Michael Martina in BEIJING, Editing by Raju Gopalakrishnan)

Japan split on joining AIIB bank, caught between US, China

(GNN) - Japan is split over joining a China-led development bank, concerned about missing out on the rapidly coalescing global movement for the institution while also worried about alienating ally United States and helping bolster rival China, officials said.

Finance Minister Taro Aso signaled for the first time on Friday that Tokyo could be part of the Asian Infrastructure Investment Bank (AIIB) if it can guarantee a credible mechanism for providing loans.

But other top officials took a more skeptical stance, reflecting a split in the government of Prime Minister Shinzo Abe over whether the AIIB would help or hinder Japan's interests.

"We have a cautious position about participation," said top government spokesman Yoshihide Suga.

Around 30 countries, including Britain and Germany, have decided to participate in Beijing's flagship economic outreach project, but Washington, Japan's main ally, has urged countries to think twice before joining, citing worries about governance and environmental safeguards.

"Views are split within the Japanese government on whether to join the AIIB," said a person with close knowledge of Japan's financial policy-making.

The result of the standoff within the government, said a senior official in the ruling coalition, is that Japan's participation "is not going to happen under the Abe administration."

Japan is hesitant to join out of concern over China-led lending practices, over its relations with Washington and over the AIIB's potential rivalry with the Asian Development Bank (ADB), the Manila-based multilateral institution dominated by Japan and the United States, officials said.

By custom, the ADB is headed by a former senior official from the Bank of Japan or the country's finance ministry.

But the source familiar with Japan's policy-making said Tokyo should get involved to help ensure best practices and to avoid being left out. "Now it has become awkward as Europe joins but the U.S. and Japan stay out."

Finance Minister Aso told a news conference that the AIIB needs to have its board of directors screen and approve individual cases in deciding provision of loans.

"We have been asking to ensure debt sustainability, taking into account its impact on environment and society," he said after a cabinet meeting.

"We could (consider joining) if these issues are guaranteed. We'll give it careful consideration from diplomatic and economics viewpoints."

If the bank can address debt sustainability, environmental and societal concerns, "there could be a chance that we would go inside and discuss," he said. "But so far we have not heard any responses."

Suga, the chief cabinet secretary, interpreted Aso's comments to mean that "unless such issues are resolved, participation would be impossible."

(Reuters)(Additional reporting by Yuko Yoshikawa and Kaori Kaneko; Editing by William Mallard and Raju Gopalakrishnan)

Another lender?: Analysts tip-toe around BRICS’s new bank

#GNN - #ISLAMABAD: For long, Pakistan has remained dependent on west-dominated #global #financial #institutions. But, as a strategic shift in the global economy gets under way – from the developed to the largest and fastest growing economies – the country can benefit from the New Development Bank (NDB) recently formed by the growing economies.

 Known as BRICS, founding members of the NBD – Brazil, Russia, India, China and South Africa – have for the time being restricted membership to themselves. However, in principle, they have agreed to expand membership to other countries.

The bank will be headquartered in Shanghai, China with its first president from India. The newly born financial institution is widely perceived an alternate to global financial hegemony of the US and Europe.

The new financial institution will help break the monopoly of the World Bank (WB) and International Monetary Fund (IMF), which will benefit countries like Pakistan, according to an official of a multinational financial institution.

But for a country like Pakistan, heavily dependent on the west, there will understandable be pros and cons of joining a new bloc, according to analysts. They said Pakistan should become a member of the NDB at the earliest but will have to weigh in foreign policy implications before joining the club.

It opens the door for Pakistan to get funding other institutions decline to give. However, experts say that “it is too early” to expect that the NDB will replace the WB or the IMF. They say it will take at least 10 to 15 years before the NDB is counted as a near rival to the established global lenders.

The NDB will be one more window for getting finances for infrastructure projects but it will also not offer free lunch, said Dr Abid Hasan, a former operation WB advisor. The NDB might have less stringent conditions but it will ensure that its money is safely returned, he added.

Dr Hasan said there is a possibility that the NDB will raise funds by floating bonds like the WB and the Asian Development Bank. Bond investors will also seek solid guarantees and eventually the NDB will have to adopt policies which give comfort to investors, he added.

Pakistan’s ambitions to join the new club may face resistance from archrival India but it can successfully counter the Indian factor with the help of China and Brazil, said analysts. They said China is the dominant force among the five members and is considered close to Islamabad. Brazil may also neutralise political ambitions of India, the former being an important supplier of defence equipment to Pakistan.

The response of the US and European investors to the NDB will be another important factor for the new financial institution becoming a rival to the Bretton Woods System, comprising the WB and the IMF.

The Bretton Woods System are predominately Western institutions and over the years have been used for political purposes by the US and Europe.

The loans these institutions offer to developing economies like Pakistan are always linked to painful structural re-adjustments that create social and political troubles in the recipient countries.

Initially, the NDB will finance infrastructure and sustainable development projects, with $50 billion in capital. The BRICs have also announced a $1000billion Contingent Reserve Arrangement (CRA), to tide over members in financial difficulties. The CRA is going to be a substitute of the IMF, according to analysts. But it will take time till the NDB and CRA become global.

Each BRICS country will contribute $10 billion to the bank’s capital stock. China will provide 40% of a $100-billion Contingency Reserve Arrangement. While the NDB will have contributions from all five member countries, the dominant player in the organisation will be China.

China’s underline aim is that it wants Yuan become a global exchange currency —an objective that remained unfulfilled due to strong US influence.

Published in GNN, AIP, Tribune, July 21st, 2014.

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China pushes for developing world's rights as BRICS summit opens

(GNN) - China will dedicate itself to "perfecting" the role developing countries play in international affairs to give them better representation and a greater say, President Xi Jinping said ahead of a summit of BRICS nations in Brazil.

China has already started doing this by promoting international development banks which will either be led by China or will have a very strong Chinese role, as opposed to Western-dominated institutions like the World Bank.

Brazil, China, India, Russia and South Africa are due on Tuesday to sign off on a new development bank being launched by the BRICS emerging market nations.

Officials from BRICS nations have said Shanghai will likely be the headquarters, but an official involved in talks on the bank told Reuters late on Monday in Brazil there still was no agreement among the five on where the lender will be located.

China is also planning an Asian Infrastructure Investment Bank.

Xi, in an interview with South American media released by China's Foreign Ministry, said China would try to better play the role of a responsible major power and promote the rights of the developing world.

"We will ... dedicate ourselves to perfecting the international system of governance and proactively push for expanding the representation and right to speak for developing countries in international affairs," he said.

"We will come up with more Chinese proposals and contribute China's wisdom," Xi added, without elaborating.

But China faces deep suspicion about its motives, not least from another BRICS member, India, and there have also been concerns in the group that China could hijack the new bank to serve its own interests.

DOMINATION CONCERNS DISMISSED

Xi appeared to dismiss these concerns, saying China did not believe it was destined to dominate others just because of its growing strength.

China's moves to assert its claims of sovereignty in the disputed South and East China Seas, as well as its growing military might, have unsettled the region and caused concern in Washington.

"The Chinese people love peace. In the blood of the Chinese people there are no genes for invading others or dominating the world. China does not acknowledge the old logic of 'when a country is strong it must dominate'," Xi said.

"China will resolutely pursue the path of peaceful development, to proactively seek a peaceful international environment for its own development, and will use its own development to promote world peace," the president added.

In a meeting with Indian Prime Narendra Modi in Brazil, Xi invited India to become a founding member of the Asian Infrastructure Investment Bank, the official Xinhua news agency reported.

"The two countries should join hands in setting global rules, so as to raise the voice of developing countries," Xinhua cited Xi as saying.

Xi's trip to the region also takes in Argentina, Venezuela and Cuba, where he is expected to sign a series of trade deals.

(GNN)(Reuters)(AIP)(Reporting by Ben Blanchard; Editing by Richard Borsuk)

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Agriculture loan: World Bank approves $76m for Sindh project

(GNN) - ISLAMABAD: The board of executive directors of the World Bank (WB) has approved $76.4 million concessionary lending for the Sindh Agricultural Growth Project.

The project is aimed at improving productivity and market access for small and medium producers in important commodity value chains. It will benefit approximately 112,000 farmers covering over 66,000 hectares of land, according to a handout issued by the country office of the Washington-based lending agency. Total cost of the project is $88.7 million.

The project intends to achieve its objectives by investing in knowledge and technology for producers and sub-sectors of crops and livestock, and strengthening public sector institutions to enhance the environment for sustained sector growth, according to the WB.

The credit is financed from the International Development Association (IDA), the World Bank Group’s grant and low-interest arm. It will be on standard IDA terms, with a maturity of 25 years, including a grace period of five years.

It is the last planned concessionary lending by the WB as part of its outgoing country partnership strategy. The bank has already approved a new four-year strategy for Pakistan that offers both expensive and cheap credit but is subject to many prior measures.

“The project is envisaged to be a significant investment towards inclusive growth by prioritising support to small and medium-sized producers who are trying to compete in horticulture markets,” said WB Country Director for Pakistan Rachid Benmessaoud.

The plan focuses on small farmers as there is a significant involvement of women in production and processing.

Sindh enjoys greater competitive advantage in these pro-poor production value chains. Capacity building, technical assistance and strategic planning for sector growth will also be provided through this project, said the WB.

The project will focus on horticulture, particularly chillies as 92% of national production is produced in Sindh, onions – one-third of total production comes from Sindh – and dates as the province contributes about half of national production.

Horticulture is largely unregulated, includes more private sector actors than major crops and has received little donor attention in the past, according to the WB documents.

The introduction of good agricultural practices and modest investments in relatively simple technology could substantially increase the quality of production and the potential for increased trade and higher incomes. For instance, chili exports from Pakistan are banned by the European Union due to unacceptable levels of Aflatoxin.

For dates, only 20-30% of the production is in high-value table while 10% of those are Grade-A and 60% are Grade-C dates. A majority of this fruit is dried dates and is mainly exported to India to be used in religious ceremonies, where they are thrown into the Ganges, according to the documents.

Improved tissue culture, orchard management and harvesting practices could increase the production of Grade-A dates, thus increasing income, said the WB.

The project will also promote private sector participation in agricultural development and sector growth through public-private models for agribusiness development and support services. The federal and provincial governments have highlighted commercial agriculture and market linkages as priority investments for the sector, said the WB.

Published in GNN - AIP - Tribune, July 9th, 2014.

World Bank cuts global economic forecast for 2014

WASHINGTON: The World Bank downgraded its forecast for the global economy this year, citing a bitter American winter and the political crisis in Ukraine.

In an outlook released Tuesday, the bank still expects the world economy to grow faster — 2.8 percent this year versus 2.4 percent in 2013. But its new estimate is weaker than the 3.2 percent expansion it had predicted in January.

The U.S. economy — by far the world´s largest — shrank at an annual rate of 1 percent from January to March, chilled by an unusually nasty winter. The political crisis in Ukraine dragged growth in Eastern Europe and Central Asia.

Together, those factors will "delay the recovery we talked about in January but not derail it," World Bank economist Andrew Burns told reporters.

Helped by super-low interest rates, the world´s wealthiest countries will expand 1.9 percent this year, up from 1.3 percent in 2013. In developing countries, growth is expected to stay flat at 4.8 percent.

In its twice-yearly Global Economics Prospects report, the World Bank estimates that the 18 European countries that use the euro currency will grow 1.1 percent collectively this year after shrinking in 2012 and 2013. It sees the U.S. economy recovering from the weak first quarter and growing 2.1 percent this year, up from 1.9 percent in 2013.

World growth is accelerating as the U.S. and Europe regain strength. Overall, the global economy is expected to expand 3.4 percent next year and 3.5 percent in 2016.

The rate of economic growth has stalled in China and other developing countries that had bounced back quickly from the financial crisis of 2008-2009. China´s economy is expected to decelerate steadily, from 7.7 percent growth last year to 7.6 percent this year to 7.5 percent in 2015 and 7.4 percent in 2016.

In China, the slowdown is partly deliberate. Authorities are attempting to manage a transition from rapid growth based on exports and investment in real estate, factories and infrastructure to slower but more stable growth based on spending by Chinese consumers.

But the Chinese slowdown has pinched other developing countries— from South Africa to Brazil — that provide the world´s second biggest economy with raw materials.

The good news: The U.S. and Europe should pick up some of the slack as their economies improve and they demand more imports from developing countries. After growing less than 3 percent each of the past two years, world trade will expand 4.1 percent this year and 5.2 percent in 2015, the bank predicts.

Central banks, including the U.S. Federal Reserve, have been supporting economic growth by keeping interest rates low.

Last week, the European Central Bank announced additional rate cuts and took the historic step of imposing a negative interest rate — charging banks for deposits with the ECB in an effort to prod them to make more loans instead of hoarding money.

Burns said the ECB´s moves to protect Europe´s fragile recovery were "appropriate" and "go in the right direction."

But he and other economists worry about what will happen when the central banks declare their mission accomplished and let interest rates rise again. Higher rates in the U.S. and Europe likely will lure investment away from developing countries. If the shift occurs too quickly, it could damage developing countries´ economies and cause chaos in their financial markets — a potential rerun of the Asian financial crisis of 1997-1998.

Other risks to the World Bank´s growth forecast include continued tension in Ukraine, political instability in Syria and Thailand and the possibility that China´s economy slows faster than expected. (AP)