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Egg on Washington’s face in bank farceAlex Lo18 March 2015Even as Washington is busy denouncing Britain for becoming a founding member of a new China-led development bank, key allies are ready to jump ship.France, Germany and Italy have all declared their intention to join the Asian Infrastructure Investment Bank. South Korea and Australia, which said no previously, have now changed their tune and said they would reconsider. Given the size of their foreign trade, which is dominated by China, it’s only a matter of time before they defy Uncle Sam and sign up.What an embarrassment for Washington! Its clumsy arm-twisting of allies was intended to isolate China and prevent it from forming an alternative institution that could challenge the monopoly of global development policy by the US-led World Bank.Now it’s Washington that looks isolated. Its rationale for opposing Western membership in the new bank is that it will have poor governance and lending standards. But would it not help improve standards and governance if Western powers were able to play a significant role in the operations of the bank than sitting on the sidelines? In reality, it’s all about maintaining US predominance in the region and containing China.The US has had much success on that front in the past few years, having been greatly helped by President Xi Jinping’s threatening posture towards China’s neighbours. But the AIIB episode is rapidly turning into a major diplomatic debacle for Washington. One reason is that the moralistic stance Washington has taken over the AIIB is so transparently partisan and hypocritical that even its closest allies have trouble dissimulating it. As part of that strategy, Washington has also excluded China from the US-led Trans-Pacific Partnership of 12 Pacific countries. At heart, it’s all a naked power struggle.As a former US Treasury official told me: “We placed high value on the fact that the World Bank and IMF were both located within easy walking distance of the US Treasury in Washington, and that our executive directors at these institutions had veto power over their major actions, despite the US holding only 15 per cent of their shares.”The US will have no veto power and little influence over the AIIB and it doesn’t like it.
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