FPInsights: AIIB Banks on Experience and Innovation

Photo: http://www.aiib.org/

 

There is no mistaking which country is the driving force behind the Asian Infrastructure Investment Bank (AIIB).  At the official launch in January 2016, the inaugural AIIB president, Jin Liqun, remarked, “in October 2013, His Excellency, President Xi Jinping, proposed a vision for a multilateral financial institution designed to improve the livelihoods of Asia’s people through investment in infrastructure and enhanced regional connectivity.  President Xi’s invitation to the world has been warmly embraced.”  Mr. Jin closed with, “Let me express my most profound thanks and appreciation to President Xi and the Government of the People’s Republic of China for their extraordinary support and visionary leadership in spearheading AIIB’s establishment.”

 

Much of the media coverage on the AIIB has highlighted the changes wrought by the new multilateral development bank.  The Wall Street Journal reported that China “put its stamp on the world order” by launching the AIIB, which is aimed at “increasing China’s soft power” and “offering a new vision for global development not led by Washington.”  The Japan Times wrote that the inception of the bank “symbolizes China's rise” and is a “challenge to the US-dominated global financial architecture.”  Reuters referred to the new bank as a sign of “power balance shifts.”  China’s finance minister, Lou Jiwei, who was also appointed the first Chair of the Board of Governors of the AIIB, was reported by the Chinese media as saying that the opening of the bank “marked a milestone in the reform of the global economic governance system.”  While the media focus is on ‘the new,’ the AIIB is not all about ‘new’ or transformational drama.  Rather, we see continuity and innovation in the AIIB. 

 

In an essay published recently in the journal Global Governance, I wrote that the formation of the AIIB is an important development in international governance and does reflect shifts in world economic power.  The creation of the AIIB further suggests that China is making a transition towards international leadership, after decades where it focused mainly on learning the established norms of the system.  Going beyond bilateral arrangements, China is building new multilateral financial institutions where it sits at the center of the table, setting the agenda, defining priorities, and writing rules for collective action.  We see some innovation in governance arrangements with the AIIB’s dual Board structure (a Board of Governors and a Board of Directors, above the senior management level), its non-resident Boards, and its promise to use digital and other forms of modern communications, aiming to make the organization “lean, clean and green.”  We are still awaiting innovations in lending practices and business models in the handling of environmental and social impacts, and corruption avoidance.  Breakthroughs in these areas are the focus of the current phase, as the new bank prepares its first set of loans.

 

The Executive Head

 

Despite the air of innovation, we also see continuity with established patterns, including in the governance of the AIIB.  In the balance of authority in the governance of the bank, the largest financial contributor, China, does hold a veto at the Board of Governors level, the key decision-making body.  With regards to the nationality of the first executive head, we also see a familiar pattern, where the inaugural president is from the largest financial contributor.  It should be highlighted, however, that there is clearly merit to the selection of Mr. Jin beyond his Chinese nationality.  Jin has served as the AIIB’s president-designate since September 2015.  Prior to that, he was the Secretary General of the Multilateral Interim Secretariat for the preparation for the AIIB, where he oversaw the preparation of the legal, policy and administrative frameworks, and other preparatory work, for the establishment of the new bank. 

 

Mr. Jin has an even deeper reservoir of experience in the world of multilateral development banking.  From 2003-08 he was Vice President of the Asian Development Bank (ADB, the main incumbent to the AIIB), putting him in charge of programs for South, Central, and West Asia, as well as private sector operations.  He was, in fact, the first ADB Vice President appointed from the People’s Republic of China.  Jin joined China’s Ministry of Finance in 1980 and was promoted to Director General, to Assistant Minister, and then to Vice Minister in 1998.  He also served on the Monetary Policy Committee that advises China’s central bank.  As a senior Chinese finance official, Jin served as Alternate Executive Director for China at the World Bank and the Global Environmental Facility (GEF), and he was also Alternative Governor for China at the Asian Development Bank. 

 

In addition to his experience in public finance and multilateral banking, Mr. Jin also has substantial senior management experience in investment banking.  He was Chairman of China International Capital Corporation (CICC) Limited, China’s first joint-venture investment bank (formed in 1995 between China Construction Bank and Morgan Stanley).  From 2008-13, Jin was Chairman of the Supervisory Board for China Investment Corporation (CIC), which manages China’s sovereign wealth fund with assets totalling almost US$750 billion (2015).  From 2009-12, he also served as Deputy Chairman, and then Chairman of the International Forum of Sovereign Wealth Funds (IFSWF).   Jin holds a Master’s degree in English Literature from Beijing Foreign Studies University, and was Hubert Humphrey Fellow in the Economic Graduate Program at Boston University from 1987 to 1988. 

 

Although there is clear merit in the selection of Mr. Jin, the appointment of a Chinese national as the president of the new bank has led observers to draw parallels with every president of the World Bank and governor of the Asian Development Bank who have come from the main financial contributors to each organization.  It should be noted, however, that de jure the door has been opened for an innovative appointment of the next Executive Head, in that AIIB Article 29(1) states: “the Board of Governors, through an open, transparent and merit-based process, shall elect a president of the Bank by a Super Majority… He shall be a national of a regional member country.”

 

Senior Management Team

 

We also see continuity – an emphasis on previous experience – in the selection of the vice presidents for the new bank.  The advertisement for the post of vice president called for a “minimum 20-25 years in a leadership function and position of influence in multilateral development bank(s) or equivalent.”  In the profiles of the vice presidential appointees we see extensive professional experience, including a record of dealing with international finance and some diplomatic considerations.  The appointments are in keeping with the goal that Mr. Jin announced, for the Bank to be “an agile and innovative institution” that “learns from the past and recognizes the promise and opportunities of the future.”   When he announced the five vice presidents of the bank, Jin said: “This is an exceptionally strong and committed group who bring wide and varied experience and a wealth of experience that will serve the Bank well, as it commences operations.”  The first five vice presidents include three experienced senior civil servants from important emerging Asian economies and two experienced Europeans, one from Germany, with intimate and extensive working experience in the World Bank, and the other from the UK, with close ties to the UK Treasury (and G7 finance).

 

Dr. D.J. Pandian (India), as Vice President, Chief Investment Officer, brings more than 30 years of experience in key positions in India at the state, national, and international levels in the energy (oil, gas, power, renewable), infrastructure, finance, and industrial sectors.  He is leading the planning and supervision of the AIIB’s infrastructure investment, “promoting sustainable investment throughout Asia, that is consistent with the Bank’s vision, goals and strategies,” and by “ensuring the relevance, effectiveness, and efficiency of AIIB operations.”  Dr. Pandian is said to have been “instrumental” in liberalizing the policy regime inside India to attract international investment to crucial infrastructure sectors, including power, airlines, ports, and telecoms.  At the same time, this appointment appears to be a nod to one of the Bank’s main members and one of its major future clients, India, and can be seen as one way of ensuring India’s voice in the new bank and its buy-in.  Dinesh Sharma, Additional Secretary in India’s Ministry of Finance and New Delhi’s representative at the AIIB opening ceremony, has said that India “will likely be in the beneficiary of lending from the AIIB,” especially in the power sector.   Dr. Pandian will help ensure the new bank has the ear of the current Indian Prime Minister.  Pandian spent a significant part of his career in the State Government of Gujarat, where current Indian Prime Minister Narendra Modi was Chief Minister from 2001-14.  In Gujarat, Dr. Pandian served as Chief Secretary; Additional Chief Secretary, Industries and Mines; and Principle Secretary, Energy and Petrochemicals Department.  He also established the Gujarat Energy Research and Management Institute and has served as chair, director, or trustee for a number of state-owned enterprises.   

 

Dr. Kyttack Hong (Korea) as Vice President, Chief Risk Officer, similarly brings more than 30 years of relevant experience to his new post.   Dr. Hong has served as Chairman and CEO of the Korea Development Bank (KDB), as outside director for a number of financial institutions, and as an academic researcher, and will lead the development and supervision of the AIIB’s risk management activities, including both operational and financial risk, to ensure the financial sustainability of the bank.  One can anticipate that Korea’s experience in dealing, head on, with financial and monetary crises, including financial risk avoidance and risk management, will inform Dr. Hong’s work.  As Chair and CEO of the KDB, Dr. Hong oversaw the merger of the KDB, the KDB Financial Group, and the Korea Finance Corporation into a consolidated KDB, to respond to a changing global financial landscape.  He also oversaw the reorganization of human resources to improve organizational capacity and effectiveness at the KDB.

 

Dr. Joachim von Amsberg (Germany), as Vice President, Policy and Strategy, brings a wealth of experience from the World Bank to develop and monitor implementation of the AIIB’s strategic agenda.  He will also develop the policies and procedures for the AIIB’s operational investment portfolio to support the implementation of the bank’s operational policies, including environmental and social policies, procurement, and financial management.  In addition, he will oversee compliance with all of the bank’s operational policies.  Until his appointment with the AIIB, Dr. von Amsberg was Vice President, Development Finance, at the World Bank, and was responsible for the replenishment and stewardship of the International Development Association (IDA), the fund for the poorest developing countries, and for trust fund and partnership operations.  In his 25 years at the World Bank, Dr. von Amsberg authored a number of research reports and served as Country Director for Indonesia and the Philippines, where he led the preparation of country strategy partnerships with governments and stakeholders, and managed the World Bank’s operational portfolios and analytical work programs.  As Vice President for Operations Policy and Country Services, he oversaw the World Bank’s “results agenda,” with its increased focus on achieving, measuring, and communicating operational results, and he introduced the Program-for-Results lending product.  Furthermore, Dr. von Amsberg was responsible for the World Bank’s operational risk functions including policies on procurement, financial management, and social and environmental safeguards.  The latter is especially valuable experience for the upstart AIIB’s effort to implement a credible and appropriate “Environmental and Social Framework.”   This element is important itself as an outcome, but also key for warding off the critics who question whether the new bank will meet internationally-accepted “sustainability” standards, both environmental and social.

 

Dr. Luky Eko Wuryanto (Indonesia), as Vice President, Chief Administration Officer, will lead the planning, implementation, and supervision of human resources, informational technology, and facilities and administration services, through programs and activities that fulfill the AIIB’s mission and strategy (“achieving effectiveness, efficiency and responsiveness”).  Dr. Wuryanto has served in senior positions in the Indonesian government for 20 years, where he is currently Deputy Coordinating Minister for Infrastructure Acceleration and Regional Development, Coordinating Ministry for Economic Affairs.  Indonesia’s Committee for Acceleration of Priority Infrastructure Delivery (KKPIP), under Dr. Wuryanto’s lead, has overseen the implementation of 225 “National Strategic Projects,” totalling US$100 billion, and 22 “Priority Projects,” worth US$85 billion.  Dr. Wuryanto has extensive experience in building consensus on the financing structure of many mega-infrastructure projects in Indonesia, and has strong organizational, administrative, and management expertise on projects such as ports, roads, transport, energy, electricity, water, sanitation, and public housing.  In addition to substantial merit, the appointment of Dr. Wuryanto can also be understood as aimed at ensuring that one of the leading Asian member states in the bank, Indonesia, and one of its largest potential clients in the future, has an appropriate voice in the financial institution. 

 

One of the most interesting appointments is that of Sir Danny Alexander (UK), whom the AIIB refers to as a “seasoned negotiator and communicator,” as AIIB Vice President, Corporate Secretary.  Mr. Alexander is to manage communications between the bank’s management, the Board of Directors, and the Board of Governors, acting as “trusted advisor,” communications and liaison officer, and “overall governance professional” advising the Bank on its “best interests.”   Alexander previously served as Chief Secretary to the UK Treasury from 2010-15, and according to the UK Chancellor of the Exchequer George Osborne, Mr. Alexander “helped turn around the UK public finances” (implementing cuts, the “austerity” program), “oversaw the coalition’s infrastructure programme,” and that he “will bring a huge amount of experience that will be a huge asset” to establishing this “important international body.”  Alexander, the former Liberal Democrat MP, from Scotland, was a leading force in engaging stakeholders and the public on UK infrastructure policy and delivery.  He led the first National Infrastructure Plan, and helped establish the Green Investment Bank in the UK and the UK Guarantee Scheme for Infrastructure.  The Financial Times has written that some questioned whether Alexander has the technical credentials for the bank position, however, the job of Corporate Secretary is really about ensuring communications between the bank and its 57 founding members – including Britain, Germany, and France – over its plans and operations.  Alexander himself says: “We have to make sure they are fully engaged and that we proceed together.”  In brief, the job, at this early stage in the life of the bank, entails a high degree of political mobilization to work through its teething process.  One can surmise that Alexander will help ensure that the AIIB has the ear of the British and wider European authorities, and that the bank’s plans are understood by the City of London.

 

These appointments strike a careful balance between strategic experience, technical expertise, global reputation, economic diplomacy, and a desire to innovate.  This delicate balance makes sense when starting a new bank, including a multilateral development bank.  The first set of senior management appointments also attempts to strike a balance between the reality of Chinese leadership of the bank, including in the personage of Jin Liqun, and a team of vice presidents, who come from a range of key members in the new bank both within the region and outside of Asia.  Their working relationship with the well-qualified, urbane, and confident Mr. Jin will be vitally important in establishing a solid foundation for the bank in the early days – including fostering restraint on the part of the Chinese in exercising multilateral leadership within the new bank.  Knowing they will be watched carefully by the incumbents, by their supporters, and perhaps equally importantly, by the hidden protagonist in the room – global capital markets – the AIIB is banking on getting the balances right with its appointments so far. 

 

 

For more on AIIB governance by Dr. Gregory T. Chin, please refer to his recent article: 

Gregory T. Chin, "Asian Infrastructure Investment Bank: Governance Innovation and Prospects," Global Governance 22 (2016): 11-16.

http://journals.rienner.com/doi/pdf/10.5555/1075-2846-22.1.11

 

 

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Gregory T. Chin, PhD is Associate Professor of Political Economy at York University, Canada.  As a Non-Resident Senior Fellow of FPI, he is co-leading the Project on "Emerging Global Governance" with FPI Executive Director Carla Freeman, a joint initiative with the journal Global Policy.

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