Nepal signs pact becoming founding member of AIIB

Nepal has signed the article of agreement of the Asian Infrastructure Investment Bank (AIIB) to become one of the founding members of the China-led institution.

Finance Minister Ram Sharan Mahat inked the agreement on Nepal’s behalf at a programme organised in the Great Hall of the People in Beijing on Monday. Once the bank is formally established, it will offer another window for resources for Nepal which requires huge resources to close its funding gap, particularly in the infra sector.

Apart from Nepal, 49 other founding member countries across Asia, Australia, Europe and South America also signed the agreement. Seven more countries are expected to sign the agreement soon.

The bank has aimed to invest in the infrastructure sector of Asian countries where the resource gap in the infrastructure sector is immense. The share capital of the to-be-established AIIB is estimated to be $100 billion. However, its initial paid-up capital will be $50 billion. Nepal has planned to invest Rs1.60 billion in the bank. The country has been given a longer time to come up with the capital than other developed and developing countries, according to Finance Ministry officials.

China, which sponsored the bank, has taken a 30 percent stake in the AIIB followed by neighbouring giant India with 8.4 percent. Russia will hold 6.5 percent of the shares, Germany 4.5 percent, France 3.4 percent and Brazil 3.2 percent. Members from the Asian region will collectively have a 75 percent stake in the AIIB, and the rest of the shares will be distributed among members outside the region. The bank will be headquartered in Beijing, and may have regional centres in other countries. Smaller countries will have relatively higher voting rights against their size of the economy compared to bigger countries, the Finance Ministry said in a press release.

The article of agreement also states that small countries will be provided loans through simplified procedures to make it different from other multilateral lenders which have been accused of putting forth many conditions.

Nepal will need $13-18 billion from 2011-20 to bridge the investment gap in infrastructure, according to a new World Bank (WB) study. The establishment of the AIIB will give another window for Nepal to obtain resources.

Asian Development Bank President Takehiko Nakao said in an interview with the Post on Sunday that the presence of the AIIB would mean more resources would be available to Nepal since it would be able to get funding from both the ADB and the AIIB. “There can be co-financing in certain projects from the two institutions. So it should be an opportunity for Nepal,” he said.

China had proposed last year to establish the AIIB and requested Nepal to be one of the founder members.

In this regard, Nepal signed a memorandum of understanding last October. Considering the domination of the US and Japan in the World Bank and the Asian Development Bank, the new institution is expected to create competition among the multilateral financers to fund infrastructure projects in the underdeveloped countries with less stringent conditions.

Britain became the first major Western country to apply to become an AIIB founding member. It was followed by France, Germany, Luxembourg, Switzerland and Austria. The US and Japan, however, have stayed out of the institution.

The agreement signed on Monday outlines the details of the fundamental principles for the establishment and future operations of the AIIB.

Source: eKantipur