THE Obama administration might have made a mistake in opposing China’s venture into multilateral lending, and is now standing more isolated than the country they sought to isolate.

One by one, countries have lined up to become part of the endeavour called the Asian Infrastructure Investment Bank, while the United States is alone in cautioning that the China-led initiative threatens to undermine the World Bank.

It is not clear why the US would want to believe that the World Bank ought to be the only multilateral lending agency dealing in infrastructure and social sector schemes, or that the Asian Development Bank is not being mentioned.

Also read: Britain to join China-led Asian bank

The world is a big place and there is plenty of room for other multilateral agencies to complement each others’ work. The head of the IMF and the government of Australia are the latest to add their voices of support to the venture. Clearly, they saw that there was little sense in opposing the AAIB.

There is even less sense in regarding the prospect of a Chinese move in multilateral infrastructure lending as some sort of a boon for Pakistan. It remains to be seen how the Chinese will deal with the problem of chronic users of their resources, and how they will approach the question of internal reform and conditionality-based lending.

Multilateral lending is a tricky game. Nobody wants to underwrite the economic dysfunctions of another forever, but urging the borrower to introduce reform brings the lender into the internal affairs of another country, something that the Chinese had been averse to until now.

As evidence of the deliberate and measured pace of movement, the Chinese have agreed to forego a veto in the bank, a move that was critical to win the support of the European countries.

The painstaking attention being given to governance issues these days is another indication that the bank is likely to be a more serious multilateral enterprise, and not an arm of Beijing’s foreign policy as the US has implied.

They are looking to not exercise the kind of power within the institution that the US has exercised at the IMF since its founding. It would be a mistake to underestimate the depth of the commitment that the Chinese are bringing to this enterprise.

It would also be a mistake to try and isolate them in the process. But equally it would be a mistake to regard the venture as some sort of big opportunity opening up for Pakistan.

Published in Dawn, March 25th, 2015

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