MANILA, Philippines - The Philippines became the last to join – in time for the new year – a newly established multilateral organization for infrastructure development in Asia led by what can be said is an old nemesis in territorial disputes.
The Beijing-led Asian Infrastructure Investment Bank (AIIB) was formally launched Christmas Day, but it was not until the morning of Dec. 31, the deadline for the prospective members to sign in, did the country join through Erlinda Basilio, Philippine ambassador to China.
It took months to get there with President Aquino’s economic managers trying hard to convince him of the benefits of an AIIB membership. Early last week, Herminio Coloma Jr., secretary of the Presidential Communications Operations Office, confirmed the Department of Finance (DOF) has recommended to Malacañang to join the multilateral body.
“President Aquino approved the recommendation of the DOF that the Philippines join the Asian Infrastructure Investment Bank,” Coloma said in a text message to reporters.
A week before the deadline, The STAR asked Charles Jose, spokesperson of the Department of Foreign Affairs (DFA), if a similar recommendation was made by the agency. The DFA and the DOF were part of an inter-agency group Aquino created to study the pros and cons of joining the AIIB.
He responded then with this: “What each agency recommended should stay in the inter-agency group. The important thing is the final decision that will be reached.” The Bangko Sentral ng Pilipinas likewise made a recommendation, but officials could not be reached for comment to confirm.
When sought for further comment on the country’s participation in the new bank, Jose replied: “The important thing is the Philippine government has decided to join the AIIB.”
By all accounts, the Philippines stands to gain from AIIB membership. Tagged more by Finance Secretary Cesar Purisima as “complementary” than a rival to the US-led World Bank and Japan-chaired Asian Development Bank (ADB), the multilateral lender had vowed to focus on the region’s infrastructure needs which ADB sees ballooning to $127.12 billion.
“The Philippines can benefit from this additional source for our substantial infrastructure needs for both the public as well as private sector projects,” said Lito Camacho, a former finance secretary, in an e-mail.
In addition, the country will be part of yet another international undertaking composed of 57 countries, whose goal is to give more voice to emerging markets in the global arena, something which the World Bank and the European-led International Monetary Fund (IMF) have failed to give.
“The political advantages are also many, including separation of border issues from international economic cooperation, plus points in the UN and other groupings,” said Cayetano Paderanga Jr., former director-general of the National Economic and Development Authority.
“This will be one more opportunity for engagement with China,” he said in a text message.
Unfounded worries
Aquino has every right to be suspicious of China, said Richard Javad Heydarian, political analyst at De La Salle University.
Last June, Aquino said China’s past investment deals in the Philippines had not been so pleasant, making it precautionary to ensure that any undertaking with it is safe from any controversy.
But Heydarian said the bigger consideration was Manila’s territorial spat with Beijing over the West Philippine Sea. This was made worse when the Permanent Court of Arbitration ruled in November it can hear the Philippines’ case even without China’s participation.
But he added such fears of politics mixing with economics are unfounded.
“A more careful look at the AIIB reveals that it will be a complementary body to existing development institutions, rather than a Chinese Trojan horse to unduly dominate and influence beneficiaries and member-states,” he explained.
Based on AIIB’s metrics, the Philippines will have a 0.010 percent stake in the bank, equivalent to $979.1 million in capital contributions. A total $126 million will be initially given as paid-in capital within five years.
By votes, the country will be entitled to 12,821 votes, representing 1.11 percent of AIIB membership, according to the DOF.
Voting powers
Without US and Japan, China will be the largest stakeholder with 30 percent plus 26.06 percent in voting power, according to the Center for Strategic and International Studies.
If the goal is really to give more say to emerging markets on the global financial arena, the AIIB is so far showing some promise.
Following China on the voting ladder is India, now the fastest growing emerging market economy, with 7.51 percent share.
Another BRIC country Russia is next with 5.92 percent share.
To compare, the US corners the bulk of World Bank voting power with 16 percent, while it and Japan lead the IMF with 16.74 percent and 6.23 percent, respectively.
Voting powers are important since they determine which country has more say in determining projects to be financed by the institution. In the IMF and the World Bank, voting powers by developed economies have been an issue to strings they attach on grants and loans to emerging markets.
The Philippines, for instance, was forced to enact suggested policies by the IMF in exchange for its loan program back in 1997.
The country has 0.45 percent voting share in the World Bank, and 0.43 percent at the IMF, compared with 1.1 percent at AIIB.
The only problem is while China and the Philippines are one in pushing for more emerging market powers in multilateral groups, political tensions still prompt the country to seek its allies in the developed world.
“The membership of major players and American allies like Britain, South Korea, and Australia has and will continue to place significant pressure on China to act constructively,” Heydarian said.
In September, National Treasurer Roberto Tan said other countries have already sought the Philippines participation in groupings within the bank, ahead of its official signing with the AIIB. The groups elect among themselves representatives to the AIIB board.
“We did not commit because we have not signed yet,” Tan said then, without naming the countries that approached the Philippines.
While the AIIB lending structures are still hazy, Purisima expressed optimism the bank will uphold to highest governance standards.
“We are confident the bank’s organization design and oversight mechanisms are committed to transparency, independence, openness and accountability. We are likewise optimistic that AIIB’s decision-making processes are geared toward making it a lean, clean green institution run like a true multilateral,” he said.
‘Excellent move’
For Benjamin Diokno, former budget secretary and now University of the Philippines economist, the benefits of the AIIB membership will be felt by the succeeding administrations.
“It’s an excellent move, no matter how late. Better late than never,” Diokno said in a text message.
“But it may not be productive to the outgoing Aquino administration because of its strained relationship with China. But it might prove useful for the next administrations given the Philippines’ huge deficiencies in public infrastructure,” he added.