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AIIB wants sustainable debt for development projects

AIIB wants sustainable debt for development projects

The Asian Infrastructure Investment Bank (AIIB) will only fund projects that are sustainable and will not add to a country's debt burden.

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By Jay Banerjee 25.10.2018

The Asian Infrastructure Investment Bank (AIIB) will only fund projects that are sustainable and will not add to a country’s debt burden, according to the lender’s President, Jin Liquin, who addressed recent criticism of China’s large-scale Belt and Road Initiative (BRI) on Tuesday.

Beijing’s massive development strategy aims to “enhance regional connectivity” and support a “brighter future” for host countries, but the push for major infrastructure building in emerging nations has drawn criticism in some quarters for its unsustainability. China’s Ministry of Finance Vice Minister, Zou Jiayi, recently insisted that ensuring that a country can repay its debt is a top priority. Jin struck a similar tone in an interview with CNBC.

The AIIB currently funds a range of infrastructure projects, both under the scope of BRI and elsewhere, and Jin said that the use of the private sector has been instrumental in making developments sustainable. The bank is also confident that its efforts will empower developing countries to “move up on the value chain” while creating a swath of new jobs and boosting the economy.

"We do not simply lend to the countries for their sovereign guarantees," Jin added. "We work actively with the private sector companies in those countries so that our investments would not build up heavy pressure on their debt burden. It's very important for our members to continually invest in infrastructure and other productive sectors without creating debt burden."

Zou also noted at the IMF and World Bank annual meetings in Bali earlier this month that the Chinese government is focusing on pursuing frugal and reliable means of debt, as the BRI is both the stakeholder and creditor and does not want to lend its own money under poor conditions.

After touching on the AIIB’s investment strategies, Jin spoke about the ongoing US-China trade war and how he believes that Asia could struggle, adding that it will be more challenging that the previous two financial crises. While there have been tumultuous headwinds during the last two decades, Jin said that the current volatility and uncertainty is unprecedented.

He said that he is “concerned” about the impact of the trade war but admitted that it is still too early to determine its full impact. With the medium- to long-term outlook cloudy, Jin urged Beijing and other Asian governments to be proactive and make moves to mitigate risks and offset some of the potential impact, as a resolution remains unlikely.

There has been a rapid depreciation for certain currencies, including the yuan, during the last six months. This came about by worsening trade tensions and tighter monetary policies in Japan and across Europe. Slumping currencies in emerging Asia are a particular concern for Jin, as they can lead to an imbalance in trade as the cost of imports rise, while exports often fail to pick up the slack.

He added: “We certainly hope the trade war will die out soon, but this is independent of our will ...the best way to respond is to do something individually in each economy to help ease the pressure. It is [therefore] important for member nations to get better at adjusting their macroeconomic policies to deal with the headwinds.”

Jin has urged countries to wrestle back control of spiraling debts, but he believes that objective must reflect a desire to put forward sufficient resources to drive growth. He said that governments should look to the past and learn from how the global economy was able to bounce back from previous global financial crises to prosper once again.

He concluded: “But this time, it is more difficult because we know [this downturn] is not just a natural business cycle, but [was also caused by] policies pursued by some governments. It is harder to predict the outcome."

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