Transparency and efficiency will ensure high standards at the Asian Infrastructure Investment Bank.
The China-led multilateral bank has been a hot topic again as representatives from 50 founding countries have signed an agreement that establishes the lender's legal framework.
The 60-article agreement specified each member's share as well as the governance structure and policymaking mechanism of the bank, which is designed to finance infrastructure in Asia.
Since the beginning, there have been doubts over the new bank's governance. However, as more details have emerged, it has become clearer that the bank strives to follow international rules in its operation, policy formation and management to ensure efficiency and transparency.
Many European countries such as the United Kingdom, Germany and France, which are among the founding members, can share their experience and expertise.
The new bank also has mechanisms to safeguard against corruption, bid-rigging, bureaucracy, environmental degradation and other potential fallout from huge infrastructure projects.
The bank will launch with capital of $100 billion, with 75 percent coming from within Asia.
While China is the largest shareholder, the structure limits the influence of large shareholders, because 15 percent of voting rights are allocated equally to founding members regardless of equity stakes. China's stake is 30 percent but its voting share is 26 percent.
The AIIB will involve a core group of professionals running the bank, where the top management will be appointed on ability and not political connections.
The core idea of the bank is a principal-agent relationship between shareholders and managers. In that model, the governments will be the "shareholders", while "managers" are the appointed president and staff in the new bank.
The idea is that managers should be accountable to shareholders, while shareholders should have the power to restrict managers through the board of directors.
In order to improve efficiency and avoid bureaucracy, the board of directors will be nonresident, unlike the World Bank or the Asian Development Bank.
The AIIB also aims to increase the efficiency of investment compared with other development banks with long approval procedures. In many international organizations, it often takes more than three to five years for a project to launch.
Obviously, however, it is important that proper standards must be applied in a project-specific manner. The new bank wants to show that it is a lender, not a political organization or political alliance.
Once the AIIB starts lending, it needs to guarantee that these standards are preserved and that the management and governance of the bank are run on rational principles rather than based on political considerations.
If the AIIB can ensure transparency and efficiency in its operations, it will set a good example for all existing multilateral institutions. Further, it will forge closer cooperation with other multilateral and bilateral development institutions and promote regional collaboration.
With a principal mission to fund infrastructure projects, the bank will help meet the massive capital requirements of infrastructure projects worth trillions of dollars in the Asia-Pacific area. No single institution could do this on its own.
High-profile officials of the International Monetary Fund, World Bank and other leading global lenders have on many occasions expressed willingness to collaborate with the new bank to fill Asia's infrastructure gap.
