AIIB vital to meet Asia's funding needs: Indonesia FinMin

Indonesian FinMin: EMs must watch out for Greece
Indonesian Fin Min: EMs must watch out for Greece   

Indonesia's Finance Minister has defended the structure of the new Asian Infrastructure Investment Bank (AIIB), saying that the China-backed institution would ensure projects it funded were high quality and delivered with appropriate governance.

Speaking to CNBC, Bambang Brodjonegoro said the AIIB was adhering to the best practices as followed at its international counterparts such as the World Bank and the Asian Development Bank.

"Indonesia has been involved in the discussion regarding the establishment and governance of AIIB. So far, we are satisfied because experiences from the World Bank and ADB have been used fully in the discussion. In fact, we're trying to improve what have been doing well, both in the World Bank and ADB, in order to make the AIIB better," Brodjonegoro told CNBC on Tuesday.

The remarks come after 50 founding members of the AIIB on Monday signed the articles of agreement outlining how the new international bank would be run. Indonesia is one of the countries who took part in the signing ceremony in Beijing, alongside the U.K, Germany, Australia and South Korea.

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The $50 billion AIIB, which aims to support infrastructure development in lower- and middle-income Asian countries, has been viewed by some as a rival to the Western-dominated World Bank and ADB. The U.S. and Japan have notably declined to join the China-led economic outreach project, citing concerns over debt sustainability, environmental protection and governance.

There are also worries that Beijing could use the AIIB to push its own geopolitical and economic interests as a rising power, considering that voting rights are determined by gross domestic product (GDP) and capital contribution, which will give the world's second-largest economy an outsized say in the multilateral financial institution.

According to the Articles of Agreement, "regional countries" such as Asia and the Middle East region will shoulder 75 percent of the total capital base while "non-regional countries" such as European nations will contribute the remaining 25 percent.

Reuters reported that China will hold a 30.34 percent stake in the AIIB, rendering it the largest shareholder, and that Beijing will have 26 percent of the voting rights. India is the second-biggest shareholder with an 8.4 percent stake, while Russia is third with a 6.5 percent stake.

Bambang Brodjonegoro, Indonesia's finance minister.
Andri Tambunan | Bloomberg via Getty Images
Bambang Brodjonegoro, Indonesia's finance minister.

With its focus on large infrastructure projects in Asia, the AIIB is expected to lend a much-needed helping hand to regional developing countries such as Indonesia, which are in urgent need of new basic infrastructure to support their economic and social development.

Jakarta is infamous for its traffic gridlock, which underscores the Southeast Asian country's infrastructural shortcomings. Additionally, the country is plagued by frequent power outages.

"We have more than $450 billion of infrastructure financing needs for the next five years. With that kind of need, I don't think a single multi-lateral agency like World Bank or ADB can fulfill that kind of requirement," Brodjonegoro said.

"Of course, the Chinese government will also render support, in terms of direct lending or infrastructure investments in Indonesia, but at the same time, the AIIB will ensure that projects will be of the highest quality and delivered with the appropriate governance," he added.

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Keeping an eye on Greece

The minister also shared his views on Greece, which is hogging the global market spotlight this week.

Negotiations for a cash-for-reform package between Athens and its creditors broke down over the weekend and Greek Prime Minister Alexis Trspras called a surprise referendum that will effectively see Greeks vote on whether to accept further austerity or risk going out of the euro zone. On Tuesday, Greece failed to pay a 1.6 billion euro loan installment due to the International Monetary Fund (IMF) after failing to secure new rescue funding.

According to Brodjonegoro, global markets, especially emerging markets, must keep an eye on Greece-related risks.

"I believe the global financial system, as well as the global capital market, will be affected by what happens in Greece and emerging markets especially needs to pay attention to strengthening their fundamentals in order to deal with the impact of the Greek crisis," the finance minister said.

"But I'm sure there will be [some] kind of resolution that will help the global economy come back to the normal," he added.

On Tuesday, the Jakarta Composite tracked region-wide gains to notch up 0 47 percent, recovering from Monday's 1.14 percent decline. Meanwhile, the rupiah advanced slightly to 13,321 per dollar, compared with Monday's close of 13,340.

— Reporting by Sri Jegarajah | Written by See Kit Tang