Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

This Bill, if approved by the Oireachtas, will allow for Ireland's 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 associated with our membership to be made to the bank.

The AIIB is a new multilateral financial institution which will promote economic development and regional integration in Asia, specifically through investment in infrastructure. The Bank commenced operations in January 2016 with 57 founding members, including 14 EU member states, and has now grown to 80 approved members. The establishment of the Bank was primarily a Chinese initiative and it is headquartered in Beijing.

A Government decision in December 2015 allowed the Department of Finance to commence formal negotiations with the AIIB secretariat on Ireland's potential membership of the bank. Following this, Ireland made a formal application for membership of the bank in January 2017, which was accepted in March. Ireland must now fulfil a number of requirements before our membership of the bank is complete. Most significantly, our membership of the bank requires ratification of an international agreement, namely, the articles of agreement of the AIIB. Our membership will also involve a capital contribution to the bank. Article 29.5 2° 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. Traditionally, our membership of similar international financial institutions, such as the World Bank and the Asian Development Bank, has been provided for through the passage of primary legislation.

Why does Ireland wish to join the AIIB? A large part of the rationale is based on further strengthening our trade and economic links with Asia and, in particular, China - the world's second largest economy. This relationship has grown strongly in recent years and, in 2015, Ireland's total trade with China was worth over €1.1 billion. This is an increase of 42% on the previous year. Clearly, this relationship is important to an economy such as Ireland's, and even more so given the desire to diversify our exports following the UK's decision to leave the EU.

AIIB membership is also in line with Ireland's longstanding commitment to international development which has wide-ranging political support. Ireland's 2013 international development policy includes among its three core goals the aim to support sustainable development and inclusive economic growth - this is a goal which is closely aligned with the mandate of the AIIB. The standards adopted by the bank since its establishment reinforce the perception that it will be an effective driver of economic growth in the region, with sustainability a firmly established as a core principle. It is also reassuring to see that the bank has worked very closely with other international financial institution's such as the World Bank, European Investment Bank and Asian Development Bank to adopt their best practices in relation to governance, organisational practices, project appraisal and safeguards.

The AIIB's mandate is to address the daunting infrastructure gap in Asia. The case for increasing investment in high quality infrastructure in the world’s fastest growing region is compelling. 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.

The bank was declared open for business on 16 January 2016 and 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 broadly follow the model of other multilateral development banks, raising funds on international markets at competitive terms and channelling this into loans, guarantees and equity investments. Since it came into operation, the bank has approved over $2 billion in loans.

The AIIB currently has 80 approved members which are divided into regional members, that is, Asian countries and non-regional members, mainly European countries, but also including countries like 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 and currently holds approximately 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 over 4% of total voting power. The total voting power of all EU members is approximately 20%. Each member country is represented on the board of governors and nominates a governor and an alternate governor. As is the norm for membership of international financial institutions, the Minister for Finance would be governor for Ireland at the bank. 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. 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 elect 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, and three others are elected by non-regional members. Members are arranged in constituencies headed by one of the 12 directors. Upon joining, Ireland would be part of the euro area constituency and would be represented by the director for the euro area. The director and alternate director posts in the constituency will rotate between the members of the constituency. Ireland will have an opportunity to hold such a post in the future, although the specific details of the arrangement remain to be decided. Ireland will also hold an adviser position upon joining the bank, through which we will be able to attend meetings of the board of directors.

The bank operates primarily by providing finance in the form of loans. The bank may also make equity investments and provide guarantees. To date, the bank has approved 18 projects in nine different countries, with focuses spanning from transport to energy to urban development. Some typical examples of projects the AIIB has financed to date include a $216.5 million loan for a national slum upgrading project in Indonesia, to be co-financed with the World Bank, a $165 million loan for a power system project in Bangladesh and $329 million loan toward a road project in Gujarat, India. Indeed, three quarters 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 which is being financed by the AIIB and its intent to co-operate constructively with other international financial institutions. Both the World Bank and the AIIB have recognised the importance of ensuring a partnership approach, as is evidenced by the memorandum of understanding recently co-signed by both presidents at the 2017 IMF-World Bank spring meetings to strengthen co-operation and knowledge sharing between both institutions. This co-operative approach with existing development banks and an emphasis on adopting their best practices has been a priority for EU members of the bank. They have used their influence to ensure that the AIIB develops and maintains rigorous policies in terms of investments and lending, environmental and social safeguards, as well as governance, transparency and organisational matters. The bank has been highly receptive to discussions on standards and safeguards.. It has made a clear commitment to being lean, clean and green and to adopting best practices. If Ireland becomes a full member of the bank we will, in co-ordination with like-minded members, endeavour to ensure that the AIIB lives up to this commitment.

The expected cost of membership for Ireland will be a total of approximately €25 million, paid in equal annual instalments over five years. 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 applicants. Each share has a value of $100,000. In capital terms, this equates to a total subscription of approximately €125 million, split between 80% callable capital and 20% paid in. In practice this would result in the subscription of approximately €25 million, to which I have already referred. In general, callable capital represents the capital for which a member country would be liable if the institution encountered acute financial distress, while paid-in capital is the amount which a member actually contributes to the institution in normal circumstances. Based on Ireland's membership of existing international financial institutions and the performance of those institutions to date, the probability of the callable capital being called upon 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 instance, in the World Bank, taking into account the bank’s global role, Ireland has paid-in capital of approximately €49 million, and in the Asian Development Bank Ireland has paid-in capital of approximately €15 million. Ireland's capital contribution to the AIIB would be sourced from the Central Fund as is the normal practice for international financial institutions. This has been provided for in the legislation. Ireland's contributions to the AIIB would also count toward the UN target of 0.7% of GNP for official development assistance, ODA. The programme for Government commits to continuing efforts to achieve this target as economic circumstances allow. In line with the bank’s focus on development and its emphasis on the less-developed countries in the region, a significant proportion of our contributions to the AIIB will count toward ODA. The OECD is the body with responsibility for granting ODA eligibility, and in June 2017 it agreed that 85% of a member's contributions to the AIIB will be ODA-eligible. Therefore, fulfilling the financial obligations which our AIIB membership would bring will help us in respect of our ODA targets.

I will now turn to the specific provisions of the four sections of the Bill. Section 1 sets out the definitions used in this 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 Asian Infrastructure Investment 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 when the State becomes a member of the AIIB.

I encourage Deputies to support this Bill and Ireland's membership of the AIIB. The bank will make a significant contribution to economic prosperity and regional integration in the world’s fastest-growing region. This is a region which will be central to the 21st century and has a clear need for high-quality investment and infrastructure. This investment will spur economic growth, benefitting not just Asia, but the wider world. I believe Ireland should play an active role in the Bank, shaping its policies in line with our principles, and strengthening our ties in the region in the process.

I recommend this Bill to the House.