In a recent op-ed in The Financial Times, Larry Summers criticized the
U.S. for not backing the creation of a new China-led international bank
that would finance major infrastructure projects across the Asia Pacific
region; the former U.S. secretary of treasury decried it a “failure of
strategy and tactics” and called for “a comprehensive review of the U.S.
approach to global economics.”
Summers’ pointed words followed those of another Clinton Administration
alumnus. Madeleine Albright, America’s former top diplomat, who late
last month said the United States had “screwed up” in its unsuccessful
efforts to dissuade other countries from supporting the Asian
Infrastructure Investment Bank.
Both Summers’ and Albright’s remarks came as diplomats and business
executives from Asia and Europe have embraced the bank. Great Britain,
Germany, France, Italy, South Korea and Australia, are among more than
40 nations who have brushed aside the White House’s concerns over the
intentions of the bank and whether it will follow “high quality,
time-tested standards.” China will provide much of the AIIB’s initial
$100 billion in funding. The bank is expected to be up and running by
the end of this year, helping finance transport, water, energy and other
Going forward, the U.S. and Japan, which also has withheld support, may
well seek to save face and work with the bank. Such a move will be good
for all parties, but for the bank to be successful, leaders should bear a
few measures in mind:
With the bank’s focus on infrastructure development instead of on the
broader goal of poverty reduction, it is important that policies and
procedures be put in place to ensure that infrastructure investments do
not lead to the unintended impoverishment of thousands of people or
significant harm to the surrounding environment.
Given their size and scope, major infrastructure projects such as
hydroelectric power plants and road networks can lead to forced
resettlement of communities and the loss of traditional livelihoods,
such as in agriculture and fishing. I saw this during my own visits to a
range of power and transport projects in my oversight role from early
2007 to the end of 2010 on the Board of Directors of the Asian
Strong social and environmental safeguards are needed to make sure
development projects are done in a sustainable manner. Views and input
from affected communities should be incorporated in a meaningful way
from the earliest stages of project design. Otherwise, poorly designed
projects can contribute to social and environmental harm, costs overruns
for borrowers and ultimately unrest and delayed or cancelled projects.
The new bank should move quickly to prove skeptics wrong. It has the
chance, for example, to demonstrate that it can be more effective than
the World Bank and other regional development banks in financing
infrastructure while addressing legitimate community concerns about
relocation and compensation for any loss of housing or income.
Recently, the World Bank admitted to “serious shortcomings in the
implementation of its resettlement policies,” adding that it plans to
fix its problems with a “plan that will improve the oversight and
management of resettlement practices to ensure better protection of
people and businesses affected by bank-funded projects.”
The new Asian Infrastructure Investment Bank has the chance to develop
strong, new and effective accountability mechanisms all shareholders
would support. A strong independent evaluations department not beholden
to any single shareholder must be part of that. Mechanisms to review and
ensure compliance with the bank’s own rules are also critical.
As Summers noted, it is time for the US to wake up to a new economic
era. Strengthened engagement with Asia and all its major financial
institutions must be part of that.