Andrew Cross, CFO of AIIB, on navigating the pandemic
Beijing-headquartered Asian Infrastructure Investment Bank (AIIB) has played a pre-eminent role in tackling Covid-19 this year, mainly by offering financial support to countries like Uzbekistan, Pakistan and Vietnam to combat the impact of the pandemic. But its work is not nearly over, as second and third waves of the coronavirus hit countries around the world.
Nearly nine months since the Covid-19 pandemic started, AIIB’s chief financial officer Andrew Cross looks back at how the multilateral development bank, which started operating in January 2016, rose to the unexpected challenges of 2020, how the crisis has changed the way MDBs think — and what the institution is planning for the future.
GlobalCapital China: How do you evaluate AIIB’s efforts in combating the Covid-19 crisis?
Andrew Cross: It is worth recognising that the Covid-19 pandemic came as a surprise for everybody. But some of the work AIIB has done for its IT system, such as moving to cloud and running tests on how we would work if there are operational issues, has helped enormously. However, we are still fundamentally relying on the quality of our staff. What I have to acknowledge is how quickly our staff have adapted to the changes.
AIIB’s name gives away what we do — infrastructure, predominantly in Asia. Covid-19 changed some aspects of how we support our clients. We needed to acknowledge their needs, and be able to provide up to $13bn to them very quickly and do that in a collaborative way with the Asian Development Bank (ADB) and the International Bank for Reconstruction and Development (IBRD).
The other aspect that Covid-19 has changed about our work is that we went from a physical organisation to a virtual organisation overnight. Most of our staff took a holiday during the Lunar New Year and the next day, we had staff in 46 countries. As I think back to that period of time, it was phenomenally impressive how quickly the institution adapted to different ways of thinking and working and how we maintained our standards.
Covid-19 hit China first and then spread worldwide. How did that discrepancy — between what China was facing versus the rest of the world — affect your work with clients and counterparts?
We very quickly set up regular bi-weekly calls with the CFOs of the other MDBs. There were regular calls between CFOs, treasurers, general counsels and controllers. It was not just the good intent to communicate with other MDBs, but the active, disciplined and thoughtful dialogue on the technical delivery level.
You see that translated into the $13bn crisis recovery facility. We are doing a lot of joint financing with the ADB and the IBRD. AIIB is incredibly well funded with fantastic access to the capital market. Combining that with the strong technical expertise that ADB and IBRD have around policy-based lending, you have two different strengths. In a difficult world that has got difficult times ahead of it, it is invigorating to see that the multilateral aspect has come across strongly.
How is AIIB monitoring the effectiveness of this $13bn crisis recovery facility?
The recovery facility is focused on three main areas. How do we alleviate healthcare pressures in infrastructure and invest in pandemic preparedness? How do we provide liquidity support through our lending facilities and credit lines to support our members’ economic resilience? How do we offer immediate fiscal and budget support to our sovereign clients?
For example, the immediate fiscal and budget support loans are different from infrastructure loans. Infrastructure loans probably have a three-year disbursement process, a substantial period of time when we do evaluations of the project. But the immediate fiscal and budget support loans are disbursed very quickly, usually within a week of approval. The application process is very accelerated. We initially looked at the needs of our clients and started the recovery facility between $5bn and $10bn. That number has quickly grown to $13bn due to high demand.
You see a dramatic and significant increase in impairment charges at pretty much every major commercial bank. One thing AIIB has in common with the private sector is that we use IFRS and some other MDBs use US GAAP. The general principle and intent of the two standards are lined up but IFRS9 requires you to have a very robust process internally for recognising these impairment charges.
How has AIIB’s focus on infrastructure and on Asia influenced its Covid-19 response, compared to other MDBs?
We had to adapt. Our name gives away what we do, but we are now living in an area that is challenged by the pandemic’s impact on the underlying economies, so the prioritisation of where resources go has changed.
The focus on infrastructure has been adjusted from areas like toll roads, to more on emergency public healthcare infrastructure, which has become a much higher priority of our sovereign clients.
AIIB is still very committed to infrastructure investing, which will be the core deliverable of this institution in the next several generations. But we are also doing much more in the fiscal and budgetary support areas in partnership with other MDBs than we would have done pre-Covid-19, as our sovereign clients saw their revenues go down and their debt pile up.
The other MDBs have a lot of the technical expertise around budgetary support which is quite different to infrastructure investing. By partnering with them, we are combining that technical expertise with the financial strength of AIIB.
How has the pandemic changed the role of MDBs?
The crisis really reminds the global audience about the value of multilateralism and multilateral institutions. Organisations that can work across boundaries, cultures and languages really show their worth at a time like this.
But multilateral institutions have been around for 70 years, and Covid-19 is a wake-up call to all institutions that they have to develop and evolve. You have to think how you should respond, rather than saying: “We do this because we’ve always done it this way.”
What Covid-19 has meant for a lot of the MDBs is to ask themselves: How have we evolved, and how are we dealing with this brand new challenge? Are our balance sheets strong enough? Do we have the right resources? Do we have the right approach to clients in both the public and private sectors? It is a good reminder that the institutions constantly need to refresh themselves in order to respond very quickly to challenges.
AIIB has only been around for about five years. Does that make AIIB more flexible to deal with changes?
Many of us joined AIIB because as an MDB, it had a fresher approach about the impact we wanted to make in a really key asset class in a fundamentally vital region. Of course, it is absolutely vital that there is an equivalency of standards with other MDBs, but you also have the opportunity to do different things.
For example, we don’t have 20, 30 years of investments in legacy IT systems. We went straight to the cloud, which made a massive difference in how we reacted to Covid-19. The virtual nature of the institution in terms of our board operations means we were already doing virtual meetings well before there was the necessity for others to do so.
It also means that we have a real opportunity to think about how technology should be applied in dealing with public and private sector clients, which could be harder at other MDBs when you have these significant legacy systems.
We are able to look at the experience of the MDBs that are much older than us, and we have a much cleaner sheet of paper in deciding how to apply those lessons.
The Covid-19 crisis seems set to stay longer than many initially expected. How will AIIB tackle many of the potential blows to the Asian economy?
We have ramped up our investments. The amount of money we lent has increased dramatically — and it is fresh money that we are lending. Our Covid-19 crisis recovery facility has now grown from $10bn to $13bn, and that tells you that we are putting more money to work in the region.
There is a recognition that underinvestment in infrastructure is a problem that has occurred in pretty much every region, and a realisation that there need to be significant further investments in infrastructure to have an impact to reduce poverty, protect growth and create jobs.
It is important to build healthcare infrastructure. But I think we have all seen how important being online is — be it for education, shopping, or delivery of services. Investments in building sustainable and resilient internet and digital infrastructure across our region is going to be absolutely vital.
Ultimately, we need to respond to our clients’ needs, and the voices and debates in green infrastructure and climate change, and regional connectivity, are loud and strong. Investment in green infrastructure, in infrastructure that addresses climate change and being conscious of that regional connectivity is vital to economic growth and poverty reduction in the region.