Dáil Éireann debate -
Thursday, 18 May 2017

Vol. 951 No. 2

Asian Infrastructure Investment Bank Bill 2017: Second Stage

Minister for Finance (Deputy Michael Noonan)

I move: "That the Bill be now read a Second Time".

The Asian Infrastructure Investment Bank Bill, if approved by the Oireachtas, will facilitate Ireland’s future membership of the Asian Infrastructure Investment Bank, AIIB. It will provide for the approval of the articles of agreement of the AIIB and for payments to be made to the bank.

The AIIB is a new multilateral financial institution which came into operation in January 2016. Its objectives are to foster economic development and regional integration in Asia, primarily through investment in infrastructure. The bank has 57 founding members, including 14 European Union member states, and is based in Beijing, with China playing a leading role in its establishment.

Following Government approval in December 2015, the Department of Finance commenced formal negotiations with the AIIB secretariat on Ireland’s potential membership of the bank. Ireland made a formal application for membership of the bank in January 2017. On 23 March 2017, the AIIB approved the applications of 13 new prospective members, including Ireland.

Ireland’s AIIB membership would require ratification of an international agreement represented by the articles of agreement of the AIIB. Ireland would also have obligations as regards capital contributions. Article 29.5 of the Constitution provides, among other things, that: “the State shall not be bound by any international agreement involving a charge upon public funds unless the terms of the agreement shall have been approved by Dáil Éireann". Passage of the proposed Bill by the Oireachtas, and its enactment by the President, would confirm such approval. Similar requirements applied when Ireland joined other international financial institutions, such as the World Bank and, most recently, the Asian Development Bank in 2006.

The rationale for Ireland’s membership of the AIIB includes geopolitical and economic considerations, in particular trade relations with China and the wider Asian economy. Over the past 15 years, Ireland has increased its engagement with Asia, in particular China, the world’s second largest economy, in a broad number of areas. Bilateral trade has grown in significance and, in 2015, Ireland’s total trade with China was worth over €11 billion.

There are significant benefits to strong and open ties with China. Becoming a member of the AIIB would reflect and reinforce the growing relationship between the two countries. AIIB membership will also complement Ireland’s international development policy, which aims to support sustainable development and inclusive economic growth. The bank’s governance standards and performance since its establishment in January 2016 reinforce the perception that it will be an effective driver of development.

It has worked very closely with other international financial institutions, such as the IMF, the World Bank, the European Investment Bank and the Asian Development Bank, to adopt their best practices in regard to governance, organisational practices and project appraisal. On the other hand, not to join the AIIB would raise questions about Ireland’s position on China’s increasing integration into the global economy and international financial architecture. Such a decision could impair Ireland’s growing bilateral relationship with China, with potential adverse effects for Irish businesses.

The AIIB was founded to address the significant infrastructure gap in Asia. Research from the Asian Development Bank estimates that Asia will need to invest $1.7 trillion per year in infrastructure between now and 2030. This significant demand for investment cannot be met from other channels of finance such as existing international financial institutions, governments or the private sector in these Asian countries.

The bank was declared open for business on 16 January 2016. It approved its first loans on 24 June 2016. The authorised capital stock of the bank is $100 billion, with $20 billion in paid-in capital. The AIIB will follow the model of other multilateral development banks, raising funds on international markets at competitive terms. Since it came into operation, the bank has approved over $2 billion in loans.

The AIIB currently has 57 founding members which are divided into regional members, that is, Asian countries, and non-regional members, which are mainly European but also include Australia and New Zealand. Regional countries will hold 75% of the bank’s shareholding and thus contribute 75% of the capital of $100 billion, with non-regional countries holding 25% of the bank’s shareholding and contributing $25 billion in capital.

China is the largest shareholder in the bank, with 26% of its voting power. India is the second largest shareholder, with 8% of total voting power, while Germany is currently the largest non-regional shareholder with 6% of total voting power. Each member country is represented on the board of governors and nominates a governor and an alternative governor. As is the norm for membership of international financial institutions, it is envisaged that the Minister for Finance would be governor for Ireland at the bank.

The principal office of the bank is located in Beijing, China. Unlike other international financial institutions, no member state representatives are based in Beijing, although the permanent staff may include people from member states.

The board of governors meets formally once a year for the AIIB's annual meeting. It elects a president for a term of five years and one or more vice presidents are appointed by the board of directors on the recommendation of the president. The current president is Mr. Jin Liqun, a Chinese national and former vice president of the Asian Development Bank, whose current term will expire in 2021. The board of governors also elects the 12 members of the board of directors who are responsible for the direction of the general operations of the bank. Nine directors are elected by regional members, while three others are elected by non-regional members. Members are arranged in constituencies headed by one of the 12 directors. On joining, Ireland will be part of the euro area constituency and represented by the director for the euro area.

To date, the bank has approved 13 projects in eight countries, with a focus spanning from transport to energy to urban development. Examples of projects the AIIB has financed to date include a $216.5 million dollar loan for a national slum upgrading project in Indonesia, co-financed with the World Bank; a $100 million dollar loan to finance a motorway project in Pakistan, co-financed with the Asian Development Bank and the United Kingdom's Department for International Development; and a $600 million dollar loan to support the trans-Anatolian natural gas pipeline in Azerbaijan, co-financed with a number of development banks.

EU member states have used their influence to ensure the standards of other multilateral development banks are mirrored in the AIIB in terms of investments, environmental and social safeguards, institutional governance and organisational matters. The bank has been very receptive to discussions on standards and safeguards and sought to adopt best practices. The mandate of the bank and the work undertaken by it to date on governance structures and safeguards covering investment, environmental and social issues demonstrate that it will complement existing international financial institutions. The majority of AIIB projects have been co-financed with other development banks, including the World Bank, the Asian Development Bank and the European Bank for Reconstruction and Development. This demonstrates the standard of project being financed by the AIIB and its intention to co-operate constructively with other international financial institutions. Both the president of the World Bank Group, Mr. Jim Yong Kim, and the president of the AIIB, Mr. Jin Liqun, have recognised the importance of ensuring a partnership approach, as evidenced by the memorandum of understanding they recently co-signed at the 2017 IMF-World Bank spring meetings to strengthen co-operation and knowledge sharing between both institutions.

The expected cost of membership for Ireland will be a total of approximately €25 million, spread over a five-year period, depending on prevailing exchange rates. Ireland has been offered 1,313 shares in the bank. This figure is based on the remaining unallocated capital in the bank and Ireland's relative GDP share among non-regional countries applying for membership in this round of applications. In capital terms, this equates to a total subscription of approximately €125 million, split between 80% callable capital and 20% paid in capital. In practice, this would result in a subscription of approximately €25 million, to which I have referred. In general, callable capital represents the capital for which a member country would be liable if the institution was to encounter acute financial distress, while paid-in capital is the amount a member country actually contributes to the institution in normal circumstances. Based on Ireland's membership of existing international financial institutions and the performance of these institutions to date, the probability of the callable capital being called on is negligible.

A contribution of approximately €25 million would also be broadly in line with our contribution to other international financial institutions, relative to their size. For example and taking into account the bank's global role, Ireland has paid-in capital in the World Bank of approximately €49 million. It also has paid-in capital of approximately €15 million in the Asian Development Bank. Ireland's capital contribution to the AIIB will be sourced from the Central Fund as is normal practice for international financial institutions. This has been provided for in the legislation. It is also expected that Ireland’s contributions to the AIIB will count towards the UN target of 0.7% of GNP for overseas development assistance, ODA. The programme for Government commits to continuing efforts to achieve this target as economic circumstances allow. While it remains to be formally decided whether contributions to the AIIB will count towards the level of ODA, indications are positive that this will be the case. In December 2016 the secretariat responsible for this issue in the OECD recommended that the AIIB be included in its list of ODA-eligible organisations. Once details are finalised, AIIB members will be able to count their AIIB contributions, or a significant proportion of them, towards their individual ODA targets.

I turn now to the specific provisions of the four sections of the Bill. Section 1 sets out the definitions used in the Bill.

Section 2 provides for the approval of the terms of agreement for membership of the Asian Infrastructure Investment Bank. The articles of agreement establishing the bank are set out in a Schedule to the Bill. Section 3 sets out the financial and other provisions associated with joining the bank.

Section 4 deals with the Short Title of the Bill. It also provides for the commencement of the provisions in section 3 on the day the State will become a member of the AIIB.

I strongly recommend Ireland's membership of the AIIB. The bank will make a significant contribution to economic prosperity and regional integration in Asia. Ireland's active participation in the AIIB will further strengthen our ties with this region, with expected benefits in trade links and possible procurement opportunities. Membership will be in line with Ireland's strong commitment to international development and I am confident that the AIIB will be an effective channel in that regard. I commend the Bill to the House.

Deputy Michael McGrath

Before I address the Bill, I note that the Minister has made a significant statement today that he will not seek reappointment to his current post when a new Taoiseach takes office. I pay tribute to him for his public service and stewardship of the Department of Finance and the economy in recent years. He is certainly leaving the economy in a much better state than in which he found it. Ireland's successful exit from the troika programme will be one of his notable achievements. Generally, the economy is performing very well, despite the fact that there will always be ongoing challenges. From my perspective, the Minister has been good to work with and I have a healthy respect for him. He has always been straight and upfront, even if we do not, of course, agree on every issue. I wish him well in the future and express the hope he will get to spend more quality time with his grown-up children and grandchildren. I hope he will enjoy life generally in reflecting on a career with many achievements, for which I thank him.

Deputy Michael Noonan

I thank the Deputy.

Deputy Michael McGrath

Fianna Fáil supports the Bill. People looking in and members of society in general might validly ask why it is in Ireland's national interest to join the Asian Infrastructure Investment Bank. When one looks at Ireland's strategic interests, economic development and deepening trade relations with many Asian countries, however, it becomes clear that it is certainly in our interests as a country to join.

There is, of course, a cost to this, which is €25 million over a five year period. In the context of the level of trade we have and which we aspire to have with the Asian economy it is a modest investment, which will pay a very rich return to the country. To take one example in terms of our trading relationship with China alone, which the Minister has put on the record, in 2015 bilateral trade between Ireland and China reached €11 billion. It is significant trade. In the context of Brexit, at a time when we are trying to diversify market penetration for so many Irish firms that are quite dependent on the UK economy and the UK market, having a foothold in Asia fits in very well with the objectives to lessen this dependence in terms of our trade with the UK and to diversify and widen our market penetration. The Minister of State, Deputy Eoghan Murphy, has had quite an engagement on the Asian front in the area of financial services and I am sure he will speak about this over the course of the debate on the Bill. It is a very important area for our country as we seek to attract further investment in the area of financial services.

I note the Minister for Finance of the day will become a governor of the Asian Infrastructure Investment Bank so Ireland will have a seat at the table, and this is to be welcomed. In addition, I note we will be part of a constituency of euro area member states, where Ireland will have a turn on the board of directors in terms of the more day to day operational element of the bank. It is very important to have influence at this level so we can ensure the activities of the bank meet the strategic objectives of our economy and what we seek to achieve.

I note from the Minister's speech that it is the objective of the Government that the contribution of €25 million will be recognised as part of Ireland's overseas development aid requirement, which is 0.7% of GNP, and while this issue has not been finally determined, it is likely it will meet the test to form part of the contribution. It is fitting and appropriate this would be the case given the nature of the activity in which the bank will be involved, for example, in the areas of energy and developing better infrastructure, including transport infrastructure. Looking at various projects that have already been approved by the bank, it is fair to say those investments will help to develop the Asian economy and, in turn, will help to create significant opportunities for Irish firms.

The trade missions to Asia in recent years, which have been led by various Ministers and heavily supported by Enterprise Ireland and other State agencies, have been successful. There is an economic dividend for the European Union and particularly for Ireland in ensuring the Asian economy continues to be developed and that infrastructure bottlenecks there are addressed. Irish firms will not just develop export opportunities but will also directly provide services as part of projects which will be funded by the Asian Infrastructure Investment Bank.

The Asian Infrastructure Investment Bank is a very new bank. I have to say I did not know a whole lot about it until I started researching it in anticipation of the debate today. China will be the most significant player, along with India and other countries in Asia. It is operated on a multilateral basis. I note and welcome the level of co-operation that exists between the new bank and other international institutions such as the IMF, the World Bank, the European Investment Bank and the Asian Development Bank. The fact Ireland has a vice president of the European Investment Bank in the form of Andrew McDowell presents an excellent opportunity for Ireland to develop stronger relations through this channel with this new Asian Infrastructure Investment Bank.

The Bill itself is quite short and, in effect, what we are doing is providing for the approval of the articles of agreement of the new bank and consent for the payments to be made. We should ensure there is a proper reporting mechanism and that Ireland's involvement in the bank is accounted for, and I suggest, for example, this be a standing item on the agenda in the finance committee. At least every year we should be given an update on the work of this bank and Ireland's role in this regard, and we should seek to measure in so far as we can what the economic benefits are to Ireland as a result of being directly involved in and being a member of the bank. I will leave my opening remarks at that. I welcome the Bill. We look forward to Committee, Report and Final Stages of the Bill. We support the Bill and we look forward to the remainder of the debate.

Deputy Peadar Tóibín

I pay tribute to the Minister for Finance on the announcement of his retirement from that role. The Minister for Finance and I have a very different world view in nearly every respect politically, but it is obvious he has played a very strong role in Fine Gael over the years. He has been a mainstay of the Fine Gael Party since I was a child and no doubt he had a very settling effect on the Fine Gael Party every time it got little bit giddy over recent years. I wish him well in his retirement and many happy years with his family.

I welcome the Bill. My party is an internationalist one and believes the State should play a full role in development across the world. We are members of the World Bank and the Asian Development Bank, which are the American and Japanese dominated development banks, so there would be no reason to shun the Chinese equivalent.

For some time I have been asking the Minister about when our application would be progressed. In April 2015, when the bank was founded, my colleague, Deputy Pearse Doherty, asked the Minister if Ireland would join. At that point, Deputy Doherty was told that no decisions had been taken or proposed in the matter. At that point, Britain, Germany, France and practically all other European countries had joined or indicated they would join as founding members. The agreement is clear that founding members enjoy special privileges in nominating and voting for directors. Most of our neighbours will have these privileges but Ireland will not. Unfortunately, the country hesitated and dithered and we were nearly left behind. By delaying our application for no good reason we have put this country at a tactical disadvantage.

It is not clear why we delayed but the possibility exists that American sensitivities might have been behind it. American Nobel Prize winning economist, Joseph Stiglitz, thinks our sensitivity is misplaced, saying:

In fact, America’s opposition to the AIIB is inconsistent with its stated economic priorities in Asia. Sadly, it seems to be another case of America's insecurity about its global influence trumping its idealistic rhetoric – this time possibly undermining an important opportunity to strengthen Asia's developing economies.

I cannot see any good reason a decision was not taken until December 2015. Hopefully, there will be no further disadvantages because of this. What matters ultimately is that the right decision was made. Asia is a huge part of the world with massive concentrations of population. Its economic potential compared to Europe is very large. Good trade links with China in agriculture and other areas in particular are essential to our export sector. As the Minister told Deputy Doherty last June:

Bilateral trade has grown in significance and, in 2014, Ireland's total trade with China was worth over €8 billion. Ireland's priorities relate to bilateral trade and investment, particularly: higher education; agrifood; tourism; and aviation-financing sectors.

The economic rationale for joining is clear, but it should not have been the only rationale. I note the articles of agreement state, "The Bank shall ensure that each of its operations complies with the Bank's operational and financial policies, including without limitation, policies addressing environmental and social impacts." That is, presumably, a very weak sop to those of us who argue for investment that respect human rights and environmental protections. We cannot ignore such issues when we are talking about what is effectively a Chinese bank. Many of the countries that are the likely recipients of investments have issues with minorities or national rights that must be taken into account.

The European Parliament has noted that, "so far the AIIB’s governance structures do not foresee adequate involvement of shareholders in project financing decisions, and that the publicly available project documentation lacks any detail on the fulfilment of the environmental and social measures that the AIIB requires from its lenders". We should not shirk from those questions. I believe on this occasion it is a case of being better off inside the tent than outside it. As Dr. Stiglitz stated: "Moreover, the need for environmental and social safeguards in infrastructure investment is more likely to be addressed effectively within a multilateral framework". Irish investment should be monitored to ensure our investment is not being pumped into projects that do not respect social, human and environmental rights.

The policy decision for me is clear, but we should not forget that this is not just a matter of signing an agreement. We have to put our money where our mouth is. The Minister told Deputy Doherty last week - perhaps he has updated figures - that Ireland’s membership of the AIIB could result in a charge of some €50 million on the Exchequer based on projected annual payments of €10 million per annum for five years. Looking at the figures in the schedule of the contribution made by other similar countries, that seems on the low side. Denmark, for example is down for €369.5 million and Finland is down for €310 million. Is this country trying to get in on the cheap? This is not an insignificant investment for a country of our size. It is only right that it is debated here and requires our approval.

When we dealt with the Single Resolution Board (Loan Facility Agreement) Bill, we made the point, which was accepted through our amendment, that when we sign off on international agreements, it is not good enough to have the Dáil sign off once and that changes to what we agreed can then be made without further approval. There is a question of how practical Dáil approval for change might be, but I would tend to err on the cautious side. In the Single Resolution Board (Loan Facility Agreement) Bill, the issue was that a call on this State to provide more money could be made beyond what was agreed without the Dáil having to approve such a change.

We have strict rules over the money that can be spent in Bills, which I believe is an archaic system, yet when it comes to an international trade agreement, a blank cheque can be written. We will review the provisions in this Bill to see if an amendment is required to tighten up the Oireachtas oversight. Development banks are good. We should use them far more often. Our take-up of European Investment Bank funding is a disgrace. It remains far too low, even during the current housing crisis. There is a huge chasm between where our capital investment is and where it needs to be. We support this Bill.

Deputy Joan Burton

The Asian Infrastructure Development Bank is one of a number of development banks around the world with which Ireland is associated, the biggest ones being the IMF, the European Investment Bank and the Asian Development Bank, the founding of which I believe was heavily influenced by the Japanese, just as this one is heavily influenced in its establishment by the Government of China.

In looking at development banks as a model, one has to ask who the development infrastructures are for. In this respect, and I do not think this was addressed in the Minister's contribution, what we have to look at in terms of the developing countries of Asia is that the number of girls who are in education is depressingly small. I am not including the very developed countries in Asia in that, but the failure of girls to be at school and to receive education is probably one of the greatest issues that can affect a country in terms of retarding its progress and development. I would like to know from the Minister, and from the officials in the Department of Finance and those people who will service Ireland's participation in the agency, what exactly is the development ethos that will influence Ireland's stance regarding this bank when it gets under way.

The second issue in regard to women is that in many countries in Asia, far more is spent on armaments than is spent on women's general development. I worked in Africa for a number of years. I was back recently on a private visit to Tanzania, in east Africa. Any country which seeks to have development without an intense and full participation by women will not succeed, nor will any kind of attractive society emerge as a product. It is also likely to be a much more unequal society, and it may well be an intensely patriarchal society. We also know that there are different forces in the world who object strenuously to girls barely getting any education at all, so we need to know the underlying approach to development in terms of the Department of Finance and the mandarins who inevitably will be guiding Ireland's participation in this bank.

The third issue is how the bank, and Ireland's potential contribution to the bank, will be utilised so as to help to deliver services to the people who are the poorest in society. By and large, that is women and children. While the references in the material regarding the bank mention not only economic but social progress, I challenge the Minister and the civil servants to set out specifically, in terms of Ireland's long record in working in developing countries, how our participation in the bank will meet our own tradition of assisting in development in a way that is balanced and that takes into account the poorest people in any society, and not only the rich men in society but, in particular, women and children. When we move beyond that category, by and large we are also talking about people in rural areas often being extremely poor in terms of resources. That is one question the Minister must answer.

The other question the Minister must answer is to give us a picture of how this bank will operate. Will it be an applications bank to which various countries will apply for funding? Will the funding be dictated by the bank or will the applications come from the bottom up? Development banks have a great capacity to influence, for the good, the development of infrastructure that serves whole societies and regions in a fair way. Equally, if it was to turn out to be just a boys' club, it could be something that would be utilised on an exclusive basis. We know, for instance, that China has made reference to having various initiatives such as a recreation, in modern highway terms, of the old Silk Route, going back to the time of Marco Polo and earlier in Chinese history, and strengthening the transport links by road and possibly by rail between Asia and Europe. We need to spell out exactly what the bank is likely to do. What is its vision statement? What is its statement regarding countries such as Nepal, where there is a crying need for development and infrastructure?

Debate adjourned.