A better governing model for AIIB

Comments on Richard Kozul-Wright and Daniel Poon "Development finance with Chinese characteristics", 9/06/2015

I think that a new governing model for the Asian Infrastructure Investment Bank (AIIB) could be to seek a balance between economic weights or contributions to the AIIB and members' sovereignty.

Such a governing structure will have the feature of combining both the representative and senate structures in many Western democracies. It will have more desirable properties than both the current governing structures of the World Bank and the IMF. For example, it is more objective as opposed to the arbitrary nature of the existing ones.

Further, it gives an equal weight to each country in the sovereign part of the proposed structure. The objectiveness and fairness are superior to all the current models of governance.

If China and other countries are interested in successfully reforming the current international financing bodies, they are likely to have a much stronger argument should they carefully consider and device a better governing model and mechanism. The model proposed here can help them to advance their goals and endeavors in seeking to reform both the IMF and the World Bank.

Effective decision making key to regional infrastructure investment

Comments on  Mahendra Siregar, BKPM, Andrew Elek, ANU, and Maria Monica Wihardja “Seizing the global infrastructure opportunity in Indonesia”, 25/02/2014, http://www.eastasiaforum.org/2014/02/24/seizing-the-global-infrastructure-opportunity-in-indonesia/

If I were an Indonesian charged with managing the economy, I would probably put more emphasis and focus on the most likely and feasible options that are likely to be outside the G20 and possibly APEC exist multilateral frameworks. Some commentators have commented that the G20 has become a talkfest. And it seems indeed very difficult for the G20 to come to a common position with strong commitment to the issues discussed in the article, given the very different situations of the members' domestic economies and politics.

On the other hand, the AIIB initiative may be helpful to regional infrastructure investment, given that China is the sponsor or initiator and it has the money to invest overseas, as well as its links to the regional economies and its desire to show leadership with its financial resources outside of the IMF and world bank frameworks where it does not have adequate weight of influence due to under-weighted voting power.

Certainly it would be much easier to make decisions among the parties involved, given the needs for investing in regional infrastructure and the financial resources available that is fairly concentrated in terms of decision making, as compared to the IMF or the world bank where understandably there are more disparities among the major stakeholders.

The authors’ discussion on that may bear more fruit to advance infrastructure investment in Indonesia and indeed the East Asia region. And that is likely to contribute to enhanced growth of the region.

In short, the desire for using existing multilateral organisations to invest in infrastructure is one thing, the reality of difficulties in getting agreement is likely to be another, not too dissimilar to the world trade organisation negotiations and other bilateral or regional free trade agreements negations.

G20 and other world and international institutions

Comments on Thom Woodroofe “The G20: More development needed”, 10/10/2010, http://www.eastasiaforum.org/2010/10/10/the-g20-more-development-needed-2/
The G20 should consolidate on its role in world economic and financial affairs first to make it both effective and efficient to steer the world economy and ensure financial stability.

In that role, the G20 should gradually play a leading role in coordinating the agendas of main international economic and financial institutions like the world trade organisation, IMF and the World Bank.

It is possible and indeed desirable for G20 to play a leading role in negotiating a world climate change agreement. The UN should mandate G20 such a role, perhaps as its effective climate change secretariat.

At this stage, it appears more difficult for the G20 to play the role for world security, given the complexity of security issue. Just imagine, if the five UN security permanent members could not reach agreement on some issues, how could the G20 which include all those five to reach agreement on the same issues?

So, the best strategy for the G20 is to play a role in areas it can be successful and gradually to establish itself to be an effective world body, and then to broaden its agenda and influences, including possibly the reforms of UN governing mechanisms

Create new international and secure financial asset classes

Comments on Yang Yao “China’s growing pains, globalisation and adjustment”, 7/04/2010, http://www.eastasiaforum.org/2010/04/07/chinas-growing-pains-globalisation-and-adjustment/comment-page-1/#comment-109532

There is clearly a need for more international assets classes for investors including sovereign funds and central banks.

In that context, IMS SDR might be a good candidate. Alternatively, the World Bank could issue WB bonds. But for liquidity purposes, the IMF or the World Bank must be ready to act as a market maker too in case there is not enough liquidity.

Leaving that aside, why can't China be more innovative to set up an international bank to provide loans in foreign currencies at reasonably favourable rates to sovereign countries? In that way it can also have security and reasonable returns for its international reserves.

Alternatively, why doesn’t China work together with the IMF or the World Bank to create some monetary facilities to create some new international financial asset classes.

Once the issues of assets in foreign currencies and current account trade needs are separated, it is easier for China and indeed other countries too to move more freely on exchange rate issues.

International public goods for poor countries' growth?

Comments on Andrew Elek “The G20 and enhancing the availability of international public goods”, 24/09/2009, http://www.eastasiaforum.org/2009/09/22/enhancing-the-availability-of-international-public-goods/

The development process is very complex and there are so many factors that can contribute to both the failures and successes of a country's development.

The statement "In a series of papers, Raghuram Rajan, former chief economist of the IMF, and I were unable to find any positive effects of aid on long-run growth but did find evidence consistent with some of the negative effects of aid in depressing manufacturing exports and worsening domestic institutions,’ does not necessarily prove that the proposed alternatives will be able to achieve better outcomes than what the world bank has done in the past.

Firstly, there is no surety that the findings of that study are correct, given the so many factors in play.

Secondly, if specifically targeted aids cannot achieve positive long run growth, how can one reasonably think that the proposed by increasing the provisions of public goods by international financial organisations will do a better job to promote long run growth? Weren't public goods available in the past? Why will new public goods be different?

The proposal will make the link between inputs and outputs/outcomes much more weak and less transparent. It is unbelievable that will work.

It is like to treat a particular disease, the specifically developed medicine is only effective to some patients but not all patients. Now let's try something different. How about using a medicine that is for general health to cure that particular disease?

Will that approach work? Few would agree, probably. At least conventional logic suggests it will not.

An idea - good or bad?

Comments on Arvind Subramanian “The G-20: An Idea from India”, 11/09/2009, http://www.eastasiaforum.org/2009/09/11/the-g-20-an-idea-from-india/
Why should the World Bank not be a bank but an institution for generating ideas and technologies?
Surely that would push back the agenda for improvement in developing countries many years, wouldn't?
The author probably assumes the following:
that there are not enough ideas,
that there are not enough technologies for developing countries,
that developing countries are better in assimilating ideas,
that developing countries are better at adopting "new technologies",
that the WB is better at generating ideas,
that the WB is better at developing technologies.
It is highly doubtful any of the above would hold any water, or has any reasonable rationale.
It does not seem to be a good idea at all.