Keynote address
at a seminar hosted by the University of Tokyo
on 17 March 2021
Multilateral development banks in the age of Covid-19,
with particular reference to the Asian Infrastructure Investment
Bank, its governance and standardsdelivered byGerard Sanders
Senior Advisor to the President and General Counsel Emeritus
Asian Infrastructure Investment Bank

The responsiveness of multilateral development banks tochanging circumstances, most recently Covid-19
Multilateral financial institutions have always played a key rolein development. Over successive generations they have helped
shape the development agenda and supported their clientmembers, principally through financing programs and projects
and providing other forms of assistance. To remain relevant,they have had to be adaptive, responding to the changing
needs of members. We continue to see this today, with all themajor institutions ramping up support to their members toaddress the impact of Covid-19. In the case of the AsianInfrastructure Investment Bank, for example, lending and other1

investments in 2020 more than doubled over the previous year,
to approximately $10 billion of new approvals. Two-thirds oflast year’s investment has been in response to the pandemic,
with much of the support having gone to the least developed
members of AIIB. These poor countries are especiallyvulnerable to health and economic shocks and, particularly intimes of crises, their alternative sources of financing arelimited. This additionality, of the multilateral developmentbanks being ready to contribute financing that others cannot,
or will not, is a crucial test of their continuing relevance. As ademonstration of this readiness, we may note that after almost
every global financial crisis in the last several decades, theMDBs have substantially increased operational investment inorder to meet the resultant challenges.
Crises can also change priorities, both on the part ofdevelopmentally or financially distressed members and on thepart of the institutions set up to support them. The current
crisis, for example, has highlighted how important the health ofthe population is to the economy, with the AIIB for instancehaving ventured into providing emergency financing in thehealth sphere while developing a sector strategy for longerterm engagement in this area. The MDBs, then, are often mostactive in a crisis, at a time when other financiers are inretreat. The intensity of this counter-cyclicality is a further
measure of the MDB’s continuing relevance.
Indeed, MDBs have often been established in direct responseto economic and sometimes political challenges. The2

International Bank for Reconstruction and Development, at theheart of the World Bank Group, was created to help rebuild theeconomies damaged in the Second World War and to foster
development of colonies that were becoming
independent. The International Financial Corporation cameabout through a recognition that development would be betterachieved by engaging the private sector more directly. TheInternational Development Agency and the International Fundfor Agricultural Development were born of the recognition thatthe needs of the least developed countries can be better met
through concessional and grant financing.
Regional development banks, like the Inter-American
Development Bank, the African Development Bank, the AsianDevelopment Bank and the European Bank for Reconstruction
and Development were a response to calls for development tobe more localized in its articulation and delivery. This is truealso of the most recent of the major international financial
institutions, the Asian Infrastructure Investment Bank, although
it defies easy characterization given that, with 103 approved
members (and counting), its ownership is increasingly global
and, unlike the regional development banks, the AIIB may
invest in all its members and, in exceptional circumstances, innon-members too.
The family of MDBs: commonalities and differences
While the immediate reasons for their creation are varied, themultilateral financial institutions are all born into the family of3

international financial institutions and share the same broad
purpose. The specific terms of their mandates may vary, butthey are all ultimately concerned with improving lives,
especially of people living in countries that need the mosthelp. So, for example, the World Bank and the AsianDevelopment Bank retain a focus on alleviating poverty, while
the AIIB seeks to improve social and economic outcomes.
This consistency in purpose is accompanied by a further
common feature of multilateral development banks, namely
their alignment with certain global policy objectives, mostnotably the 2030 Sustainable Development Goals, the Addis
Ababa Action Agenda for financing development and the Paris
Agreement on climate change. This can be partly attributed tothe close association that the major international financial
institutions have with the United Nations, the world’s principal
development body, as sponsor of these three
initiatives. Indeed, several multilateral development
organizations are UN specialized agencies and a number haveobserver status at the United Nations, including the AIIB
(whose status as an observer in the General Assembly and theEconomic and Social Council was co-sponsored by Japan).
This notion of a family of MDBs is premised on their many
similarities and their readiness to work together in a broadlycommon cause. We have already noted the shared concern
with development. Furthermore, all MDBs are intergovernmental organizations whose membership is distinct fromthe institution itself. Control is a function of ownership, with4

the number of voting shares being allocated primarily withreference to economic power, but with adjustments to ensurethat voice is given also to the less economically powerfulmembers. Most MDBs have callable capital as well as paid-incapital, an arrangement that gives comfort to creditors, notably
bondholders. The power to borrow along with other criticalpowers, such as the power to lend and invest, is usually statedexpressly in the constituent agreement. Nonetheless, by virtueof public international law - the law under which allinternational organizations are created and by which they aregoverned - MDBs enjoy such implied powers, not inconsistent
with the express terms of their constituent charters, as arenecessary for the pursuit of their mandates.
Public international law also determines the status of MDB staff
as international civil servants, whose loyalties are to theorganization alone, and provides content to their contracts ofemployment. Additional content, as well as regulation, in thisand other spheres, are also provided by members and reflectedin the constituent agreements of MDBs. Of significance here
are the status, privileges, immunities and exemptions extended
by members to the organization, its personnel and assets, aswell as its activities. Also important are core aspects ofgovernance, in particular the vesting in the board of governors,
however named, of all the powers of the institution, and theestablishment of a board of directors and presidency withdefined and limited powers and responsibilities. Thesefeatures, then, are broadly shared by all MDBs.
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But the notion of a family of MDBs does not imply that allmembers are identical. Some differences reflect choices madefrom competing operational models. For instance, the IBRD is
confined to lending to sovereigns (or making loans with thebenefit of a sovereign guarantee), while the IFC may invest onlyin the private sector. In the case of the EBRD, it may only invest
in the public sector in limited cases, such as in support ofprivatization or infrastructure necessary for private sector
development. The AIIB, by contrast, has substantial flexibility
regarding clients, project nature, and investment instruments.
Sometimes differences among MDBs are attributable toinstitutional structures evolving. For example, the ADB was thefirst to introduce the concept of Special Funds, moneys heldand controlled and expended by the institution, but separately
so from the ordinary capital resources. Special Funds were
subsequently adopted by the EBRD and in turn the AIIB.
Governance at AIIB: rules and processes
Changes in governance can also be explained in evolutionaryterms. Turning to the most recent of the major IFIs, namely theAIIB, some governance features are those broadly shared by allMDBs and which were discussed earlier, for example theestablishment of three tiers of governance bodies and theprescribed bases for allocating votes. Some governancefeatures adopted by AIIB from other institutions represented
innovations in their day. For instance, unlike the case at theIBRD, but as is the case at EBRD, a director at AIIB representing
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a constituency of several members need not cast all of thecombined votes of the constituency in the samemanner. Similarly, the AIIB has also copied IFAD in having a
non-resident board and, like several other institutions, hasmembers on its audit committee that are external to theinstitution.
However, other AIIB governance features are unique. Three
are especially noteworthy:- Election of President: While all MDBs provide a mechanism
for the election of the executive head, the AIIB Articles goa step further and call for the election of the President inaccordance with an open, transparent and merit-based
process. Consistent with this provision, the board ofgovernors has approved standing election rules which
provide detailed content to this requirement. The electionof the incumbent AIIB president to serve a second term
followed these rules. Unlike at other MDBs, the election
rules have been published, further underscoring the AIIB’s
commitment to transparency.
- Oversight mechanism in charter: While the experience ofMDBs has led to the need to adopt various mechanisms toensure oversight of the institution, the AIIB is unique inelevating this practice to a legal requirement andentrenching it in the Articles. Consistent with thisprovision, the AIIB has established a dedicated unit
reporting directly to the board of directors and which is7

entrusted with evaluating projects and learning fromthem. The unit also handles complaints by third parties
asserting that the AIIB has not adhered fully to its own
safeguard policies, notably those in the social,environmental and procurement spheres. In addition, theoversight mechanism strengthens the AIIB’s audit
functions and staff grievance processes.
- Accountability framework: While power to approvefinancing proposals resides primarily with the board of
directors at all MDBs, the constituent agreement of theAIIB is unique in specifically anticipating the possibility ofdelegating this authority to the president. Such delegation
has now been put in place, with project approval authority
being progressively transferred to thepresident. Accompanying this, a process has beenadopted to assess the performance of the President incarrying out the responsibilities delegated to him and,indeed, in carrying out his duties generally. The schemeseeks to more clearly demarcate responsibilities of the two
governance bodies, with the board of directors setting
strategies and policies and holding the president toaccount, while the president is given the space to manage
the work of the institution, including critically its
investment operations.
Taken in their totality, the above-described features of AIIB,
embedded in the charter of the institution or adopted by its
governance bodies, represent a modern and, in my view,8progressive governance framework. Governance is about theallocation and exercise of power in decision-making, themanner in which those decisions are informed, and the meansby which the institution is held to account for its decisions.
Good governance, as reflected in the charter and decisions ofAIIB, ensures that power is distributed rationally and that there
are no structural impediments to it being exercised responsibly,that decisions are transparently and soundly made, and thatthe institution is accountable not only to its members but tothose affected by its actions. Ultimately, good governance isdemanded by the rule of law, a tenet which arguably isimbedded in customary international law and binding as suchon all MDBs.
Standards followed by AIIB
A natural consequence of an institution adhering to highstandards of governance is that it should follow high standards
in carrying out its functions, including its investment
activities. This is manifested in several ways at AIIB:- First, AIIB operates transparently. Its financial statements
are prepared and presented in accordance with
International Financial Reporting Standards and audited inaccordance with International Standards on Auditing. It
has a public disclosure policy whose basic premise is thatall documents may be made public unless there arecompelling and defined reasons for not disclosing. The9AIIB website provides comprehensive information about
the institution, including the governance processes inaction, strategies and policies under consideration, andinvestment and other decisions contemplated and made.
- Secondly, AIIB personnel are recruited following an open,transparent and merit-based process. Many of them comefrom comparator organizations and so are familiar withthe standards demanded of an internationalorganization. There are no national quotas at AIIB,
although hiring decisions may take into account thedesirability of recruiting on a wide geographicalbasis. Unlike at most other MDBs, recruitment is notconfined to nationals of members states. AIIB’s staff
includes nationals of the United States and Japan, forexample, even though neither country is a member.
- Thirdly, AIIB strategies and especially policies are broadlyaligned with those of other MDBs. This is explained byseveral factors, including: the high degree of shareholder
complementarity across the various institutions; thepractice of seeking the views of an informed public when
formulating these documents, especially the views of civilsociety organizations that increasingly operateinternationally and have consistent demands of all MDBs;
and the desire to set and follow standards that are
demanded by all stakeholders, including donors and rating
agencies.
10Confidence shown by others in the governance and standardsof AIIB
An important measure of the state of governance at the AIIB,
and the level of standards it follows, is the judgement ofothers. Several aspects may be mentioned here:- First, the AIIB now has 103 approved members, with otherapplicants expressing an interest in membership. Almost
one half of these approved members applied formembership after the institution began operating, anaction that suggests that the applicants are satisfied withthe governance and standards operating at the institution
they wish to join.
- Secondly, the AIIB has been granted observer status at theUnited Nations, a reflection of the respect of theinternational community generally towards theinstitution. That status was extended to AIIB based onconsensual support at the Sixth Committee where allmembers of the UN are represented.
- Thirdly, AIIB is able to attract as members of its
International Advisory Panel highly regarded individuals
with a track record of achievement in carrying out senior
governance functions. This includes former heads ofgovernment and central banks, including from nonmember countries like Japan.
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- Fourthly, several members have entrusted the AIIB withadditional funds beyond their capital payments, suggesting
confidence that the governance around the preservation,
use and reporting on the resultant Special Funds will be toa high standard. (In passing, let me note that a country
does not need to be a member to make a contribution toan AIIB Special Fund, a convenient means by whichgovernance can be observed without having to commitcapital.)- Fifthly, AIIB works closely with the major MDBs, including
in cofinancing projects. Cofinanciers have sufficientconfidence in AIIB that, in many instances, there isagreement that the policies and accountability
mechanisms of the cofinancier may be applied in relation
to the funding provided by AIIB. (Here, let me add that therelationship among MDBs is one of collaboration rather
than competition. This is because the operational
standards are comparable, and the size or risks of projects
are sometimes such that no MDB can finance themalone. An example of this is that AIIB extends, alongside
IBRD and ADB, policy-based loans to countries mostafflicted by Covid-19, with the AIIB relying on its
cofinancier to prepare and implement the projects given
their experience with this product.
- Sixthly, and finally, among the key factors considered byrating agencies when assessing MDBs is the quality ofgovernance at the institution. In this respect, all three12

major rating agencies have assigned AIIB the highest
possible rating.
Concluding remarks
The multilateral financial institutions have always played animportant role in supporting development. This has never been
more so than in times of crises. The current pandemic is a casein point, where MDBs have substantially increased the financial
support available to their members, particularly the least
developed countries. MDBs remain relevant. As other sourcesof development funding become scarce, the MDBs findthemselves counter-cyclically more active than ever. A recent
feature in this landscape is the substantial provision by AIIB offast-disbursing, policy-based lending to its most needymembers. This is a product, delivered through cofinancing with
the IBRD and ADB, that the institution had not previously
financed, but which a timely and meaningful response to thepandemic demanded.
This agility is traceable to the governance bodies of AIIB inaction. The actions of the board of directors and of thepresident are simultaneously empowered by the governancearrangements in place at AIIB and constrained by them. An
important constraining element is that approved financing
must be structured and delivered in a manner consistent withhigh standards, including as they relate to environmental andsocial issues as well as modalities enabling the institution to beheld accountable for its decisions. These dictates, of good13

governance and high standards, flow directly from thedetermination of the AIIB to be an effective and responsible
MDB, and from the expectation and confidence placed in theinstitution by its members and other stakeholders.
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