AIIB should be hailed as essential financial instrument

The Australian government has given clear signals that it will change its decision on the Asian Infrastructure Investment Bank (AIIB).

Australia is very likely to choose to join the bank as one of its founding members, making it the latest U.S. ally to embrace the China-proposed institution.

It is widely believed that Australia made this decision following its senior ministers previously initiating talks on whether Australia should revise its former position and follow suit with Britain, Germany, France and Italy to join the AIIB as a founding member.

Australia, together with the United States, Japan and South Korea, had initially declined to support the bank last year, citing concerns about its standards of governance, transparency, environment and accountability.

While rightly supporting the government's decision to join the bank, local media had focused more on the bank's geo-political implications and impact on the U.S.-Australia-China relations, instead of explaining to their readers why the bank would be good for Australia.

The Australian newspaper labeled the change of position of the Australian government as "a colossal defeat of the (Barack) Obama Administration's incompetent, distracted, ham-fisted diplomacy in Asia."

This view missed the point that the popularity of the bank across the world, even among the U.S. allies should be attributed to the design of it as a multilateral financial institution, aiming to address the underinvestment of infrastructure in Asia and to provide countries with healthy balance sheets with lucrative business opportunities in the world's fastest growing region.

Statistics from the Asian Development Bank (ADB) show that between 2010 and 2020, around 8 trillion U.S. dollars of investment will be needed in the Asia-Pacific region to improve its infrastructure, including transport, energy and telecommunications.

Guo Shengxiang, a macro-economist with think tank Australian Institute of Innovative Finance, said infrastructure development is not only a task for developing countries but also a requirement for developed countries, which are facing the need to modernize their existing, aged infrastructure.

"Data from the Australian government shows that Australia is in need of about one trillion U.S. dollars in the next 10 years for infrastructure such as transportation, rural irrigation and others, " Guo said.

Peter Drysdale, head of ANU's East Asian Bureau of Economic Research, said Australia and other economies throughout the region "will benefit greatly from investment through the AIIB, directed, as it is intended, towards productive investment in infrastructure that is essential to sustaining regional growth."

AIIB is no competitor to the ADB and the World Bank.

For the 8 trillion U.S. dollars deficit in Asia's infrastructure fields, the ADB itself can only provide about 10 billion U.S. dollars annually in this category.

The U.S. casting doubt on the AIIB's standard of governance and emphasized the importance of current multilateral financial institutions, namely the World Bank and the International Monetary Fund(IMF), as the most prominent representatives of the world's current financial system, is not without problem.

The reform to increase the emerging countries' shares in these institutions to reflect the world's changing economic landscape has been blocked by the U.S. Congress for two years, frustrating not only those emerging countries themselves, but other economies as well.

China is open-minded about embracing new members whose arrivals will definitely reduce China's shares in the bank.

And the involvement of more financially savvy countries like Britain and Australia will undoubtedly improve the bank's standards in many ways.

Long gone are the days when countries make decisions purely from an ideological point of view, or so they should be.

As the world's recovery from the global financial crisis is still fragile and unstable, it is only natural for countries to seize the opportunity to develop their economies in a quick and sustainable way.

It is not surprising to learn that there are talks about getting onboard with the AIIB from the most unlikely countries, including Japan and the U.S.

By letting go of a "Cold War mentality" and making some commitment to Asia's development and thus the world's growth, the U.S. and Japan will find no reason to say no to the AIIB.