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Analysis
AIIB chief pledges ‘world-class charter’

AIIB chief pledges ‘world-class charter’

Jin says non-resident board structure ‘ensures efficiency’

by David Marsh

Mon 2 Nov 2015

Jin Liqun, designated president of the Asian Infrastructure Investment Bank, has pledged a ‘world-class charter’ to govern the China-led multilateral development bank, in a clear bid to bring waverers such as the US and Japan into the currently 57-strong shareholding structure after the bank builds up operations from next year.

Jin told OMFIF in an interview that the bank, expected to start lending in 2016, is already in contact on future co-operation with the World Bank, Asian Development Bank, European Investment Bank, European Bank for Reconstruction and Development and Germany’s public sector lender KfW.

Jin, at present secretary-general of the AIIB’s pre-start up multilateral interim secretariat, indicated the main areas of activity would be in the energy, transport, and water/urban sectors, but said it would be open to all areas of infrastructure. In a policy expected to set an important yardstick for other multilateral financial institutions, he strongly backed the bank’s non-resident board structure as efficient and cost-effective. He confirmed the bank’s unit of account and main currency of issuance would be the dollar.

Here is the OMFIF-Jin interview in full:

What form of governance will the AIIB practise?

The multilateral interim secretariat has spent much of the past year working intensively with the bank’s 57 prospective founding members (PFMs) to develop a world-class charter, the articles of agreement. The articles were opened for signature in Beijing in late June and as of 28 October, 54 PFMs have signed. The articles remain open for signing by the PFMs until 31 December. The governance arrangements reflect the desire to establish a 21st century global financial institution. The highlights include:

• The bank’s shareholding structure, with Asian regional member majority ownership, ensuring that the voice of all its members—small and large alike—will be heard
• A non-resident board structure which helps the board to focus on strategy and policy and management to focus on implementation and delivery — a governance structure that ensures clear division of responsibility, efficiency and cost-effectiveness
• The high-level involvement of shareholders in drafting the articles and operational and financial policies to ensure strong ownership as the bank starts operations
• Universal procurement policy and high-standard environmental and social framework policies, building on global best practices
• A strong implementation culture — continuous training and development of staff with a focus on swift, responsive problem-solving
• More focused mandate on infrastructure, allowing for greater attention to results and outcomes and enhanced ability to master sectoral developments

What will be the AIIB’s unit of account? Could it be the SDR? Which main currency will you use for fund-raising?

As set out in the articles, the unit of account will be the dollar. This will also be the main currency of issuance.

When will operations begin? What does your pipeline of business look like? Can you give some indications of staffing?

The bank is expected to become operational by the end of the year. The articles of association will come into force when at least 10 signatories with 50% of initial subscriptions have completed the ratification process. We anticipate that this may take place by the end of 2015. At that point, the inaugural board of governors’ meeting will be called and the governors will, among other things, determine when the bank will start operations.

The secretariat is starting to develop a pipeline of projects to allow the bank to begin lending in 2016. The bank will start recruiting a small number of staff in the fourth quarter of 2015. Such recruitment will be conducted through a merit-based, competitive process, broadly similar to the processes used at existing development banks. All nationalities will be eligible to apply. Vacancies will be posted on the bank’s website and other media. The bank will build up its staff gradually, based on business needs.

Where will be the main areas of activity? What lending volume do you expect after the fifth year of operation? What rates of return are you targeting?

A 2010 Asian Development Bank study estimated an $8tn infrastructure financing gap across Asia in 2010-20. The greatest demand for infrastructure investment across Asia may initially be in the energy, transport, and water/urban sectors. However, the bank is open to investments across all infrastructure subsectors.

The secretariat is developing a pipeline of projects, some of which will be cofinanced with existing multilateral development banks. In addition to loans, other financial instruments will include equity investments and guarantees. As the bank gains greater operational experience, it will refine and hone its sectoral expertise.

In what way can the AIIB work together with sovereign institutions?

The AIIB looks forward to working with multilateral development banks and other financial institutions. The secretariat is already in contact with a number of organisations, including the World Bank, Asian Development Bank, European Investment Bank, European Bank for Reconstruction and Development and KfW, which have been generous in offering support in the start-up phase. The secretariat is grateful for the technical and advisory support received from these institutions. AIIB is also beginning to explore opportunities for future cooperation with sovereign institutions, such as the Korea EximBank.

How will the AIIB ensure that projects are legally transparent and protect social and environmental interests?

The AIIB is committed to the highest levels of transparency and this is embedded in its core principles. A draft environment and social framework has been prepared by seasoned professionals with experience in multilateral development banks and the private sector. A consultative process on the framework is underway with the PFMs and other external stakeholders. The final policies will be subject to approval by the board. The bank will put in place appropriate systems to ensure effective implementation.

How do you intend to carry out your investor relations?

The bank is founded on the principles of openness, transparency and accountability. The secretariat has held constant dialogue with the PFMs since the idea for the bank was launched. As the bank becomes operational and core staff come on board, it will strengthen and deepen contact with the international financial community.

Will the AIIB have international offices when it reaches a steady state of operation? Where would you envisage such offices being located?

The bank will be headquartered in Beijing. While there are no current plans to open other offices, the bank may do so where necessary to facilitate its operations and as authorised by the board.

David Marsh is managing director of OMFIF.

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