Last October, representatives of 21 governments met in Beijing to sign an agreement to establish a new Asian Infrastructure Investment Bank (AIIB). Since then more than 20 more countries, including the UK, France, Germany and Italy, have signed up to become foundation members.
China has offered to provide seed capital of $US50 billion for the bank, and is seeking an additional $US50 billion from other members.
China is very keen to have Australia as a member, but under pressure from the United States – which fears that China will use the new bank for political purposes – that has not yet happened. However, Federal Treasurer Joe Hockey has repeatedly said that he is keen for Australia to join.
It has been reported that the U.S. State Department, and U.S. Secretary of State John Kerry in particular, have lobbied hard to persuade Australian Foreign Minister Julie Bishop and the Foreign Affairs Department in Canberra not to join.
The Federal Treasurer recently told the Financial Review that $US7 trillion in infrastructure investment was required in Asia over the next decade.
“If they’re building a port in Asia that can take shipments of iron ore, this is to Australia’s great advantage. If they’re building a pipeline in Indonesia that is going to carry our LNG, that is to Australia’s great advantage.
“If broadband is being rolled out in Myanmar and the AIIB is helping to fund that, this is to Australia’s great advantage, so our services exporters can get up there … If they’re building airports and they can fly directly into Cairns or Darwin, that’s to our advantage.
“So I have always been supportive of this initiative” (Financial Review, April 13, 2015).
The key point to this is that the new bank will provide the capital to build infrastructure that could not be built from Asian governments’ existing revenues, and would not be built by the private sector, which is committed to short-term profits.
There is a clear sense that the existing international agencies, including the World Bank, the International Monetary Fund and the Asian Development Bank, do not have a sufficiently strong focus on wealth-building projects in the Asian region.
Governments in Australia – both state and federal – face increasing pressure to provide key services at a time of falling revenue from the large export industries, particularly coal and iron ore.
This has already led to a clash between Western Australia and other governments with regard to the distribution of GST revenue. And with the Federal Treasurer flagging a fall in iron ore prices to as low as $35 a tonne, and declining prices of coal, the federal and state governments face real trouble capping existing deficits, let alone finding capital for major infrastructure projects from the budget.
The dire situations of Australia’s leading iron ore miners, of state governments dependent on their revenue, and of even the federal government, which estimates that every $US10 drop in iron ore prices costs $2.5 billion in lost revenue, shows they cannot bankroll national infrastructure projects.
Like other countries in the Asian region, Australia urgently needs a source of capital to fund national development projects, particularly infrastructure, without requiring it to be funded through the budget.
As the focus of the Asian Infrastructure Investment Bank is the whole region, Australia needs its own infrastructure investment bank to provide long-term capital for the development of ports, water infrastructure, roads, railways, and power and communications services throughout this vast continent.
Recent Australian governments have suffered from an acute form of myopia in refusing to accept the principle that they should establish a national infrastructure bank, with government seed capital (like the Reserve Bank of Australia), and capable of attracting long-term capital from both Australia and abroad.
Paradoxically, over the past 100 years Australian governments have been quite willing to establish financial institutions to raise capital for vital infrastructure works.
The Commonwealth Bank, originally established in 1911, helped fund Australia’s involvement in World War I, as well as the transcontinental railway from Port Augusta, South Australia, to Perth; and after World War II, the Snowy Mountains Scheme.
When the Commonwealth government reorganised the Australian banking system in 1959 to create the Reserve Bank, it also created the Commonwealth Development Bank, formed from an amalgamation of the Mortgage Bank and the Industrial Finance Departments of the Commonwealth Bank.
During its 30 years of operation, it helped hundreds of thousands of Australian businesses, until it was eventually privatised.
In light of acute limitations on government budgets, and the Treasurer’s enthusiastic endorsement of the Asian infrastructure Investment Bank, it is now time for Australia to establish its own national infrastructure investment bank.
Peter Westmore is national president of the National Civic Council.