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South Korea is joining the Chinese-led Asian Infrastructure Investment Bank. According to a South Korean government spokesperson, Seoul will complete negotiations with other AIIB members over the bank establishment accord by June, which will then be submitted to the national assembly for ratification in the second half of the year. Subject to approval from AIIB’s other prospective founding members, South Korea will be granted founding membership status of AIIB. Given developments in recent weeks, none of this is particularly surprising.
What is interesting is an account in Euromoney’s Emerging Markets, which I confirmed with the single named source, that Pyongyang also approached Beijing about joining the AIIB and was flatly rebuffed. (Having been jilted, Pyongyang pouted that Seoul's entry into AIIB was just a pay-off for acquiescing in the US desire to station a Terminal High Altitude Area Defense (THAAD) battery in South Korea.)
According to the report, and I find this entirely plausible, the reason for the Chinese decision was not the Rodong Sinmun’s recent habit of putting Chinese President Xi Jinping on page 3, but rather Pyongyang’s unwillingness to reveal conventional financial statistics—the same issue that sank a tentative effort to join the IMF and World Bank nearly twenty years ago. The information requested by presumptive AIIB president Jin Liqun included the sectoral composition of economic activity and the state of public finances, including the tax base. In most countries, these items are public information. If anything the informational demands, North Korean paranoia over disclosure, and unwillingness to bend rules are all likely to be increased with a number of Western countries including the United Kingdom, Germany, and Australia joining the bank as founding members. According to Masahiro Kawai, former ADB official and ADBI dean, “the AIIB needs ultimately to be repaid when it lends to sovereign states.”
As an economist writing on these issues, I am often struck by the disconnect between the assumptions of foreign policy mavens, North Korea watchers in particular, and the attitudes and behaviors of the bankers and economists who run multilateral financial institutions. These are first and foremost financial institutions, not charitable organizations. Bankers are bankers the world over. Chinese bankers are proving no different.
