Reasons behind Russia's reluctance to join AIIB: Duowei

Want China Times, Staff Reporter 2015-03-27

Chinese president Xi Jinping greets his Russian counterpart Vladimir
Putin at the APEC summit in Beijing, November 2014. (Photo/CNS)

Russia may have good reasons behind its reluctance to join the Asia Infrastructure Investment Bank (AIIB) proposed by China, says Duowei News, a US-based Chinese political news outlet.

With the March 31 deadline for applications to be a founding member of the AIIB looming, Russia has still not decided whether it wants to be a part of the multilateral development bank aiming to finance infrastructure projects in the Asia region. A March 23 report in a Russian newspaper cited comments by the country's deputy finance minister Sergei Storchak to the effect that Russia has not yet decided if it will apply for membership.

While Russia sits on the fence, several other countries have already caught the "late train," with Australia, South Korea and Austria each indicating a desire to apply over the past week. International Monetary Fund (IMF) managing director Christine Lagarde and Asian Development Bank president Takehiko Nakao also both recently declared a willingness to cooperate with the AIIB, which has been viewed as a key sign of support for China.

While it is natural for the United States and Japan to be skeptical of the AIIB, Duowei said, Russia's reluctance to join has been considered a head-scratcher by many analysts because it appears to have more reasons than countries like the UK, France and Germany to want to be a part of the system.

Back in 2007, Russian president Vladimir Putin publicly stated that the world needs to establish a new international financial system to replace the outdated, undemocratic and awkward systems of the present. With the United States still in charge of global financial order, it is inevitable that the financial reforms Russia is pushing for will involve building a new platform, Duowei said.

The scope of the AIIB has already far exceeded that of a regional investment bank and has the potential to influence financial markets on a global scale, Duowei said. Even though the Ukraine crisis, which has isolated Russia from the West, has been devastating for the national economy and its future prospects, Russia is still undergoing structural changes to its economy and holds strong potential in its infrastructure development sector.

Based on information released by Oxford Economics, Russia has attracted more foreign direct investment over the last decade than both Brazil and India, though this does not necessarily mean that investment funding in the infrastructure development sphere meets demand. The Global Competitiveness Report 2013-2014, published by the World Economic Forum, said that the quality of Russia's infrastructure, due to a lack of investment, has slid to be ranked 93rd in the world.

The Road to 2030: A Survey of Infrastructure Development in Russia, a report from global professional services organization EY, notes that in the past five years, Russia has announced at least 325 infrastructure projects. These, as well as other projects such as the upgrading of the Trans-Siberian Railway and the competion of 14 operational airfields in the arctic by the end of the year, will all require significant sums of investment funding, Duowei said.

Despite the above backdrop, Russia still has three main reasons for refusing to join the AIIB, Duowei said. The first is that Putin still wants to build Russia into the leader of Eurasia's economic community, something membership in the AIIB cannot help him achieve. Even if Russia joins, it will not have the power to dictate terms and will arguably not even have significant authority, Duowei added, adding that this is perhaps why Russia is pursuing alternatives such as strengthening bilateral ties with China and actively boosting its position in the BRICS community among the other emerging nations of Brazil, India, China and South Africa.

Secondly, Russia does not want membership in the AIIB to rob it of its economic independence. While Russia can compete with the US and China in terms of its military might, its economy its undoubtedly a fatal shortcoming. According, the Kremlin may have concerns over whether, with China leading the way, the AIIB can genuinely improve infrastructure development in Asia and operate in a fair and open manner that adheres to financial discipline. The better option might therefore to wait and observe to see how the AIIB functions first before deciding whether it is prudent to join, Duowei said.

Thirdly, Russia's reluctance to join the AIIB may reflect China's wishes to some extent. In recent weeks of negotiations, China has been insisting to European countries that Beijing will not have veto power in the AIIB, a declaration that has prompted the likes of the UK, France, Germany and Italy to decide becoming a founding member. The absence of the maligned Russia from this picture therefore actually assists China in gaining support in Europe, Duowei said, noting that this theory makes sense given that China and Russia are now viewed as being in a "quasi-alliance" by the international community. Considering its strong ties with China, Russia will not have too many difficulties if it decides to join the AIIB once the bank is up and running and moving towards success, Duowei added.

Sri Mulyani Indrawati, managing director at the World Bank. 

(File photo/Xinhua)

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