Long-term benefit

AS 2015 came to a close, the Aquino administration did one act that will benefit the Philippine economy in the long term: It decided to join the China-led Asian Infrastructure Investment Bank (AIIB) despite the protracted territorial dispute with Beijing in the West Philippine Sea.

Philippine Ambassador to China Erlinda Basilio signed the AIIB’s articles of agreement on behalf of the Philippine government at China’s Ministry of Foreign Affairs on Dec. 31—the last day for prospective members to do so. The Philippines was the last among the AIIB’s 57 invited founding members to sign the articles of agreement, which came into force on Dec. 25. The bank will start operation on Jan. 16 with the first meeting of its board of governors.

The AIIB is a multilateral financial institution similar to the World Bank and the Manila-headquartered Asian Development Bank (ADB), where the United States and Japan are the largest shareholders, respectively. Both countries decided against joining the AIIB.

These banking institutions provide development loans and technical assistance to member-countries. The AIIB will focus on infrastructure development and other productive sectors in Asia, including energy and power, transportation and telecommunications, rural infrastructure and agriculture development, water supply and sanitation, environmental protection and urban development and logistics, among others.

The Aquino administration took some time to decide on joining the AIIB following suspicions that it would affect the Philippines’ position in the territorial dispute with Beijing. Manila brought suit against Beijing at a United Nations tribunal in a bid to challenge the latter’s claims in the West Philippine Sea. But the Department of Foreign Affairs explained that the AIIB membership and the maritime dispute were totally unrelated. Malacañang also pointed out that the Philippines’ decision to be a founding member of the AIIB was based on the country’s economic development needs. Even the Chinese foreign ministry spokesperson, Lu Kang, has dismissed any link between the two, noting that the operation of the AIIB would be decided by the bank’s rules that were made by all the members.

Finance Secretary Cesar Purisima was more realistic. He noted that the AIIB, as an institution seeking to address the investment requirements of its members, would help close financing gaps in many countries like the Philippines. An earlier ADB study had estimated the Philippines’ infrastructure financing needs from 2010 to 2020 at more than $127.1 billion, while Asean has an infrastructure financing gap worth almost $1.1 trillion during that 10-year period.

Purisima said the Philippines stood to gain from signing the AIIB charter as a founding member. For one, since the AIIB has no restriction on the procurement of goods and services from any country, the Philippines could expect infrastructure-related industries to expand and job and business growth opportunities to grow. At present, some concessional loans require the Philippines to buy from a country providing the money or tapping contractors from that country.

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. also said joining the AIIB is a strong signal that the Philippines is part of the global economic community. The AIIB is indeed a concrete form of financial cooperation that could help plug funding gaps in the Philippines’ infrastructure pipeline. This is so true given concerns over the ability of the government and the private sector to fund expensive infrastructure projects, which the country needs to catch up with its neighbors in the region.

The Philippines has to shell out $196 million a year over the next five years as its share in the capital of the AIIB. Members must pay the initial installment of their respective paid-in capital before the end of 2016. The bank’s total capital stock is $100 billion. The Philippines’ membership is still subject to the availability of funds as well as Senate ratification.

The Philippines and other AIIB members have until December to have their respective memberships ratified by their governments. This should be a priority of whoever will succeed President Aquino. At the same time, the Philippines should work with other minority shareholders in ensuring that the AIIB will pursue a multilateral agenda, in the manner done by the World Bank and regional development banks such as the ADB, to benefit all its members.