Latin America’s largest economies are preparing to join China’s newly minted development bank Emerging Markets has learnt.
Brazil and Argentina are heading the list of Latin American states likely to join the Asian Infrastructure Investment Bank (AIIB) by the end of the year, said Xiang Songzuo, chief economist at the state-run Agricultural Bank of China (AgBank). “They will join up — that is for sure. Brazil will be first in line, with Argentina close behind,” Xiang told Emerging Markets.
The Beijing-based economist also flagged up the importance of membership of the new development lender for both sides. Latin America’s leading commodity producers still rely heavily on exports to the mainland, despite China’s flagging economy.
In turn, China needs all the sovereign friends it can get, if it is to turn the dream of a new, China-led development bank into a global reality. Xiang said the AIIB would become a multinational governmental lending institution “only if” it had a broad global spread of sovereign shareholders. “To become a real worldwide development bank, countries like Brazil and Argentina — and others in Latin America, notably those hungry for infrastructure finance — need to be members.”
Others concurred with that view. Jan Dehn, head of research at Ashmore Investment Management, said every Latin American nation would benefit from a ticket to the new development bank. “They all need major infrastructure investment, and Western pools of capital are increasingly barred from investing in emerging markets due to financial repression via regulation.”
Few if any Latin American states are expected to make the March 31 deadline to become an inaugural member of the AIIB. Twenty-seven Asian states and regions are on that list, along with nine Australasian and European countries, including the UK, Germany and Australia.
AgBank’s Xiang sees Brazil being in the second tranche of inductees to the new development bank, with the framework for Brazilian membership “certainly in place by the end of the year”.
For now, more questions than answers hover over the world’s newest development lender. It remains a bank in name only, having been formed in 2014 with $50bn in Chinese start-up capital, with Beijing stating its intention to raise that total to $100bn.
Voting right row?
Uncertainty also clouds how, and to whom, loans will be made. China has proven willing in recent years — too willing, many say — to provide cheap lending to troubled states, notably in Latin America. Western members of the new development bank will be less keen to extend cheap credit to leaders such as Venezuelan president Nicolás Maduro.
The new bank’s operational structure is also likely to prove contentious. China is keen to retain as much as 49% of the AIIB’s voting rights. European nations in particular may well take umbrage at that, given China’s heated criticism of European and US control of both the International Monetary Fund and the World Bank Group.
China has also expressed its clear intention to choose the new bank’s president, having tapped up Jin Liqun, chairman of the board of CIC, China’s sovereign wealth fund, to be its inaugural president.
But it is clear that with Western nations softening their approach, and Latin American states looking increasingly likely to join, the AIIB will become reality sooner rather than later.
IMF managing director Christine Lagarde said the Washington-based institution and global lender of last resort would be “delighted” to co-operate with the new China-led development bank.
Even the US may ultimately come on board. This week, under-secretary of state for political affairs Wendy Sherman signalled her endorsement of the new bank, noting that America “welcomes new initiatives such as the China-proposed [AIIB] provided its founding documents and practices uphold the high standards of other development institutions”.