The announcement last week that Germany, France and Italy had opted to follow Britain in joining the Asian Infrastructure Investment Bank (AIIB), permitted Chinese media a moment to enjoy the affront to the United States and its “sour grapes” attitude toward the Chinese-led venture, seen as a rival to the World Bank and Asian Development Bank. [See: Washington, what are you waiting for?]

For its part, the United States — as well as Japan — expressed concern about international standards of governance and transparency. Would the new bank’s programs include adequate safeguards over issues such as the environment and labor?, wrote the Washington Post. [See: China gloats as Europeans rush to join Asian bank]

MDBs such as the World Bank and the Asian Development Bank are hardly immune from their own concerns regarding standards of governance and transparency, however.

Moral hazard, corruption, odious lending, and environmental damage has plagued the World Bank for years [see: Will the World Bank’s latest mega expansion cause mega damage?]. Such concerns led Probe International’s executive director, Patricia Adams, to describe the World Bank, and MDBs in general, as “answerable to no one” in her 2004 address to a U.S. Senate Foreign Relations Committee roundtable discussion on corruption and MDBs.

“The anti-corruption standards to which they adhere, and their investigative processes, are malleable and, in the end, compromised by the taint of self-interest and bias,” said Adams. “No other institutions in western society have the same immunity from public accountability, regulatory oversight, market discipline, and legal action, as the MDBs,” she said. [See: Patricia Adams’ Written Statement to the U.S. Senate Committee on Foreign Relations: Multilateral Development Bank Corruption].

Will the Asian Infrastructure Investment Bank forge a better track record? China’s governance model should give no cause for optimism but Dingding Chen, an assistant professor of Government and Public Administration at the University of Macau, in his commentary for The Diplomat, says Beijing’s “preferences will be constrained” by major members like Germany and the U.K., “which is not necessarily a bad thing.”

“The reason is that these more experienced players can help Beijing make better decisions when allocating funds and thus ultimately improve the quality and reputation of the AIIB in the future,” writes Dingding. “More importantly, a more democratic structure in the AIIB will reduce the suspicions and worries of smaller Asian countries that are already wary of China’s future intentions.”

In any case, it is dangerous to view AIIB’s emergence as a ‘China winning, U.S. losing’ story, he says.

“If the U.S. does join the AIIB, then we could very well see a different structure for the bank. Even if the U.S. chooses to stay outside of the AIIB in the future, competition between AIIB and the U.S.-led World Bank and International Monetary Fund (IMF) will ensure that American standards and will continue to dominate the global financial order in the foreseeable future.”

And “healthy competition between different global financial institutions is good for Asia and the world as a whole,” he concludes. [See: AIIB: Not a U.S. loss, not a Chinese win]

This editorial by the Wall Street Journal is less convinced:

“As for the AIIB, it’s worth asking why the world needs another development bank. The World Bank has a long history of mismanagement and tolerance for corruption, and Europeans ousted bank president Paul Wolfowitz because he withheld financing from corrupt regimes. The smaller development banks have been even more problematic.”

According to the Journal, “Gresham’s Law applies to economic development: Bad money drives out good. Ports, bridges and other public works funded by artificially cheap capital, with poor or corrupt oversight, become boondoggles that burden states with debt, raise default risks and often stifle productive private investment. The trillions of dollars Asia needs for public works will never materialize unless private investors see reliable, non-corrupt opportunities for returns. Easy public loans that perpetuate cronyism don’t help.” [See: Why does the world need another development bank?]

Meanwhile, since last week, Washington’s mood toward the Chinese-led infrastructure bank has shifted. Reports RT.com, a Russian English-language news channel, the International Monetary Fund, World Bank and the Asian Development Bank are now expressing support for the AIIB and have signalled their willingness to work in partnership. [See: Washington ‘shifts tone’ towards China-led infrastructure bank].

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