U.S. allies head to China-backed bank (02:15)
(Reuters) - The
United States urged countries on Tuesday to think twice about signing up
to a new China-led Asian development bank that Washington sees as a
rival to the World Bank, after
Germany, France and Italy followed Britain in saying they would join.
The concerted move by
U.S. allies to participate in Beijing's flagship economic outreach
project is a diplomatic blow to the United States and its efforts to
counter the fast-growing economic and diplomatic influence of China.
Europe's
participation reflects the eagerness to partner with China's economy,
the world's second largest, and comes amid prickly trade negotiations
between Brussels and Washington.
European
Union and Asian governments are frustrated that the U.S. Congress has
held up a reform of voting rights in the International Monetary Fund
that would give China and other emerging powers more say in global economic governance.
Washington
insists it has not actively discouraged countries from joining the new
bank, but it has questioned whether the Asian Infrastructure Investment
Bank (AIIB) will have sufficient standards of governance and
environmental and social safeguards.
"I
hope before the final commitments are made anyone who lends their name
to this organization will make sure that the governance is appropriate,"
Treasury Secretary Jack Lew told U.S. lawmakers.
Lew warned the Republican-dominated Congress that
China
and other rising powers were challenging American leadership in global
financial institutions, and he urged lawmakers to swiftly ratify stalled
reform of the IMF.
German Finance Minister Wolfgang Schaeuble announced at a joint news conference with visiting Chinese Vice Premier Ma Kai that Germany, Europe's biggest economy and a major trade partner of Beijing, would be a founding member of the AIIB.
In a joint statement, the foreign and finance ministers of Germany, France and Italy
said they would work to ensure the new institution "follows the best
standards and practices in terms of governance, safeguards, debt and
procurement policies."
Luxembourg’s
Finance Ministry confirmed the country, a big financial center, has
also applied to be a founding member of the $50 billion AIIB.
The
AIIB was launched in Beijing last year to spur investment in Asia in
transportation, energy, telecommunications and other infrastructure. It
was seen as a rival to the Western-dominated World Bank and the Asian
Development Bank. China has said it will use the best practices of those institutions.
A
spokeswoman for the European Commission, the EU's executive arm,
endorsed member states' participation in the AIIB as a way of tackling
global investment needs and as an opportunity for EU companies.
The World Bank is traditionally run by a U.S. nominee and Washington also has the most influence at the IMF.
The
adjustment of shares and voting rights in the IMF was brokered by
Britain at a Group of 20 summit in 2010, and European countries ratified
it long ago.
Lew told
lawmakers that the U.S. delay in ratifying the agreement was undermining
its credibility and influence as countries question the United States'
commitment to international institutions.
“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,” Lew said.
The reforms would double the fund's resources and hand more IMF voting power to countries such as the BRICS -
Brazil, Russia, India, China and South Africa.
Some
Republicans have complained the changes would cost too much at a time
Washington is running big budget deficits. The reforms have also ran
afoul of a growing isolationist trend among the party's influential Tea
Party wing.
"HIGH WATERMARK"
China
said earlier this year a total of 26 countries had been included as AIIB
founder members, mostly from Asia and the Middle East. It plans to
finalize the articles of agreement by the end of the year.
China's state-owned Xinhua news agency said South Korea and Switzerland were also considering joining.
Chinese
Foreign Ministry spokesman Hong Lei would not comment on which
countries had applied, and repeated that the bank would be "open,
inclusive, transparent and responsible."
Washington
says it sees a role for the IAAB given Asia's immense infrastructure
needs and regards it as a potential partner for established institutions
like the ADB.
But its
strategy of questioning the IAAB's standards has drawn criticism from
some observers, who say the administration should have been more
accepting of the new bank or offered alternatives within the existing
institutions.
"If you try
to fight the rising power's peaceful ascent you sow big problems in the
future," said Fred Bergsten, a former top international affairs official
at the U.S. Treasury and currently a fellow at the Peterson Institute
in Washington.
Scott
Morris, a former U.S. Treasury official who led U.S. engagement with the
multilateral development banks during the first Obama administration,
said Washington was paying the price for delay on IMF reform.
"It's
a clear sentiment among a pretty diverse group of countries: We would
like to mobilize more capital for infrastructure through MDBs
(multilateral development banks)," said Morris, now with the
Washington-based Center for Global Development.
"And the U.S. stands in the way of that and now finds itself increasingly isolated as a result.”
A government official in
India,
which also has joined, said the members of the AIIB would meet in
Almaty, Kazakhstan, on March 29-31 to discuss the articles of agreement.
China has said March 31 is the deadline for accepting founder-members into the organization.
Japan, Australia and South Korea
remain notable regional absentees from the AIIB. Australian Prime
Minister Tony Abbott said at the weekend he would make a final decision
on membership soon. South Korea has said it is still in discussions with China and other countries about possible participation.
Japan is unlikely to join the AIIB, but ADB head Takehiko Nakao told the Nikkei Asian Review that the two institutions were in discussions and could work together.
(Additional reporting by
David Brunnstrom,
Anna Yukhananov, and
Douwe Miedema
in Washington; Yann Le Guernigou and Marine Pennetier in Paris; Erik
Kirschbaum in Berlin; James Mackenzie in Rome; Ju-min Park in Seoul;
Michael Martina and Ben Blanchard in Beijing; Manoj Kumar in Delhi; and
Leika Kihara in Tokyo; Writing by Paul Taylor and
Stuart Grudgings; Editing by
Gareth Jones and Leslie Adler)
The profits skimmed off debt fuel the speculative gambles that
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enforce the power of banks and Wall Street.