Author: Pradumna B Rana, Nanyang Technological University The new multilateral development banks (MDBs) — the China-led Asian Infrastructure Investment Bank
Author: Pradumna B Rana, Nanyang Technological University
The new multilateral development banks (MDBs) — the China-led Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB), both established in 2014 — represent a wave of decentralisation in development financing. These new MDBs were once widely considered a threat to existing MDBs, such as the World Bank and the Asian Development Bank (ADB). But this concern has proved unwarranted.
Governance of the global development financing system has actually improved because of ‘healthy competition’ and functional cooperation between new and old MDBs. This means that the impact of decentralisation and the establishment of new MDBs is neither good nor bad, but rather conditional on how well they can work with existing institutions.
Early on, many had opined that the creation of new MDBs could have significant costs. New institutions would presumably have a different member base, geographical reach and focus compared to existing institutions. This divergence would lead to the decentralisation and fragmentation of global governance — particularly because China is not a member of the OECD’s Development Assistance Committee (DAC), which oversees and coordinates international development assistance.
A patchwork system would emerge and spur ‘unhealthy’ competition, the argument continued, with institutions taking different approaches and developing their own lending modalities and policy solutions. Old and new MDBs would also compete for some of the same clients, raising the incentive to reduce standards to attract clients who would have opportunities for forum shopping and arbitrage.
But signs of ‘unhealthy’ competition between new and old MDBs have not emerged.
