This week, Germany, France, Italy, and the U.K. all signed up to join the Asian Infrastructure Investment Bank. The AIIB, a Chinese-led multilateral fund with about $50 billion in capital to invest in public infrastructure, is opposed by the U.S. because it will compete with institutions where America has considerably more influence—organizations such as the World Bank and the International Monetary Fund. An Obama administration official complained about “constant accommodation” of China by the U.S.’s European allies, and the president’s National Security Council issued a statement expressing concern over the AIIB’s environmental and governance standards.
The complaints, however, ring hollow. Washington has singularly failed to play its part in building up the capacity of existing multilateral institutions, including the World Bank and the IMF, while blocking attempts by the rest of the world to fill the gap. If the Obama administration can’t get Congress to put up the cash required, it should at the very least get out of the way of other countries willing and able to lead on multilateral expansion and reform. International financial institutions are too important to global growth and stability to be held hostage by America’s inflated sense of entitlement.
Moving toward more global funding for development is good for everyone—including the U.S. The AIIB will provide funds that can support the rollout of infrastructure, providing electricity, clean water, and improved communications to millions. That will save lives and foster growth, whether the funding is in yuan or dollars. And the presence of European members on the AIIB’s board, who are advocates of good governance and environmental standards, should be reassuring to the U.S., not a reason for censure.
The administration argues that the money going to create the AIIB would be better spent by the World Bank or another existing international finance institution. But there’s a simple answer for why that isn’t happening: Washington. China’s move to set up a series of new multilateral banks including the AIIB has followed years of frustrated attempts to reform the existing international financial institutions to better reflect the new shape of the global economy.
It’s been five years since the World Bank last got a capital increase—and that was its first since 1988. Under pressure from the U.S. to keep funding requirements small and changes in voting shares limited, the capital boost added a mere 30 percent to the institution’s lending capacity. That headroom has been eaten up already by the bank’s operations during the global financial crisis. When it comes to the IMF, there have been four failed attempts by the Obama administration to get congressional approval and funding for the U.S. share of a financing and reform package.
Thanks to the U.S.’s stonewalling, America still has veto power on major decisions made by both the IMF and the World Bank, and a lock on selecting the president of the World Bank. Both institutions are increasingly unrepresentative of the global economy—and undersize compared with the demands they face. It’s hardly surprising that countries such as China and India are simply moving on.
The Obama administration recognizes the link between the creation of the AIIB and Washington’s pathetic performance on multilateral funding. As Treasury Secretary Jack Lew pointed out in recent congressional testimony: “It’s not an accident that emerging economies are looking at other places because they are frustrated that, frankly, the United States has stalled a very mild and reasonable set of reforms in the IMF.” The failure to act, suggested Lew, raised “significant questions about U.S. credibility and leadership in the multilateral system.”
If the U.S. is going to regain that credibility, it’s past time to do something. Finding more money from Congress appears hopeless. Instead, the executive branch should take matters into its own hands. The Treasury should instruct U.S. representatives on the boards of the IMF and the World Bank to vote in favor of reforms that will allow the rest of the world to get on with making those institutions stronger. If the U.S. would allow its voting share at the IMF and the bank to be reduced as other countries provided additional resources, that would enable the creation of a far stronger international financial architecture—good for everyone and cost-free to a skinflint superpower. Best of all: There would be no need for congressional approval.
The U.S. is acting like a disgraced ambassador from a tin-pot dictatorship in demanding perquisites out of all proportion to its role. The whole world is paying the price, but America will be the biggest loser in terms of influence when other countries simply bypass it and the institutions it did so much to build in the first place. If the U.S. wants to deter the growth of new multilateral institutions, it has to support the growth of the old ones.
(Corrects reference to Obama Administration's attempts to win Congressional approval for funding package for International Monetary Fund.)