The World Bank's Greatest Future Threat

It goes without saying that there are a lot of foreign policy challenges on the Obama administration’s radar screen. Negotiations with Iran are reaching their final make-or-break point, ISIS continues to roam throughout Iraq and Syria, and relations with Israel are at their nadir. There is another issue though that has now boiled over that risks the long-term engagement of the United States with Asia.

Due its weak standing in both the IMF and the World Bank, China created the Asia Infrastructure Investment Bank as an alternative international financial institution to engage more heavily in overseas development. The United States responded by criticizing the new bank and urging its allies to avoid joining. At issue is whether the governance standards for projects run by the new bank will be as high as those at the World Bank.

Now, almost 50 nations have joined or have applied to join, including France, Germany, the UK, South Korea, and Australia. Only Japan and the United States seem to be left outside of the new organization, a travesty of strategy in Asia that will take serious time to undo.

This all might be okay for now, since Japan essentially runs the Asia Development Bank and the United States, the World Bank. The new bank’s budget today is relatively minuscule compared to the traditional development institutions.

My concern though is that over time, the AIIB has the potential to be massively more effective in its projects than the World Bank, further eroding the United States’ standing in the world. We have all seen China’s rise over the past few decades, with massive infrastructure investments built in incredibly short periods of time, fueled by the power of an authoritarian government.

With lower governance standards and Beijing’s motivation to see the bank succeed, there is little doubt in my mind that the AIIB’s projects will move along faster than those of the World Bank. As it starts to demonstrate superior results, nations across the world will start to consider where their money is going for development work. High governance standards are great PR, but even better PR is a completed highway or bridge. The AIIB, predominantly controlled by China, will increasingly siphon money away from the World Bank, harming the U.S. position in the international order.

The only hope is that the new bank gets the World Bank to think a bit more about the challenges in its model of development and forces it to accelerate its studies and projects. Competition can be a good thing, but these are very risky times for the United States.

One thing is clear: this has been a brilliant strategic move by China. The United States needs to work on its strategy in Asia, and fast.

Image by Thomas sauzedde used under CC.