Asian Infrastructure Investment Bank (AIIB) Ready to Invest in ASEAN

Financing ASEAN infrastructure with China's goodwill and the support of the AIIB? (Here Chumphon in South Thailand)

The Asian Infrastructure Investment Bank (AIIB) stands ready to invest in infrastructure and transport projects of Russia and ASEAN countries declared AIIB President Jin Liqun during the Russia-ASEAN Business Forum which kicked off early Thursday in Sochi, on Russia’s Black Sea.

The financial institution is essentially backed by China with the aim of promoting investment in infrastructure projects in the Asia Pacific region. AIIB is a recent instititution: Representatives from 22 countries signed the October 2014 Memorandum of Understanding (MOU) to establish the AIIB and Beijing was selected to host Bank headquarters. China national Jin Liqun was appointed as the Secretary General of the Multilateral Interim Secretariat. The AIIB was then formally established in Beijing in December 2015 and stated operation in January.

At the Russia-ASEAN Business Forum, Jin highlighted the need to improve the connectivity among Eurasian countries in order to further tap the economic potential of the region. “AIIB wants to promote the investment in infrastructure and mass transport lines in the vast Eurasian land,” he said, adding the bank will “mobilize the support of all members states and the international and regional institutions, such as the World Bank and the Eurasian Development Bank.”

So far AIIB has agreed to fund projects along the Silk Road in Tajikistan, Pakistan and Bangladesh. But Southeast Asia stands now in the front line as needs are evident: According to the Asian Development Bank (ADB), the infrastructure needs for ASEAN is projected at USD 60 billion in investments annually until 2020 . The ADB’s annual lending approval of an estimated USD 13 billion is not sufficient and give way to other institutions to step in. AIIB is expected to lend $10-15 billion a year for the first five or six years according to experts.

The first ASEAN-based project to be funded and supported by the AIIB is likely to occur in Indonesia. As early as next month, the Indonesian government and the Bank could announce a plan to co-finance a national slum upgrading project in Indonesia, according to Indonesia’s finance minister Bambang Brodjonegoro told Reuter in an interview. The $1.74 billion project, co-funded by the Indonesian government, the World Bank and the Islamic Development Bank (IDB), will seek to improve Indonesian urban slums to ensure residents have access to clean water, electricity and basic sanitation.

Indonesia is the eighth largest AIIB shareholder, pledging to contribute $672.1 million of capital over the next five years. The archipelago could then largely benefit from the financial support of the bank as Jakarta continues to look for fundings to boost its derelict infrastructure by building new roads, ports, airports and bridges as promised by Indonesian President Joko Widodo,

Thailand is another shareholder of the new bank and is expected to benefit largely from the new financial institution. Experts indicate that the massive development of rail infrastructure could be the first project to be supported by AIIB. Being one of the  founding members of the AIIB, Thailand could consequently receive cheaper loan rates and more flexible lending conditions from the Beijing-based bank, compared to the World Bank or the Asia Development Bank.

The Philippines  is another founding member of AIIB and already signed up to finance infrastructure projects such as dams, railways, highways, and electricity grids.