Development Financing: from World Bank to NDB and AIIBGroup 8

What is development financing?

Keisuke Kawai1M141063-2

Development financingPurpose:

To provide developing countries financial support and

professional advice for economics and social development.

Development financing

Means:

● Bilateral official development assistance (ODA)

● Grants and concessional and non-concessional

development lending by multilateral institutions

● Other official flows like private investments by○ Corporations

○ NGOs

○ Philanthropy organizations

World's Top ODA Contributors

Japan's ODA Country Lists in 2011

Origin of Multilateral Institutions

The World BankIn 1944, Bretton Woods

The Western Allies brought their principal economic advisors for a conference to discuss how to govern the international finance in the post-war era.

Founded the World Bank (formally known as the International Bank for Reconstruction and Development)

Japan was helped so much for the reconstruction!!!

The World Bank and Japan's Reconstruction 1945: Burned land（焼け野原）

1954~1973: The Rapid Economic Growth Period（高度経済

成長期）

● The Tokaido Bullet Train (Tokyo-Osaka) 1961 funded by

the World Bank $80,000,000

● Tomei Highway (Tokyo-Nagoya) 1960s

● Kurobe Dam 1963 (providing electric energy to Kansai

area) etc...

The World Bank and JapanTo sum up...

➔ The World Bank funded 31 projects in Japan

➔ Japan's total loan: $863,000,000

➔ Japan's full repayment in 1990

Now, Japan is one of the biggest donors of the World Bank

New Development Bank (NDB)

Tasnia Nabila (97171129-6)

New Development Bank

● A multilateral development bank made by the BRICS states (Brazil, Russia, China and South

Africa) to “mobilize resources for infrastructure and sustainable development projects in

BRICS and other emerging economies, as well as in developing countries.”

● Proposed during the 4th BRICS Summit in New Delhi, India in 2012

● The official treaty signed during the 6th BRICS Summit in Fortaleza, Brazil in 2014

○ The treaty was in effect from July 2015

○ Became operational from February 27, 2016

New Development Bank

Current President: K.V. Kamath

HQ in Shanghai

New Development Bank: Capital

● initial authorized capital of US$ 100 billion;

initial subscribed capital of US$ 50 billion

○ subscribed capital stock is divided into

paid-in capital, with an aggregate

value of US$ 10 billion, and callable

capital with an aggregate value of US$

40 billion.

○ payments to the paid-in capital stock

of the Bank are to be made in seven

yearly installments

○ The Board of Governors will review

the capital stock of the Bank at

intervals of no more than five years

NDB Paid-In Capital

New Development Bank: Membership

● Open to expanding membership

● The voting power of each member

will be equal to the number of its

subscribed shares in the capital

stock of the bank

● New members allowed to join but

BRICS capital share cannot drop

below 55%

New Development Bank: Approved Projects

AIIB-Establishment & Status

Ahn, Jiwon1M161001-2

Asian Infrastructure Investment Bank

An international

financial institution

proposed to support

infrastructure

investment in the Asia-

Pacific region

Foundation•China pointed 'lack of support from existing financial institutions' as a

reason to launch a new international financial institution.

•Demand for infrastructure funds in Asia was expected to reach $730

billion from 2010 to 2020.

•Especially in Southeast Asia, funds for construction of infrastructure

were demanded, but existing investment banks could not satisfy such

demands.

•Therefore, the purpose of AIIB's establishment is to contribute to the

growth and social development in Asia by providing funding.

Members (2015)

•https://www.scmp.com/sites/default/files/2015/04/16/aiib-graphic.jpg

Structure and Governance

● The initial capital was $50 billion, mostly covered from

Chinese capital, and is supposed to gradually increase

up to $ 100 billion

● Participating countries receive the investment from AIIB

instead of adding a certain quota of capital.

● Managed by Board of governors, board of directors,

president, vice president, and staff members.

Progress

2013: Planned

2014: Establishment

2015~2017

Influence● Efficiency of Asian infrastructure development

and international investment market.

● The World Bank agreed to establishment of

AIIB.

● Expand influence in international economic and

political area.

● China’s national image has been improved by

managing cultural resources.

Risks of NDB and AIIB/Challenges they pose to status quo

Natsuki Sugimura 1M170448-9

The challenges that new MDBs pose to the status quo

Status quo

(decentralising world bank’s monopoly)

NDB AIIB

Disadvantages of decentralising world bank's monopoly

● Ethical issues of funding project by World

Bank Group

● The private sector may undermine the role

of the state as the primary provider

● World Bank governance structures which

are dominated by industrialised countries

The way to disrupt the status quo by NDB and AIIB

● Helping to built a new international

framework

● Setting up deep integration of markets

● Closer cultural exchanges

● Regional stability

Risks of NDB

● Bad teamwork among BRICS countries

● Rejecting the use of development

financing as leverage to promote social

and political change in borrowing

countries

Risks of AIIB

● Voting rights are determined by economic

power (Chinese supremacy)

● Depending on other financial

organizations such as World Bank and the

Asia Development Bank

Complementary or Contradictory?

Beatrix Lim 1M170243-0

Potentially “destabilizing” consequences● Fragmentation

○ forum-shopping

○ arbitrage

● Contested Multilateralism ○ Existing institutions having to engage in competition with younger,

newer counterparts

Necessity

● Driven by functional differentiation

● Increasing complexity of policy domains, development

needs > created to meet such needs

● Importance of diversifying focus

● Financing needs of developing Asia > enough room for a

host of institutions to co-exist

● Increase of players > greater efficiency and reform

Opportunities for Cooperation

Areas for further cooperation

● Develop a general form of division of labor

● Partnering with NDB and AIIB in the GIF (World Bank)

● Credit rating reform

● Undertaking joint loan projects and co-financing

agreements

Partners, not adversaries?

● Emerging rapport of “healthy” cooperation and

competition between banks

● Focusing on striving predominantly for value-added and

goal-oriented investments:○ Able to showcase how developing nations can effectively channel

increasing strengths to global development goals

○ Promote new norms of shared leadership and responsibility

Referenceshttps://www.huffingtonpost.jp/world-bank-group/world-bank-project_b_5995522.html

https://finances.worldbank.org/Trust-Funds-and-FIFs/Biggest-donors-by-countries-2010/r2cs-ptjn/data

http://www.kurobe-dam.com/whatis/history.html

http://worldbank.or.jp/31project/#.Wxzc1GZ7FmA

http://www.un.org/en/development/desa/policy/wess/wess_current/2012wess_overview_en.pdf

https://thediplomat.com/2016/04/the-aiib-and-the-ndb-the-end-of-multilateralism-or-a-new-

beginning/

https://onlinelibrary.wiley.com/doi/pdf/10.1111/1758-5899.12396

https://www.globalasia.org/v13no1/feature/co-operation-not-competition-the-new-multilateral-

development-banks-and-the-old_ramon-pacheco-pardopradumna-b-rana

Discussion Questions

What do you think of the rise of new

development banks??

Discussion Questions

What is your opinion about China’s involvement with

these new development banks as opposed to the US

involvement with the older ones??