South Korea said on Thursday that it would seek to become a founding member of the Asian Infrastructure Investment Bank (AIIB), despite concerted pressure from the US on the Korean government to give the China-led development lender a miss.
The country’s finance ministry said in a statement that the new bank would help boost investment in key infrastructure projects around Asia, and would also seek to become an integral part of the existing global multilateral community.
In a statement, the ministry said South Korea would work “in close co-operation” with other members of the AIIB to ensure the new institution adhered to “high level of standards in the areas of responsibility, transparency, governing structure and debt sustainability”.
Addressing the question of what percentage of voting rights would be allocated to each AIIB sovereign member, Korea appeared to pre-empt China on what is likely to become one of the thorniest issues relating to the new bank. The ministry pledged that economic size would be an “important factor in deciding each member country’s stake”.
China, which will likely host the new development lender, pick its inaugural president and secure the largest single slice of voting rights, has yet to make a formal statement on the subject.
Korea, which is hosting the IADB conference this week, has long equivocated over whether to join the new bank, demonstrating the delicate line the country has had to walk in appeasing China and the United States, its two superpower allies.
Decision driven by exports
South Korea relies heavily for security and protection on its leading military ally, the United States, which has just shy of 30,000 troops on the ground, protecting the southern half of the Korean peninsula from attack by the isolated but bellicose north. The US sees the new development bank as a direct affront to, and competitor of, the World Bank and the International Monetary Fund.
America also frets that the AIIB will be used by China to exert greater influence across the Asia Pacific region and the emerging world, while driving the strategic and political needs and whims of Asia’s largest economy.
Broader concerns that loans disbursed by the AIIB will inevitably lack the sort of transparency, governance and conditionality that come as standard with loans made by the likes of the World Bank and the IADB, will continue to linger despite the South Korean claims.
Yet there are two sides to this coin. A quarter of all South Korean exports head west to the Chinese mainland, with the US accounting for just 12% of all Korean-made exports.
It is that factor that eventually forced Seoul’s hand, a US-born, Korea-focused fund manager told Emerging Markets. The question, he noted, had become a simple matter of whether South Korea opted to turn “to the hand that feeds you, and buys your goods, or the one that helps you sleep safely in your bed at night”.
Despite the US’s initial intransigence toward the new lender, its support for the AIIB, while still tepid, has slowly warmed in recent weeks. Britain’s surprise decision to seek to join the AIIB in recent weeks opened the door for a host of other Western states, and may well have hardened South Korea’s thinking.