With the rising development aggression among rural communities, ballooning national debt of developing countries, and countless violations of peoples’ rights, it is imperative to review the frameworks of new, Southern-led international financial institutions (IFIs) that once promised to shift the paradigm of the financial landscape controlled by the traditional Bretton Woods institutions, the World Bank (WB) and International Monetary Fund (IMF).

The Reality of Aid – Asia Pacific (RoA-AP) and CSO Partnership for Development Effectiveness (CPDE) Asia published a research in March 2020 that assesses two new players, the China-led Asian Infrastructure Investment Bank (AIIB) and BRICS-led New Development Bank (NDB) in terms of their adherence to Development Effectiveness principles, South-South Cooperation (SSC) principles, and human rights-based approach to development.

This latest research entitled, “AIIB & NDB: Paradigm Shift or Rehashing Corporate-led Development?” was tackled in the RoA-AP and CPDE Asia-organized virtual brownbag session on July 24, 2020 that featured the evidence-based findings. This online CSO event was in time for the 5th Annual Meeting of the AIIB held virtually on July 28-29, 2020. The contributors of the research presented data and case studies on how AIIB and NDB have implemented development projects in Central Asia, South Asia, and Southeast Asia, including the impacts of these projects to the poor and marginalized.

 

What’s the deal?

Contrary to its original agenda of “breaking the hegemony” of traditional international financial institutions, the AIIB and NDB are found to only replicate the neoliberal policies and practices of the traditional ones, according to the Center for Research and Advocacy – Manipur Secretary General, Jiten Yumnam. The banks’ neoliberal agendas are evidenced through funding “bankable” projects across Asia that are usually co-financed by the World Bank, International Finance Corporation (IFC), or the Asian Development Bank (ADB).

For Yumnam, such co-financing mechanism raises the alarm in transparency and accountability issues. For instance, AIIB will technically not be held liable for environment and social complaints because co-financed projects use the co-financier’s Environment and Social Framework (ESF). Moreover, the corporate interests of private sector partners are put first, effectively jeopardizing the livelihood and safety of local communities. Across South Asia, funding unsustainable projects such as coal power plants and controversial renewable energy that led to loss of livelihood and forced displacement prove that AIIB and NDB are implicated in inflicting social, environmental, and economic predicaments in local communities.

On top of these, the banks also lack transparent consultation mechanisms with civil society organizations (CSOs) that are tasked to monitor and address issues concerning development projects, as explained by Farida Abdyldaeva, the Program Manager of Public Association “The Right Step.” According to her, “While AIIB uses WB’s Environmental and Social Safeguard Policies, there are no mechanisms and procedures for institutionalizing the active involvement of development actors, including CSOs and local authorities specified in the bank’s policies and procedures.”

Abdyldaeva studied the opportunities and threats of the AIIB and NDB in Central Asia. She reiterated AIIB’s Exceptions to Disclosure Requirements’ policy on Public Information which“consists of unclear formulations of the exclusion from the rules.”These ambiguities that stemmed from vague policies led to a lack of information on the progress and results of development projects, which were supposedly disseminated to the public. This is the case for Uzbekistan, Kazakhstan, and Tajikistan, which received more than USD 216.2 million for energy, social, and transport projects from the AIIB alone.

The lack of transparency is not a new tactic for these banks to veer away from accountability. Kurniawan Sabar, Executive Director of Institute for National and Democracy Studies, discussed the case of the Mandalika Special Economic Zone (SEZ), a tourism development project owned by the Indonesia Tourism Development Corpo­ration (ITDC) with funding support from the AIIB.

The project is anchored on building roads, establishments, restaurants, and other infrastructure within the project area. According to Sabar, issues regarding the project include violation of peoples’ rights such as non-transparent and undemocratic practices in project implementation, landgrabbing, and militarization. There was lack of consultation mechanisms and inadequate information about the project which caused disturbance to locals regarding the project’s possible impacts mainly on their livelihood. The militarization of the area also exacerbates the long history of land conflicts and land monopoly in Mandalika. “The people felt more at risk and uncertain regarding their livelihood, day by day, as they saw directly the process without any information provided about the project design to their community,” Sabar added.

 

China’s creeping role

China’s attempts in asserting its dominance in the global economic scene can be evidenced by its policy and practice in the debt and aid landscape.For instance, China plays a leadership role in both NDB and AIIB, having almost the majority of supported projects (29%) and major control and ownership (26.6% voting rights), respectively. The studies presented were linked to one major and questionable spot – China’s creeping role in the landscape of debt and aid funding.

According to Abdyldaeva, the AIIB showed extensive support to China’s “One Belt One Road” strategy “which is why the bank is mostly perceived as Beijing’s attempt to draw as many countries as possible into the orbit of China’s economic influence.” In her study, she reiterated that the geographical advantage of the region will bring potential economic transits in China and its neighboring countries. However, this only navigates towards a series of economic exploitation and political maneuver. She added:

“By providing foreign assistance to Central Asian Countries, China is gaining access to its mineral resources, which is especially important against the backdrop of growing domestic demand for commodities. What’s wrong with China’s assistance is that countries are forced to engage in light loans with high interests in exchange for natural resources. [Due to this,] periodic outbreaks of discontent among the population of Central Asia stemmed from the non-compliance of China to environmental standards and the hidden negotiations with the corrupt officials without the participation of local communities in project areas.”

Meanwhile, in the Philippines, Council for People’s Development and Governance Coordinator Jennifer Guste focused her discussion on the relationship of China’s lending to the Philippines. There are currently three projects in the country which China is entirely involved: first is the third component of the Metro Manila Flood Control Project, an AIIB-funded project co-financed with the World Bank at USD 207.6 million; second is the Chico River Pump Irrigation Project amounting to USD 53.9 million; and third, the New Centennial Water Sources-Kaliwa Low Dam funded at USD 374 million. The last two projects are funded by Chinese ODA.

China is constantly being questioned about its sincerity in providing aid to the Philippines. This serves valid, as there are several onerous provisions of the Chinese ODA loan agreements, according to Guste. Some of these were high-interest rates (compared to Japan’s proposal), subsumed sovereignty of the country under China, and Philippine assets serving as “collateral.” On top of these, there were reported cases in local communities including but not limited to 1) militarization and 2) lack of genuine consultation and participation of affected communities such as indigenous peoples and urban settlers.

Despite the aggravating issues concerning the region, Abdyladaeva calls for China’s “transparency and accountability of projects with a clear mechanism of inclusiveness and ownership.” On the other hand, Guste believes that development effectiveness should constitute ownership of the actual development.

 

Pushing for people-oriented development

With the looming threats in Asia’s sustainable development, the brownbag session concludes that that AIIB and NDB are indeed, not alternatives to the traditional IFIs. The banks implement weak environment and social frameworks as well as proceed without meaningful and democratic consultation with local communities and CSOs. However, accountability and commitment to development effectiveness and SSC principles must not only be sought from IFIs alone, but also from governments that allow the implementation of unsustainable and profit-driven development projects.

The research thus recommends that in order for AIIB and NDB to be truly democratic and committed to South-South Cooperation, the banks should 1) reduce inequalities among its members; 2) keep green promises; 3) strengthen adherence to development effectiveness principles; and 4) put people, not profit, at the center.

The research can be accessed here. Watch the Brownbag on our Facebook page.

 

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