NEW HORIZONS IN INFRASTRUCTURE INVESTMENT – THE

ASSENT OF THE ASIAN INFRASTRUCTURE INVESTMENT

BANK AND ITS EFFECTS ON THE IMF AND THE USA

CHRISTA DENEVE*

I. INTRODUCTION

For decades there has been discourse on whether the International Monetary
Fund (“IMF”) is a useful tool for nations, or if the Fund hurts more than it helps.1

There has also been concern indicating that the United States has a hold on the
international financial institution, which is supposed to be apolitical, unbiased,
multilateral economic organization.2 This concern is found within the IMF’s
quota system and subsequently, voting rights. Each member of the IMF receives
a set number of “base votes,” and then a set of votes based upon that member
state’s quota share.3 The more quota share a state is assigned, the more votes the
state receives.4 The top five quota contributors also receive their own
representative in the IMF Executive Board, while other member states are
represented by region, allowing for the highest quota contributors’ interests to be
better represented in the Executive Board’s votes.5  Ayse Kaya claims that the
closer a nation is economically aligned to the United States, the more likely it will
receive favorable treatment in regard to quota assignment.6 J. Lawrence Broz and
Michael Brewster Haws find that the United States’ domestic banks lobby on
behalf of the IMF, and in return the United States influences the IMF to protect
the areas where these banks are located internationally.7  The question then arises,
if the IMF has effectively become an arm of the United States government, how
could the IMF return to its intended apolitical, unbiased role? 

This Note argues that recent competition from the Asian Infrastructure

* Doctor of Jurisprudence, 2020, Indiana University Robert H. McKinney School of Law;

Bachelor of Science in Legal Studies, 2017, Ball State University. The author would like to thank

Maxwell Huffman, who provided invaluable guidance and feedback, as well as board and members

of the Indiana International and Comparative Law Review.

1. Thomas D. Willett, Understanding the IMF Debate, 5 THE INDEP. REV. 593–610, 596

(2001).

2. Id. at 595.

3. Id.

4. Articles of Agreement of the IMF, art. 12 § 5, 2 U.N.T.S. 39 https://www.imf.org/

external/pubs/ft/aa/pdf/aa.pdf.

5. Mark S. Copelovitch, Master or Servant? Common Agency and the Political Economy

of IMF Lending, 54 INT’L STUD. Q. 49, 55-56 (2010).

6. AYSE KAYA, POWER AND GLOBAL ECONOMIC INSTITUTIONS 11 (2015).

7. See generally J. Lawrence Broz & Michael Brewster Hawes, Dept. of Pol. Sci., Univ. of

Cal., San Diego, 8th Annual International Society for New Institutional Economics Conference

(ISNIE), US Domestic Politics and International Monetary Fund Policy (Aug. 23, 2004), 

(Transcript available at http://pages.ucsd.edu/~jlbroz/broz_hawes_isnie.pdf [https://perma.cc/

WPN6-FQKW]).



492 INDIANA INT’L & COMP. LAW REVIEW [Vol. 30:491

Investment Bank (“AIIB”) is enough to incentivize the United States to relinquish
some power and return the IMF to a more multilateral institution. The AIIB,
having been founded in 2016, already has a growing membership outside of
Asia.8 At the time of this Note, the AIIB has twenty-six non-regional members,
including a number of United States allies.9 The AIIB provides an alternative to
IMF lending and gives states a larger share of basic votes (12% as opposed to
IMF’s 5%), giving more power to poorer nations in the AIIB as opposed to the
IMF.10

The most feasible way to counter rising competition would be for the United
States to alter the quota structure to give more voting power (and in turn more
power in general) to nations based on an increase to overall IMF quota, capping
the gains nations can receive from the current IMF formula’s openness variable,
and removing the current formula’s variability factor and transferring its weight
to a blend of 50% purchasing power parity (“PPP”) GDP and 50% GDP at market
rates. PPP GDP shows how much one nation’s currency can buy the same amount
of goods and services in another nation’s currency.11 GDP at market rates is
simply the rate of the foreign exchange market over a period of time.12 The
combination of the two at an even 50/50 percentage would address current
legitimacy concerns surrounding the IMF by giving emergent nations more
formal political power and mitigating their current grievances, as well as
benefiting the United States through bolstering the IMF at a time when it is
experiencing unprecedented competition from new international financial
institutions.

While there is ample scholarship on the IMF’s effects on the world economy
and the United States’ influence on the international financial institution,13 there
is much less scholarship surrounding the prospect of competition in the
international financial institution field. This is partially because the IMF has held
a largely singular presence since the creation of the IMF at the Bretton Woods
Convention. The only exception was a brief attempt at competition during the
1997 Asian Financial Crisis through the proposed Asian Monetary Fund.14 The

8. See Members and Prospective Members of the Bank, ASIAN INFRASTRUCTURE

INVESTMENT BANK, https://www.aiib.org/en/about-aiib/governance/members-of-bank/index.html

[https://perma.cc/4LXE-RRTT] (last visited Dec. 30, 2019).

9. Id.

10. Articles of Agreement of the AIIB, art. 28 § 1(i).

11. Tim Callen, PPP Versus the Market: Which Weight Matters?, 44 FIN. & DEV. Q. (Mar.

2007), https://www.imf.org/external/pubs/ft/fandd/2007/03/basics.htm [https://perma.cc/7Y3G-

995P].

12. Id.

13. See generally Y.V. Reddy, IMF: Concerns, Dilemmas, and Issues, 38 ECON. & POL.

WKLY. 3304, 3304–14 (2003); Axel Dreher & Jan-Egbert Sturm, Do the IMF and the World Bank

influence voting in the UN General Assembly?, 151 PUB. CHOICE 363, 363–97 (2012); Mark S.

Copelovitch, Master or Servant? Common Agency and the Political Economy of IMF Lending,

54 INT’L STUD. Q. 49, 49-77 (2010).

14. Shaun Narine, The Idea of an "Asian Monetary Fund": The Problems of Financial



2020] NEW HORIZONS IN INFRASTRUCTURE INVESTMENT 493

scholarship addressing the possibility of competition largely focuses on the Asian
Monetary Fund, Japan’s attempt at creating its own IMF alternative in the 1990s,
which ultimately failed under pressure from the IMF and morphed into a
complementary organization, the Asian Development Bank, instead of a directly
competitive organization.15 More recent literature has begun to address the
implications of a loss of hegemonic power of the United States, but there has yet
to be research on how this loss of power in conjunction with the rise of the Asian
International Infrastructure Bank will affect both the United States and the
international financial scene as a whole.

Unlike past attempts, China has now succeeded in creating its own “IMF
alternative” in the AIIB, and has also succeeded in gaining considerable
membership.16 For example, as of January 21, 2019, the AIIB has a total of 44
regional and 26 non-regional member states. Among these states are South Korea,
the United Kingdom, and Australia.17 This situation has never occurred before in
the international financial system and the new competition presents a potentially
feasible opportunity for the United States to willingly alter its power structure in
a way that favors both the United States and states that have less voting power in
the IMF. It also presents a new avenue to evaluate the rationalizations the IMF
has asserted for its harsh conditions in return for emergency financing. With
competition in the international financial lending market, the IMF and AIIB will
be incentivized to give more favorable offers to recipient countries. However, the
IMF claims its harsh conditions are necessary to fix the broken economies to
which it lends its funds.18 With the AIIB taking a more collateral-based approach
to lending, a major change to the understanding of international financial
emergency lending may be afoot.19 The implications of the AIIB on the United
States and the IMF are currently unfolding and could potentially change the entire
structure of the international financial system.

This Note is organized as follows: Section I serves as an introduction to the
IMF and AIIB. Section II explains the history of both the International Monetary
Fund and the Asian Infrastructure Investment Bank. It addresses the concerns and
criticisms of the IMF, specifically its issues with mission creep and
conditionality. It also addresses the gradual approach the AIIB took in becoming
a fully-fledged monetary fund through the Chiang Mai Initiative and subsequent

Institutionalism in the Asia-Pacific, 27 ASIAN PERSP. 65, 68 (2003).

15. Id. at 68-70, 87.

16. Articles of Agreement of the AIIB, supra note 10, at Schedule A.

17. See Members and Prospective Members of the Bank, supra note 8.

18. IMF Conditionality, INT’L MONETARY FUND (Mar. 5, 2019) https://www.imf.

org/en/About/Factsheets/Sheets/2016/08/02/21/28/IMF-Conditionality [https://perma.cc/Y5NY-

7AST].

19. See generally Articles of Agreement of the AIIB, supra note 10; see also Joshua Miller,

Africa in the News: Election Updates, Kenya’s Mombasa Port, and Troops Withdrawn from

Ethiopia-Eritrea Border, BROOKINGS (Dec. 22, 2018), https://www.brookings.edu/blog/africa-in-

focus/2018/12/22/africa-in-the-news-election-updates-kenyas-mombasa-port-and-troops-

withdrawn-from-ethiopia-eritrea-border/ [https://perma.cc/4JXY-VLG2].



494 INDIANA INT’L & COMP. LAW REVIEW [Vol. 30:491

Chiang Mai Initiative Multilateralization.  Section III addresses the specific
concern that the IMF is under largely United States control. It examines evidence
of United States control through the leadership and organizational structure of the
IMF that favor the United States. Specifically, this section examines the issues of
voting power and quotas and the current formulae used to determine the power
breakdown of the Fund, as well as the historical overlook of developing nations.
Section IV addresses the history of the IMF formulae and subsequent singular
formula that arose after the 2008 quota reform. It also proposes an alternative
quota formula that may be able to be utilized to create a quota structure that more
accurately reflects a nation’s economic position and position within the IMF. Of
all the proposed formulae for the 15th General Review of quotas, the most
advantageous for the United States and the IMF as a whole would be a
combination of dropping variability, capping the gains on openness, and placing
the weight of the variability factor into a blend of 50% PPP GDP and 50% GDP
at market rates. 

Section V examines why the AIIB differs from its predecessors and how the
AIIB is an actual competitor to the IMF. This section distinguishes the AIIB from
current regional monetary funds and explains why regional monetary funds are
insufficient to create the type of competition that would create reorganization
incentives in the United States. Section VI examines how competition from the
AIIB can incentivize the United States to approve a substantial redistribution in
quotas and voting power, and section examines the possibilities for the coming
future for the AIIB, IMF, and international financial markets. Finally, Section VII
concludes that the AIIB will provide sufficient competition to create
reorganization in the international financial lending markets.

II. HISTORY OF THE IMF AND AIIB

A. The IMF

The International Monetary Fund was created following World War II in
reaction to the financial difficulties that were in part responsible for the war.20

During the Bretton Woods Convention in Bretton Woods, New Hampshire, forty-
four state representatives met and agreed on a financial system that included
fixing the price of the United States Dollar to the price of gold at $35 per ounce.21

The IMF was intended to promote international monetary cooperation and
exchange stability. Its creation also served to help establish an expansion of
international trade and multilateral payments specifically through transactions
between member states.22

However, as the global financial scene changed, the IMF followed suit. As

20. Willett, supra note 1, at 593.

21. Maria De Fatima Silva Do Carmo Previdelli & Luiz Eduardo Simões De Souza, IMF,

BIS, and World Bank: On the Intra-institutional Articulation of the International Financial System,

4 MGMT. & ECON. RES. J. 48, 50 (2018).

22. Articles of Agreement of the IMF, supra note 4, at art. I § (i), (ii), (iv).     



2020] NEW HORIZONS IN INFRASTRUCTURE INVESTMENT 495

globalization of capital became the norm, the fixed exchange rate to gold began
to fail. Globalization of capital provided unique difficulties in the isolation of
current and capital accounts, as well as increased demands on the maintenance
and oversight of these transactions.23 In 1976, following the Jamaica Agreement,
the gold standard was abolished.24 Suddenly, the IMF’s power was substantially
expanded as the global financial markets embraced a floating exchange rate.25

Floating exchange rates, unlike fixed rates, can have its value change without
central bank intervention. The currency is not tied to any other currency or
bank.26

Because the IMF is an international organization, it does not have one single
currency. Instead, its unit of measure is in Special Drawing Rights (“SDR”).
These Special Drawing Rights refer to the rights of a nation to draw upon the
resources of the IMF. During the gold standard, .888671 grams of fine gold was
equivalent to 1 Special Drawing Right.27 Following the collapse of the gold
standard, the value of Special Drawing Rights was affixed to a basket of
currencies. These currencies include the United States Dollar, Euro, Chinese
Yuan, Japanese Yen, and the Pound Sterling. Each currency is weighted
depending on how much of that currency is in the “basket.” The value of the
basket is then fixed for five years, when the IMF reevaluates the SDR
valuations.28 

At the time of its inception, the IMF mandated that its founders ensured
would be narrowly tailored and strictly focused on the factors of stable exchange
rates. Following the floating exchange rate, the IMF’s established surveillance
function could take into account nearly any factor that had any economic or
financial effect.29 The IMF no longer had to focus on a mere few factors that
could affect currency exchange rates, but now a variety of seemingly tangential
factors could become an important driver of a nation’s currency value and
exchange rate.30 Today, the IMF defines its purposes as:

[T]o promote international monetary cooperation through a permanent

23. Previdelli & De Souza, supra note 21.

24. Gottfried Haberler, The International Monetary System After Jamaica and Manila,

WELTWIRTSCHAFTLICHES ARCHIV 1, 1 (1977). 

25. Daniel D. Bradlow, Rapidly Changing Functions and Slowly Evolving Structures: The

Troubling Case of the IMF, 94 PROC. OF THE ANN. MEETING (AM. SOC. OF INT’L L.) 152, 153

(2000).

26. Definition of Floating Exchange Rate, NASDAQ, https://www.nasdaq.com/investing/

glossary/f/floating-exchange-rate [https://perma.cc/3ASZ-AZKX] (last visited Dec. 30, 2019).

27. Special Drawing Rights (SDR), INT’L MONETARY FUND (Apr. 19, 2018)

https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/14/51/Special-Drawing-Right-SDR

[https://perma.cc/L3X8-26PP].

28. Id.

29. Barry Eichengreen & Ngaire Woods, The IMF's Unmet Challenges, 30 J. OF ECON.

PERSP. 29, 30 (2015).

30. Id.



496 INDIANA INT’L & COMP. LAW REVIEW [Vol. 30:491

institution which provides the machinery for consultation and
collaboration on international monetary problems; (ii) to facilitate the
expansion and balanced growth of international trade, and to contribute
thereby to the promotion and maintenance of high levels of employment
and real income and to the development of the productive resources of
all members as primary objectives of economic policy; (iii) to promote
exchange stability, to maintain orderly exchange arrangements among
members, and to avoid competitive exchange depreciation; (iv) to assist
in the establishment of a multilateral system of payments in respect of
current transactions between members and in the elimination of foreign
exchange restrictions which hamper the growth of world trade; (v) to
give confidence to members by making the general resources of the Fund
temporarily available to them under adequate safeguards, thus providing
them with opportunity to correct maladjustments in their balance of
payments without resorting to measures destructive of national or
international prosperity; (vi) In accordance with the above, to shorten the
duration and lessen the degree of disequilibrium in the international
balances of payments of members.31

Additionally, the IMF has never been a stranger to criticism.32 Critics of the
IMF have argued IMF programs hinder developing nations, cause increases in
government crises, and reduce foreign direct investment inflows.33 The two main
criticisms addressed in this Note are IMF conditionality and “mission creep.”
IMF conditionality is simply the conditions attached to IMF loans.34 “Mission
creep” is a term utilized to explain how the IMF’s power has expanded
throughout the years to encompass nearly all factors for consideration when
determining loans.35 When the global financial scene changed from pegged
exchange rates to floating exchange rates, the IMF’s scope expanded from purely
economic considerations to a variety of non-economic factors that could in some
ways influence the economy (i.e. human rights, labor policy, government, etc.).36

B. IMF Conditionality

One of the main criticisms of the IMF and its activities is the presence and
strength of the conditions imposed on IMF loans.37 According to the IMF Articles

31. Articles of Agreement of the IMF, supra note 4, at art. 1.

32. Willett, supra note 1, at 598.

33. See generally Axel Dreher & Martin Gassebner, Do IMF and World Bank Programs

Induce Government Crises? An Empirical Analysis, 66 INT’L ORG. 329, 330 (2012); Devesh

Kapur, The IMF: A Cure or a Curse?, FOREIGN POL’Y 114, 114-129 (1998), Nathan M. Jensen,

Crisis, Conditions, and Capital: The Effect of International Monetary Fund Agreements on Foreign

Direct Investment Inflows, 48 J. OF CONFLICT RESOL. 194, 194-210 (2004). 

34. Bradlow, supra note 25, at 153, 154.

35. Id.

36. Id.

37. IMF, Conditionality in Fund Supported Programs—Purposes, Modalities, and Options



2020] NEW HORIZONS IN INFRASTRUCTURE INVESTMENT 497

of Agreement, 

The Fund shall adopt policies on the use of its general resources,
including policies on stand-by or similar arrangements, and may adopt
special policies for special balance of payments problems, that will assist
members to solve their balance of payments problems in a manner
consistent with the provisions of this Agreement and that will establish
adequate safeguards for the temporary use of the general resources of the
Fund.38

This conditionality can take a variety of forms, particularly because
conditions are largely based on negotiations between member states and the
IMF.39 IMF conditions may include, for example, a ceiling on government
borrowing, minimum level of federal government primary balance, or a minimum
level of international reserves.40 The IMF takes various criteria into account when
determining the appropriate conditions to attach to its loans, including “prior
actions, quantitative and structural performance criteria, indicative targets and
structural benchmarks, and program and financing assurances reviews.”41

Quantitative performance criteria are conditions that are always related to
quantifiable macroeconomic variables that the government authorities can
control. These include conditions relating to international reserves, government
spending and balances, and external borrowing.42 Structural performance criteria,
in contrast, are non-quantifiable in nature and serve the purpose of assessing
program implementations. These types of criteria may include building social
safety nets, strengthening public financial management, or improving the way the
financial sector operates.43 

Conditionality exists for five main reasons: (1) as a tool of enforcement for
governments to reform; (2) to make governments pursue policies that would
otherwise not be pursued; (3) as a method of creating confidence in lending and
solving information asymmetry problems; (4) to control the way the IMF’s aid
is spent; (5) to address moral hazard problems—if a struggling nation receives a
loan, what incentive do nations have to change the factors that landed the nation
in its struggling status?44 Anne Krueger, First Deputy Managing Director for the
IMF, summed up this problem explaining, “Moral hazard remains a concern.
Private institutions may be encouraged to lend and invest recklessly—or at least
more than they should—by the belief that the Fund will ensure that their debtors

for Reform, para. 2 (Jan. 29, 2009).

38. Articles of Agreement of the IMF, supra note 3, at art. 5 § 3(a).

39. IMF, Strategy, Policy, and Review Dept., 2011 Review of Conditionality, Background

Paper 1: Content and Application of Conditionality, § 3(a) para. 31 (June 18, 2012).

40. IMF, Conditionality in Fund Supported Programs, supra note 37.

41. Id. at 2.

42. IMF, Conditionality in Fund Supported Programs, supra note 37.

43. Id.

44. Axel Dreher, IMF Conditionality: Theory and Evidence, 141 PUB. CHOICE  238, 240-41

(2009).



498 INDIANA INT’L & COMP. LAW REVIEW [Vol. 30:491

can repay them.”45

However, conditionality only works if it is enforced46, and even then there are
criticisms that conditions imposed are too harsh and can actually harm nations in
the long run.47 For example, Gino Brunswijck draws a connection between recent
IMF conditions in European states and protests regarding rising costs of living
and tax restructuring. He also finds that IMF conditions, especially austerity
measures, hinder or eliminate health-spending and reduces access to healthcare
services.48 

The Asian Financial Crisis provides a clear example of the shortcomings of
IMF conditionality even when the conditions are followed.49 During the Asian
Financial Crisis, the IMF attached a range of conditions that addressed structure,
like privatization and labor market liberalizations. In the case of Indonesia, a
nation that stringently followed IMF conditionality, the Indonesian government
ultimately collapsed in part because of the conditions.50 Unlike Indonesia,
Malaysia refused to take IMF loans during the crisis. Malaysia implemented its
own restructuring efforts through capital controls and restrictions on the
convertibility of its domestic currency.51 Because Malaysia avoided the IMF, the
nation protected itself from the harshest effects of the crisis and fared better than
many of the adjacent nations in recovering.52 

However, there is a more common story regarding IMF conditionality. Even
when conditions are imposed, there is no absolute guarantee that those conditions
will be followed. From an internal review, the IMF found that the request for
conditionality waivers since 1995 were, on average, 13% for quantitative and
37% for structural performance criteria. 81% of programs from 2002-2007
applied for a waiver at some point during the program’s arrangement.53 This
means that although the IMF is setting out and imposing conditions, its debtor
nations are not implementing the full amount of changes required by the IMF.54

The question is, then, what is the point of conditionality if the vast majority of

45. Anne Krueger, First Deputy Managing Director, IMF, A New Approach to Sovereign

Debt Restructuring, Address Given at the National Economists’ Club Annual Members’ Dinner

(Nov. 26, 2001)(transcript available at https://www.imf.org/en/News/Articles/2015/09/28/04/53/

sp112601).     

46. Id. at 238. Dreher, supra note 44, at 238. 

47. Gino Brunswijck, Unhealthy Conditions: IMF Loan Conditionality and its Impact on

Health Financing, EUR. NETWORK ON DEBT & DEV. 3 (Nov. 28, 2018), https://eurodad.org/files/

pdf/1546978.pdf [https://perma.cc/NBG2-ATRL].     

48. Id. at 23.

49. See generally Ross P. Buckley & Sarala M. Fitzgerald, An Assessment of Malaysia’s

Response to the IMF During the Asian Economic Crisis, SINGAPORE J. OF LEGAL STUD. 96, 96-116

(2004), Eichengreen & Woods, supra note 29, at 37, 39, Narine, supra note 14, at 68, 70. 

50. Eichengreen & Woods, supra note 29, at 39.

51. Narine, supra note 14, at 70.

52. Id.

53. IMF, Conditionality in Fund Supported Programs, supra note 37, at 14.      

54. Id.



2020] NEW HORIZONS IN INFRASTRUCTURE INVESTMENT 499

nations simply receive waivers and never actually implement the reforms? Critics
argue that these waivers actually create uncertainty because it can indicate that
the member’s performance is failing.55 For example, Graham Bird claims “the
implementation of programmes could conceal a fall in compliance with structural
conditions that it makes by the increased use of waivers,”56 and the IMF itself
even admits that “waivers are sometimes an indication of failure and sometimes
of successful adaptation of changing circumstances.”57 Additionally, when the
IMF reviews programs for completion, it allows the conditions to be deemed
“complete” even when nations have received waivers from conditionality. This
sends a message that the completion of IMF conditions is not actually as
important as it may seem.58

C. The Fall of the Gold Standard and Mission Creep

Originally, IMF conditionality was intended for remedying the economic
conditions that led a country to need IMF assistance.59 As a result, these
conditions often focused on economic policies that ensured compliance with the
established exchange rate.60  Part of the changes enumerated in the Bretton
Woods Act included substantially constraining the role of gold in the
international financial system.61 While the United States Dollar was fixed to $35
per ounce of gold, all other currencies were measured in relation to the dollar.62

The IMF was established partially to keep nations’ exchange rates fixed to the
USD/gold standard.63 When states wished to join the IMF, they were required to
agree to keep their exchange rates pegged and could only be adjusted with the
IMF’s agreement.64 

In 1971, President Nixon announced that the United States would not convert
dollars at the established exchange rate. While the move did not alter the price of
gold or the United States Dollar, this move was the beginning of the end for the
fixed exchange between gold and the dollar.65 In 1972, the “Smithsonian
Agreement” devalued the United States Dollar from $35 per ounce of gold to $38
per ounce of gold. However, during this time the United States neither sold nor
purchased any gold. This is because at the rates set, the United States would have

55. Id. at 9.      

56. Graham Bird, Reforming IMF Conditionality, 10 WORLD ECON. 81, 97 (July-Sept. 2009).

57. IMF, The Modalities of Conditionality—Further Considerations, para. 5 (Jan. 8, 2002).

58. Id.

59. Eichengreen & Woods, supra note 29, at 39.

60. Id.

61. CRAIG K. ELWELL, CONG. RES. SERV., R41887, BRIEF HISTORY OF THE GOLD STANDARD

IN THE UNITED STATES 11 (2011).

62. Id. at 11-12.     

63. Id. 

64. Cooperation and Reconstruction (1994-71), INT’L MONETARY FUND, https://www.imf.

org/external/about/histcoop.htm [https://perma.cc/TZX8-RV5A] (last visited Mar. 22, 2020).

65. ELWELL, supra note 61, at 13.



500 INDIANA INT’L & COMP. LAW REVIEW [Vol. 30:491

to either decrease the purchasing power of the dollar, or redeem more dollars than
the nation had in its gold reserves.66 Because of these issues, the dollar “floated,”
meaning it was not fixed to any currency or gold.67  

When the Gold Exchange Standard was finally abolished, the rigid categories
that affected exchange rates were abolished and the scope of which IMF was
entitled to condition its loans was vastly increased.68 This created a striking
backlash, with the change described as “intrusive, ineffectual, and
counterproductive.”69  Additionally, the change also resulted in a split into
“borrowing” and “non-borrowing” IMF members. Those who could maintain
their own exchange rates and reserves were separate from those who needed the
IMF’s aid.70 IMF influence, then was really only persuasive over the “borrowing”
members. The IMF could influence “non borrowing” members, but only through
“persuasion and voluntary compliance.”71 

One of the criticisms that followed as a result of the new floating exchange
rate was “mission creep.” Mission creep is the systemic shift of an organization
away from its original mandate.72 Because the IMF was established during the
Gold Exchange Standard, a financial regime that is no longer present, it is natural
that the IMF’s organizational oversight has changed. However, The IMF itself has
admitted that “mission creep” has resulted in worse policy advice than from the
IMF’s traditional core areas of policy: macroeconomic and balance-of-payments,
that the increase in conditions actually resulted in a reduction in effectiveness in
policy recommendations.73 It also claims that the IMF’s mission creep conflicts
with concepts of national sovereignty and specialization. For example, the IMF
sees climate change, inequality and financial supervision as items within the
purview of its mandate.74 

D. The AIIB & Asian Monetary Fund

Unlike the IMF, which was established through a post-war convention, the
AIIB has a long history of growth and change before the institution came to be

66. Id.

67. Id.

68. Bradlow, supra note 25, at 153.

69. Eichengreen & Woods, supra note 29, at 39.

70. Deena Khatkhate, Reforming the IMF in a New Global Order, 43 ECON. & POL. WKLY.

32, 33 (2008).

71. Id.

72. Sarah Babb & Ariel Buira, Mission Creep, Mission Push, and Discretion in Sociological

Perspective: The Case of IMF Conditionality, Paper presented at the XVIII G24 Technical Group

Meeting, Geneva, Switzerland (Mar. 8-9, 2004), https://www.g24.org/wp-content/uploads/

2016/01/Mission-Creep-Mission-Push-and-Discretion-in-Sociological-Perspective.pdf.      

73. Willett, supra note 20, at 600.

74. Rakesh Mohan, Michael Debabrata Patra & Muneesh Kapur, The International Monetary

System: Where Are We and Where Do We Need to Go?, 4 (Int'l Monetary Fund, Working Paper No.

13/224, 2013), https://www.imf.org/external/pubs/ft/wp/2013/wp13224.pdf.



2020] NEW HORIZONS IN INFRASTRUCTURE INVESTMENT 501

the international financial institution it is today. The beginnings of the AIIB can
be traced as far back as August of 1997, when in the wake of the Asian Financial
Crisis; Japan proposed the creation of an Asian Monetary Fund (“AMF”).75 With
a proposed 100 billion dollars in reserve, the monetary fund was intended to
stabilize the Asian economies that were teetering on the brink of financial crisis.76

However, the proposal was not welcomed by the United States. The United States
Treasury Secretary and Undersecretary both argued that the creation of an AMF
would pose a threat to the IMF by lending money with few or weak conditions.77

Faced with opposition from the United States, Japan eventually withdrew the
proposal.78 

However, the proposed AMF was just the beginning. In November of 1997,
a modified version of the AMF was proposed in Manila, Philippines. This new
version of the proposal held the AMF to be a complementary organization to the
IMF, but was still rejected.79 Although the AMF ultimately never came to
fruition, the idea of an Asian Monetary Fund persisted.80 Following the IMF
intervention into the Asian Financial Crisis and subsequent exacerbation of the
financial difficulties through harsh IMF conditionality, Asian nations cast a
skeptical view of the IMF and its policies.81 Shortly thereafter, the IMF released
a report largely condemning the Asian model of development for the crisis and
furthering the “Washington Consensus”, or western model of development. From
there, tensions between Asian nations and the IMF only rose.82

As part of an effort to increase self-sufficiency, many developing nations,
including developing Asian nations, began creating a series of currency swap
agreements.83 The most notable of these currency swap agreements was the
Chiang Mai Initiative, which ultimately provided the building blocks for the
modern-day Asian International Investment Bank. The Chiang Mai Initiative was
established in 2000 in order aid member states that faced short-term liquidity
crises.84 The Chiang Mai Initiative was a network of regional bilateral currency
swaps that nations could turn to for short-term loans. It did not have a formal
decision-making body, and its arrangements were largely self-managed between

75. John D. Ciorciari, Chiang Mai Initiative Multilateralization, 51 ASIAN SURV. 926, 927-28

(2011).

76. Id.

77. Id. at 928. 

78. Ranjit Sau, IMF on Wrong Track, 33 ECON. & POL. WKLY. 2042 (1998).

79. Yong Wook Lee, Japan and the Asian Monetary Fund: An Identity-Intention Approach,

50 INT’L STUD. QUARTERLY 339, 358 (2006).

80. Id. at 359.

81. Raj M. Desai & James Raymond Vreeland, Global Governance in a Multipolar World:

The Case for Regional Monetary Funds, 13 INT’L STUD. REV. 109, 113 (2011).

82. Narine, supra note 14, at 72-73.

83. Lee, supra note 79, at 359.

84. Howard Loewen, Institutional Interplay between the Chiang Mai Initiative and the

International Monetary Fund, 13 EUR. J. OF EAST ASIAN STUD. 50, 61 (2014).



502 INDIANA INT’L & COMP. LAW REVIEW [Vol. 30:491

the member states.85 
In 2009, the Chiang Mai Initiative expanded into multilateral swap

arrangements. This shift, aptly called the Chiang Mai Initiative
Multilateralization, or CMIM, included all the ASEAN states and Korea, China,
and Japan.86  The core objections of this new agreement were “(i) to address
balance-of-payments and short-term liquidity difficulties in the region and (ii) to
supplement the existing financial arrangements.”87 Its reserves initially began at
one-hundred twenty billion USD and each member was permitted to swap its
currency with USD up to the nation’s contribution multiplied by its “purchasing
multiplier”.88 Japan and China were the largest contributors, with equal
contribution shares.89 

Then, in 2013, China announced its intention to create its own financial
institution: the Asian Infrastructure Investment Bank (“AIIB”).90  In its Articles
of Agreement, the AIIB’s purpose is set forth: 

The purpose of the Bank shall be to: (i) foster sustainable economic
development, create wealth and improve infrastructure connectivity in
Asia by investing in infrastructure and other productive sectors; and (ii)
promote regional cooperation and partnership in addressing development
challenges by working in close collaboration with other multilateral and
bilateral development institutions.91

The AIIB was authorized one hundred billion USD in capital reserves.92 The
amount a member state may borrow ranges from two to eight times its
contribution.93 Notably, unlike the monetary funds that came before it, the AIIB
does not rely on IMF surveillance.94 Instead, the AIIB provides its own terms and
conditions for financing.95 Additionally, the AIIB sets itself apart in its dedication
to only consider economic factors in its loan decisions.96 This deviation toward
independence sets the AIIB apart as a true competitor, not simply a subordinate
organization to the IMF.97 

85. Id.

86. Id. at 62.

87. Joint Press Release: The Establishment of the Chiang Mai Initiative Multilateralization

(Dec. 28, 2009).

88. Id.

89. Loewen, supra note 84, at 62.

90. Miran Park, China-led AIIB as a Gradual Modification of Asian Financial Order:

Chinese Strategies to Launch New Financial Institution, 24 J. OF INT’L & AREA STUD. 57 (2017).

91. Articles of Agreement of the AIIB, supra note 10, at art. 1.      

92. Id. at art. 4 § I.

93. Id. at art. 5 § I.

94. Id. at art. 14

95. Id. 

96. Articles of Agreement of the AIIB, supra note 19, at art. 31 § II.

97. Id. at arts. 13, 15.



2020] NEW HORIZONS IN INFRASTRUCTURE INVESTMENT 503

E. A Battle of Ideology: The Washington Consensus Versus
the Beijing Consensus

Much of the IMF’s decision making is based on an ideological approach
known as the “Washington Consensus.”98 Characterized by neoliberal economics,
which believe that “markets are the most efficient and productive way through
which to allocate resources and create wealth.”99 The Washington Consensus also
believes that governments should not directly interfere with market activities, but
should provide a stable foundation for which market activities can occur.100 The
success of a nation, then, is based upon its desire to subject itself to the market.101

Its general tenets, nicknamed the “ten commandments” are as follows: “(1) fiscal
discipline, (2) re-ordering public expenditure priorities, (3) tax reform, (4)
liberalizing interest rate, (5) liberalization of inward foreign direct investment, (6)
trade liberalization, (7) a competitive exchange rate trade, (8) privatization, (9)
deregulation, and (10) property rights.”102

The Beijing Consensus, though, is not nearly as rigid in form and theory as
the Washington Consensus.103 The Beijing Consensus is characterized by three
main categories: “financial support for the state sector, restrictions on private
sector development, and tight political controls.”104 The Beijing Consensus is also
notable in its experimentation-based approach to economic success.105 It has also
been hypothesized that the emergence of the AIIB will lend credence to the
Beijing Consensus and further a “doctrine of non-interference” which purports
to attach low, if any conditions to its loans.106 This doctrine is stated within
Article 31(2) in the AIIB’s Articles of Agreement, which states that the Asian
Investment Infrastructure Bank should not interfere in any political matters of any
member state, nor should it be influenced by any consideration that is not
economic.107 Human rights, for example, cannot be taken into consideration when
determining loan recipients.108 

While it is not clear whether or not the AIIB will officially espouse a so-
called “Beijing Consensus” over the Washington Consensus, the differences
between China’s approach to development and the Washington Consensus

98. Narine, supra note 14, at 71.

99. Id.

100. Id.

101. Id.

102. Philip Arestis, Washington Consensus and Financial Liberalization, 27 J. OF POST

KEYNESIAN ECON. 252 (2004).

103. Yasheng Huang, Debating China's Economic Growth: The Beijing Consensus or The

Washington Consensus, 24 ACAD. OF MGMT. PERSP. 31 (2010).

104. Id. at 33.

105. Id. at 31.

106. Daniel C.K. Chow, Why China Established The Asia Infrastructure Investment Bank,

49 VAND. J. OF TRANSNAT’L L. 1256, 1289 (2016).

107. Articles of Agreement of the AIIB, supra note 10, at art. 31 § II. 

108. Id.



504 INDIANA INT’L & COMP. LAW REVIEW [Vol. 30:491

ideology provides for some guidance. Other nations may lean toward the AIIB
in favor of the IMF because of its difference in approach to development, or to
avoid the all too infamous conditions that come with IMF lending. Nations that
have human rights, labor, or environmental concerns may favor the AIIB because
of its decision to only take economic considerations into account when deciding
loan disbursements. It is even possible that simply because the AIIB is different
and not the IMF, and does not carry with it the history of the IMF, that nations
may favor the AIIB over the IMF. Regardless of the effects, in the coming years
these two competing ideologies will continue to compete within the international
financial sphere, and time will tell which financial institution and its ideology will
prevail. 

III. EVIDENCE OF UNITED STATES CONTROL

A. IMF Structure Favors United States

Following the end of World War II, the United States was in a position of
great power. It is not a surprise, then, that when nations gathered for the Bretton
Woods Convention, the United States was able to bargain for an institutional
makeup and institutional policies that were favorable to the United States.109 
Evidence of the United States’ influence is clear within the IMF’s Articles of
Agreement, with the IMF’s Executive Board initially allowing for five of the
twelve Executive Directors to be appointed by the five nations that have the
highest quotas.110 The remaining seven Executive Directors consisted of five
Executive Directors elected by members who were not entitled to appoint a
member and a remaining two Executive Directors who would be elected by
members of the American Republics.111 It is important to note that as membership
with the IMF grew, the Executive Directors grew in number to 24 and with the
2010 IMF quota reforms; the composition of the Board of Executive Directors
has changed to an all-elected board.112 

B. The United States Uses the IMF to Advance National Interests

Even with the all-elected membership, each Executive Board member is
responsible for a collective of nations, with the nations that have the five highest
quotas still having a single Executive Board member represent only that nation.113

As a result, these five Executive Board members are able to respond aligned with
the needs and policies of one individual nation, while the Executive Board
members who are elected to regions have to take into account a variety of policy

109. AYSE KAYA, POWER AND GLOBAL ECONOMIC INSTITUTIONS 30 (2015).

110. U.N. Monetary and Financial Conference, Final Act and Related Documents, U.N. Doc.

A/CONF.55, at 42 (July 22, 1944) [https://perma.cc/XMT9-KMC7].

111. Id.

112. Articles of Agreement of the IMF, supra note 4, at art. 12.

113. IMF Executive Directors and Voting Power, INT’L MONETARY FUND https://www.imf.

org/external/np/sec/memdir/eds.aspx [https://perma.cc/UW2X-U9AK] (last visited Dec. 30, 2019).



2020] NEW HORIZONS IN INFRASTRUCTURE INVESTMENT 505

agendas and needs to find a solution that is agreeable to all the nations the
member represents.114 The distribution of power then, still greatly favors the
United States and the remaining four nations that hold the largest quotas after the
United States.

Aside from the structure of the Executive Director Boards, the structure of the
IMF surveillance also raises concerns. According to Article IV of the IMF’s
Articles of Agreement, the IMF, 

[S]hall exercise firm surveillance over the exchange rate policies of
members, and shall adopt specific principles for the guidance of all
members with respect to those policies. Each member shall provide the
Fund with the information necessary for surveillance, and, when
requested by the Fund, shall consult with it on the member’s exchange
rate policies.115

This mandate has taken the form of the aptly named “Article IV
consultations” which are conducted yearly by the IMF and its member states.116

Article IV consultations address a variety of macroeconomic concerns, including
structural and monetary issues, foreign exchange, and fiscal and financial
policies.117 However, these mandatory reviews are not conducted through a one-
way evaluation process. Article IV consultations are a “two-way policy dialogue
with country authorities.”118 The IMF meets with the political and financial
decision makers to evaluate the nation’s economic policies and standing. Then,
if the nation consents, the information from these meetings is published and made
public.119

The inclusive nature of Article IV consultations allows for nations to
participate and may reduce the perception that the IMF is an overly restrictive
institution that forces nations to sacrifice sovereignty. However, participation by
the political and financial elites also opens the door for an uneven playing field
between nations with higher quotas and presumably more power, and nations
with lesser quotas and presumably less power. The International Monetary Fund
and its directors are also permanently headquartered in Washington, DC, which
calls into question if IMF decision makers are more incentivized to bend to the
United States’ desires.120 The United States may be able to politically pressure the
IMF and its directors for favorable policies, or be better positioned to withstand
countervailing political pressure from the IMF. J. Lawrence Broz and Michael
Brewster Haws found an example of United States domestic politics entering the
IMF through bank lobbying.121 Domestic banks lobby for the IMF, and in return,

114. Copelovitch, supra note 5, at 55-56.

115. Articles of Agreement of the IMF, supra note 4, at art. 4, § 3(b).

116. IMF, Supporting a Balanced Global Recovery, Annual Report 2010, at 28 (Oct. 2010).

117. IMF, Promoting Inclusive Growth, Annual Report 2017, at 33 (2017).

118. Id.

119. Id.

120. Id. at 5.      

121. Broz & Hawes, supra note 7, at 1.      



506 INDIANA INT’L & COMP. LAW REVIEW [Vol. 30:491

the United States influences the Fund to better protect nations where American
banks are located.122 Another example of the United States withstanding potential
pressure could be found within the IMF’s Article IV consultations.  

Part of the Article IV consultation, the Financial Sector Assessment Program
(“FSAP”), is only mandatory for nations that the IMF deems “systemically
important.”123 According to the IMF, systemic importance is determined by a
nation’s “interconnectedness” in relation to its size.124 Prior to 2010, FSAP was
entirely voluntary. Currently, all nations not “systemically important” can elect,
or not elect, to participate.125 The Financial Sector Assessment Program is
conducted every five years and includes a financial stability assessment and a
financial development assessment.126 It assesses the strength of a nation’s
financial sector, the quality of the nation’s structure of regulation and supervision,
and the nation’s ability to cope with financial crises.127 The voluntary nature of
these assessments for more advanced economies is clearly shown in the case of
the United States. The United States experienced a massive financial crisis in
2008 that affected the entire global economy.128 However, the United States’
never experienced a Financial Sector Assessment until 2010.129 One could posit
that the reason no financial assessment occurred until this time was a result of the
United States’ ability to withstand pressure from the IMF to submit to such
evaluations.130 

C. Voting Power & Quotas

The most apparent area of the United States’ influence over the IMF is in the
IMF’s quota system. IMF quotas determine access to financing, subscriptions,
and most importantly, voting rights.131 Currently, each nation is given a number

122. Id.

123. Press Release, IMF Expanding Surveillance to Require Mandatory Financial Stability

Assessments of Countries with Systemically Important Financial Sectors, No. 10/357, (Sept. 27,

2010), https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr10357 [https://perma.cc/Z4AS-

PHAQ].

124. Id. 

125. Financial Sector Assessment Program (FSAP), INT’L MONETARY FUND https://www.imf.

org/external/np/fsap/fssa.aspx (last visited Dec. 30, 2019) [https://perma.cc/SLM5-DJ49].

126. Id.

127. Id.

128. Manik L. Shrestha & Marco Marini, Quarterly Revisions in G-20 Countries: Evidence

from the 2008 Financial Crisis, IMF Working Paper (2013). 

129. Supporting Documents Country FSAPs, INT’L MONETARY FUND, https://www.imf.

org/external/np/fsap/fsap.aspx?countryname=united+states (last updated Mar. 20, 2020)

[https://perma.cc/7AKR-D4PS].

130. See generally, Broz & Hawes, supra note 7; Independent Evaluation Office of the IMF,

Aspects of Financial Sector Surveillance During the Crisis, BP/14/08 (Oct. 8, 2014).

131. IMF Quotas, INT’L MONETARY FUND (Mar. 8, 2019) https://www.imf.org/en/About/

Factsheets/Sheets/2016/07/14/12/21/IMF-Quotas [https://perma.cc/54ST-7GRF].



2020] NEW HORIZONS IN INFRASTRUCTURE INVESTMENT 507

of base votes and then a number of votes based off the nation’s quota share.132

The largest quota to the IMF is, by far, the United States. Currently, the United
States’ quota share stands at 17.46%, with the next five largest contributors being
Japan (6.48%), China (6.41%), Germany (5.60%),      France (4.25%), and the
United Kingdom (4.24%).133 

Because the majority of important decisions within the IMF must be passed
with an 85% majority, this gives the United States not only an advantage, but also
a de facto veto power.134  Both formally and informally, such marked differences
in power gives the United States a unique edge. Formally, resolutions of the IMF
that require an 85% majority, like quota reforms, cannot be passed without the
United States’ approval.135 Informally, the United States can withstand political
pressures from the IMF, or put its own political pressure on the IMF to enact
favorable or repeal unfavorable resolutions. Such a case occurred regarding the
2010 quota reforms—the United States leveraged its position in the IMF and
refused to approve the 2010 quota reforms until the IMF repealed the systemic
risk exemption to the debt sustainability criterion of the exceptional access
framework.136 This exemption was used during the Grecian financial crisis and
essentially said that if the risk of not providing a loan would destabilize the global
economy, large loans may be approved even if there are questions on whether that
loan could ever be paid back.137 Another informal advantage deriving from the
United States’ quota power is its influence on other member states of the IMF.
The closer a nation is economically with the United States, the more likely a
member will experience a favorable shift in IMF quota during quota reviews.138

Nations who wish to improve their position with the IMF, then, would be inclined
to align themselves with the United States. 

IV. FORMULA FOR DETERMINING GLOBAL ECONOMIC POSITION

A. The IMF Formula

Prior to 2008, there was no standardized formula for determining a nation’s
quota. Instead, the IMF employed five separate quota formulas—The “Bretton
Woods formula”, Scheme III, Scheme IV, Scheme M4, and Scheme M7.139 Each

132. Id.

133. IMF Members’ Quotas and Voting Power, and IMF Board of Governors, INT’L

MONETARY FUND https://www.imf.org/external/np/sec/memdir/members.aspx#1 (last visited Dec.

30, 2019) [https://perma.cc/PG5W-NNQ6].

134. See generally Articles of Agreement of the IMF, supra note 4; id.

135. IMF Members’ Quotas and Voting Power, and IMF Board of Governors, supra note 133.

136. Consolidated Appropriations Act, Pub. L. No. 114-113, § 9005 (2015).

137. Id.

138. KAYA, supra note 6.

139. These four formulae were as follows: Bretton Woods: Q1 = (0.01Y + 0.025R + 0.05P

+0.2276VC)(1+C/Y), Scheme III: Q2 = (0.0065Y + 0.0205125R + 0.078P + 0.4052VC)(1+C/Y),

Scheme IV:  Q3 = (0.0045Y + 0.03896768R + 0.07P + 0.76976VC)(1+C/Y), Scheme M4: Q4 =



508 INDIANA INT’L & COMP. LAW REVIEW [Vol. 30:491

calculation would then be multiplied by an “adjustment factor” so that the sum
of the calculations of the members would equal the sum derived from the Bretton
Woods formula.140 A nation’s calculated quota would be the higher of the two
results that came from the Bretton Woods formula and the average of the lowest
of the two remaining calculations.141 The formulae used were not consistent,
however, among member states. Different formulae were used for different
member states and only the Bretton Woods formula actually applied to all
member states.142 Quota determinations were largely backwards—first, an overall
quota increase would be decided upon, and then the distribution of the increase
would be determined among the member states.143 This resulted in the quota
formulae existing to essentially fit a number that had already been decided, so
each nation’s quota was “normalized” through the Bretton Woods formula to
achieve the desired number.144 

The issues surrounding the quota set were initially mitigated through the 2008
quota reforms. Through these reforms, a single formula was derived. It
incorporated a blend of Purchasing Power Parity (PPP) GDP and GDP at market
rates, openness, variability, reserves, and a compression factor that is then
rescaled to sum to 100.145 The modern formula used is: (0.5Y + 0.3O + 0.15V
+0.05R)^k, where Y is GDP, O is openness, V is variability, R is reserves, and
k is the compression factor of .95.146

GDP remains the main determinant of a nation’s quota, sitting at a 50%
weight in the current formula.147 GDP is seen as the most important indicator of
a nation’s ability to contribute to the IMF, so it is natural that GDP would hold
the most weight within any quota formula.148 However, there is debate on which
GDP, or what measure of GDP blend, should be incorporated.149 Currently, GDP

0.005Y+0.042280464R + 0.044 (P+C) + 0.8352VC and Scheme M7: Q5 = 0.0045Y +0.05281008R

+0.039 (P+C) + 1.0432VC where for all formulas, Y = GDP at current market prices for a recent

year, R = twelve month average of gold, foreign exchange reserves, SDR holdings, and reserve

positions in the IMF for a recent year, P = annual average of current payments (goods, services,

income, and transfers for a recent five year period, and VC = variability of current receipts, defined

as one standard deviation from the centered five year moving average, for a recent 13 year period.

IMF, Quotas—Updated Calculations and Data Adjustments, Staff Paper (July 11, 2007).

140. Id.

141. Id.

142. KAYA, supra note 6, at 64.

143. Id.

144. Id.

145. IMF, Quotas—Data Update and Simulations, Staff Reports (Aug. 2016). https://www.

imf.org/~/media/Websites/IMF/imported-full-text-pdf/external/np/pp/eng/2016/_080916.ashx

[hereinafter August 2016 Report][https://perma.cc/8GW3-PMBR].

146. Id.

147. Id.

148. Id.      

149. IMF, Reform of Quota and Voice in the International Monetary Fund—Report of the

Executive Board to the Board of Governors, para. 7 (Mar. 28, 2008).



2020] NEW HORIZONS IN INFRASTRUCTURE INVESTMENT 509

is calculated as a blend of PPP GDP (40%) and GDP at market rates (60%).150

Economies that are classified as emergent economies tend to have higher rates of
PPP GDP, while advanced economies tend to have higher market GDP rates.151

The second factor of the formula, openness is calculated as the annual
average of the sum of current payments and current receipts for a five-year
period. This includes goods, services, income, and transfers.152 Openness is
included in the formula as a result of the belief that nations that are more open to
trade and financial flows,  as a result more open to the world economy, would be
incentivized to promote global financial stability more than nations what are less
open to the world economy.153 In the formula, it is the second highest weighted
variable behind GDP, reflecting its importance.154 This variable aids less
developed and emerging nations more than it aids advanced economies, because
ironically, advanced economies are less “open” by calculation than less developed
and emerging economies.155 Openness is also positively related to income levels,
so as nations gain income, their openness calculation reflects the gains and
subsequently, the IMF formula reflects the gains as well.156 The largest
beneficiaries of an inclusion of an openness calculation are small, advanced
economies—they are connected enough in trade and financial flows that their
openness number can be double their GDP share.157 However, there have been
some setbacks identified with an openness variable, for instance that it is very
possible to count financial flows twice, especially when there is intra-currency
trade. Members of the European Union, then, would artificially benefit more from
the openness variable’s inclusion.158  

The third factor of the formula, variability, is calculated as a standard
deviation from the centered three-year trend over a thirteen-year period. It exists
to measure the variability of current receipts and net capital flows.159 Variability
was included as a reflection of a given nation’s resistance, or lack thereof, of
balance of payment shocks (i.e. financial crises) and measures the subsequent
predicted need of the IMF’s resources.160 Compared to the other calculations,
variability is one of the most complicated, and there has been a general trend
against the inclusion of variability in future quota formulae.161 The reason for

150. IMF Quotas, supra note 131.

151. Id.

152. Id.

153. Id.

154. Id.

155. IMF, Quotas—Data Update and Simulations, Staff Reports (Dec. 2016) https://www.

imf.org/~/media/Websites/IMF/imported-full-text-pdf/external/np/pp/eng/2016/_080916.ashx

[hereinafter December 2016 Report][https://perma.cc/8GW3-PMBR].

156. Id.

157. Id.

158. Id.

159. Id.

160. December 2016 Report, supra note 155.

161. Id.



510 INDIANA INT’L & COMP. LAW REVIEW [Vol. 30:491

removing variability does not only result from the fact that calculating variability
is complicated; Examinations conducted by the IMF showed that the measure of
variability increases instability in the current calculated quota shares and does not
accurately serve to predict how likely a nation will utilize IMF resources.162

The fourth factor, reserves, is a twelve month average over a given year of
official reserves, including SDR holdings, monetary gold, foreign exchange, and
the nation’s reserve position in the IMF.163 The inclusion of reserves in the IMF
formula reflects the fact that following the 1997 Asian Financial Crisis, many
developing nations began stockpiling reserves to protect against economic
shocks, and these nations are now better positioned through their reserves to
withstand such shocks.164 Advanced economies benefit little from an inclusion of
reserves, but emerging economies benefit much more from reserves.165 

Lastly, there is the compression factor of .95.166 The compression factor exists
to reduce the dispersion between each nation’s quota shares.167 The compression
factor attempts to control for the role of a nation’s size in the quota formula. It
benefits every nation except for the 9 largest economies—United States, China,
Japan, Germany, United Kingdom, France, India, Russia, and India, who take a
loss as a result of compression.168 Percentage points from the largest economies
are redistributed to all the other members of the IMF, with emergent economies
and less developed nations being the biggest beneficiaries.169 Like PPP GDP, the
compression factor will remain in the quota formula until 2028.170 Opinions are
still split between the Executive Directors on whether the compression formula
should be increased or decreased.171 

While the new single formula greatly simplified and consolidated the
previous five formulae, it did not come without debate.172 As a result of differing
opinions regarding the inclusion of PPP GDP and a compression factor, the
Executive Board included both factors in the IMF formula for 20 years.173 Even
during the 2010 quota reforms, it was recognized that the 2008 quota formula
would need to be revised.174 This revision was to be part of the Fifteenth General
Review of Quotas, which should have occurred January 2013.175 However, this
date was consistently pushed back and as of the time of this paper, the 15th

162. August 2016 Report, supra note 145.

163. Id.

164. Desai & Vreeland, supra note 81, at 110.

165. IMF Quotas, supra note 131.

166. Id.

167. Id.

168. Id.

169. Id.

170. IMF, Reform of Quota and Voice in the International Monetary Fund, supra note 149.

171. IMF Quotas, supra note 131.

172. IMF, IMF Quota and Governance Reform—Elements of an Agreement (Oct. 2010).

173. IMF, Reform of Quota and Voice in the International Monetary Fund, supra note 149.

174. IMF Quotas, supra note 131.

175. Id.



2020] NEW HORIZONS IN INFRASTRUCTURE INVESTMENT 511

General Review of Quotas is slated to occur in 2019.176

B. 15th General Review of Quotas—Potential 2019 Changes

One of the prevailing reasons for such a focus on the IMF quota structure is
that the IMF quota structure determines voting rights within the institution.
Voting rights, in turn, are the power a nation has to pass or not pass IMF
initiatives.177 Much of the criticisms around the IMF center on its quota system,
and that an alteration of its quota system to better favor emerging nations would
signal that the IMF is an independent institution free from United States’
influence.178 

According to the IMF’s Articles of Agreement, “The Board of Governors
shall at intervals of not more than five years conduct a general review, and if it
deems it appropriate, propose an adjustment, of the quotas of the members. It may
also, if it thinks fit, consider at any other time the adjustment of any particular
quota at the request of the member concerned.”179 The last review of quotas, the
Fourteenth General Review, occurred in 2010. In the review, the Board of
Governors requested the Executive Board to complete the Fifteenth General
Review in January of 2014. Work began on the Fifteenth General Review of
Quotas on January 30, 2013.180 However, the changes as part of the Fourteenth
General Review could not be implemented until the United States, which has veto
power, approved them.181 This approval did not occur until 2015.182 The Fifteenth
General Review as a result was delayed eventually until the Spring Meetings of
2019, and at the latest at the 2019 Annual Meetings.183  

C. Are the 2010 Changes Enough?

Among the many changes that occurred as a result of the Fourteenth General
Review of quotas, the main changes were a 100% increase in overall quota,
tripling of each nation’s basic votes to account for a total 5% of the IMF’s votes,

176. IMF, Fifteenth General Review of Quotas—Report of the Executive Board to the Board

of Governors, para. 4, (Oct. 21, 2016).

177. Articles of Agreement of the IMF, supra note 4, at art. 12 § 5.

178. See generally Colin I. Bradford, Johannes F. Linn, & Ralph C. Bryant, Experts Critique

Proposal for International Monetary Fund Quota Reform, BROOKINGS (Apr. 9, 2008),

https://www.brookings.edu/opinions/experts-critique-proposal-for-international-monetary-fund-

quota-reform/ [https://perma.cc/D9M9-QLDD]; Acha Ikechukwu A., International Monetary

Fund’s Quota System and Voting Rights: A Need for Review,  GLOB. J. OF FIN. & ECON. MGMT.

119,  122-123 (2011); Eichengreen & Woods, supra note 29, at 47, 48.     

179. Articles of Agreement of the IMF, supra note 4, at art. 3 § 2(a).

180. IMF, 2010 Reforms and Fifteenth General Review of Quotas—Report of the Executive

Board to the Board of Governors, para. 3, 4 (Jan. 20, 2015).

181. Id.

182. Consolidated Appropriations Act, Pub. L. No. 114-113, § 9005 (2015).

183. See IMF, Fifteenth General Review of Quotas, supra note 176.



512 INDIANA INT’L & COMP. LAW REVIEW [Vol. 30:491

and an all-elected Executive Board.184 Each of these changes benefit emerging
nations and less developed economies, but they are not sufficient to withstand the
increasing competition from the Asian Infrastructure Investment Bank. In order
to withstand growing pressure from the Asian Infrastructure Investment Bank, the
IMF must address its “crisis of legitimacy.” Institutional legitimacy is essentially
the right or power of an entity to “issue and enforce rules in the ways that it
does.”185 Legitimacy is only as effective as its constituents’ obedience. The IMF
has continually experienced a “crisis of legitimacy” long before the ascent of the
Asian Infrastructure Investment Bank, and the crisis of legitimacy could be said
to have contributed to the Asian Infrastructure Investment Bank itself.186   In order
to regain its legitimacy, the IMF must modify its quota and governance system
further. Many of the reforms in 2010 were a step in the right direction, but many
aspects of the reform still ring hollow.

Shifting the Executive Board to an all-elected entity certainly aided in the
perception of equality among members. However, the shift did not change the
fact that the top IMF contributors have their own individual member, elected or
not, while the other nations are divided by region and represented by a single
executive board member.187 Voting among the executive board members as well
gives emerging and less developed economies only a partial victory. Voting
through the Executive Board is mostly through consensus, meaning that the
majority of the times, votes are never actually cast. 188 The International Monetary
and Financial Committee (IMFC) does not conduct any formal votes, operating
entirely by consensus. The Managing Director, head of both the IMF Executive
Board and the IMF staff is appointed by the Executive Board, usually by
consensus.189 “Consensus” in the IMF context means that if enough executive
directors holding a sufficient number of votes to pass the policy are in favor for
a policy, the policy will pass without vote.190 This results in Executive Directors
from nations that are originally against the policy attempting to mitigate by using
a change in position as a bargaining chip to get at least some favorable
concessions.191 

Another concern is that quotas are only as effective as the frequency with
which they are used. A quota formula is useless if it is applied and subsequently
ignored. Emergent and less developed economies have made great strides in

184. IMF, IMF Quota and Governance Reform—Elements of an Agreement, (Oct. 31, 2010).

185. N.P. Adams, Institutional Legitimacy, J. OF POL. PHIL. 84-102 (2018). 

186. See generally, ARIEL BUIRA, The Bretton Woods Institutions: Governance Without

Legitimacy?, in REFORMING THE GOVERNANCE OF THE IMF AND THE WORLD BANK 7-44 (2016).

187. IMF Executive Directors and Voting Power, INT’L MONETARY FUND,  https://www.imf.

org/external/np/sec/memdir/eds.aspx (last visited, Dec. 30, 2019) [https://perma.cc/4VWP-M6F4].

188. How the IMF Makes Decisions, INT’L MONETARY FUND  (Mar. 8, 2019)

https://www.imf.org/en/About/Factsheets/Sheets/2016/07/27/15/24/How-the-IMF-Makes-Decisions

[https://perma.cc/5V66-5WHT].

189. KAYA, supra note 6.

190. Id.

191. IMF, IMF Governance -Summary of Issues and Reform Options, § 4 (2009).     



2020] NEW HORIZONS IN INFRASTRUCTURE INVESTMENT 513

better representation in quota calculations, but if the quota formula is ultimately
ignored or modified to fit a bigger scheme, then the 2008 quota formula is a
pyrrhic victory. The IMF has made clear that its quota formulae, and subsequent
single formula, are just a guideline.192 Part of the IMF’s reasoning away from
using the quota formula as a hard and fast rule is likely because the current IMF
quota formula actually increases the calculated quota share of the largest
economies.193 Advanced economies, including the United States, have voluntarily
foregone increases in IMF quota shares that the nations are entitled to according
to the IMF quota formula.194 Instead of asking nations to voluntarily relinquish
their calculated quota shares, it would be more beneficial to increase the
compression factor that redistributes quota shares from the largest shareholders
to the smallest shareholders and increase the consistency with which the quota
formula is used. 

Lastly, and most importantly, the changes that resulted from the Fourteenth
General Review of quotas are insufficient to withstand pressure from the Asian
Infrastructure Investment Bank because the IMF still lacks institutional
legitimacy. The main issue that has arisen time and time again regarding the IMF
is not only its actions, but also the perceived hand behind those actions—the
United States.195 It is no secret that nations have voiced concerns over the
relationship between the United States and the IMF.196 Through the Fourteenth
General Review, these nations did regain representation in voting and quota
shares, however, not all nations appear convinced that the IMF and United States
are wholly separate entities. Brazil, for example, has sought funding from sources
that are “more able to be guided by Brazil’s overall national priorities and not
those of specific interest groups or other governments.”197 

D. Alternative Quota Formula Proposal

Work on the Fifteenth General Review of quotas has been conducted since
January of 2013.198 Since January 2013, almost yearly reports have been released,
including a 2016 report that consisted of a series of simulations based on different
variations of revised quota formulae and how they affected various IMF member

192. IMF, Quotas—Data Update and Simulations, Staff Reports para. 12 (Sept. 2016).

193. Id., at para. 24.     

194. IMF, IMF Quota and Governance Reform—Elements of an Agreement, supra note 184,

at 5.

195. See supra Section III.

196. Id.

197. DAVID A. MARES, HAROLD A. TRINKUNAS, ASPIRATIONAL POWER: BRAZIL ON THE LONG

ROAD TO GLOBAL INFLUENCE 120 (2016).

198. See generally IMF, Quotas—Data Update: Statistical Appendix, Policy Papers (July

2015); IMF, Quota Formula—Data Update and Further Considerations, Policy Papers (July 2014);

IMF, Quota Formula—Data Update and Further Consideration, Policy Paper (July 2013)

[hereinafter July 2013 Report]. 



514 INDIANA INT’L & COMP. LAW REVIEW [Vol. 30:491

states.199 Among the proposed formulae, ten were simulated, each of which
dropped variability as a variable in the revised IMF formula.200 

From there, proposals included: current openness measure, dropping
variability, and dividing the weight of variability evenly between GDP and
openness, with different combinations of the GDP blend; current openness
measure, dropping variability and dividing its weight between GDP (2/3) and
openness (1/3) with different combinations of GDP blend; current openness
measure, dropping variability, giving all the weight of variability to GDP, with
different combinations of GDP blend; current openness measure, dropping
variability, weight of openness reduced to .25, with different combinations of
GDP blend; current GDP blend, dropping variability, and splitting the weight of
variability evenly between GDP and openness, and different openness measures;
current GDP blend, dropping variability, all weight of variability to GDP, with
different openness measures; current GDP and openness measures, increasing the
compression factor to 0.925, and a lower compression factor of 0.975.201 Prior
staff papers had also explored additional options for a quota revision, including
a cap on how much a nation may benefit from the openness variable within the
IMF quota formula.202  Of the formulae, a combination of dropping variability,
capping the gains from openness, and placing the weight of variability into a
50/50 split of PPP GDP and market rate GDP would be the best formula
combination for EMDC and LICs, and would be the best formula for the IMF’s
Fifteenth General Review of quotas.203 

Variability is dropped in every iteration of the formula proposal simulation
and there is little support to allow the variable to remain in the formula, although
some do support dropping the variable on the condition that its weight is
redistributed in a particular way, for example redistributing in a way that protects
the IMF’s poorest members.204 IMF research has concluded that variability has
failed to achieve its purpose of predicting how likely a nation will be to utilize the
IMF’s resources.205 No studies have been able to show an empirical link between
the variability variable and a likelihood of a nation to use IMF resources.206

Luckily, the openness variable is highly correlated to the variability variable,
meaning many of the factors measured in openness cover the factors measured
in variability.207 

One of the more striking issues with the current IMF formula is that the

199. See IMF Quotas, supra note 131; IMF, Quotas—Data Update: Statistical Appendix,

Policy Papers (July 2015); IMF, Quota Formula—Data Update and Further Considerations, Policy

Papers (July 2014); July 2013 Report, supra note 198. 

200. Id.

201. IMF Quotas, supra note 131.

202. July 2013 Report, supra note 198.

203. IMF Quotas, supra note 131.

204. Id.

205. July 2013 Report, supra note 198.

206. Id.

207. Id.



2020] NEW HORIZONS IN INFRASTRUCTURE INVESTMENT 515

current quota formula continues to increase calculated quota shares for advanced
economies. This increase is enough that the largest shareholders voluntarily
relinquish their calculated quota share increases.208 While advanced economies
benefit less from openness, they do still benefit—23 out of the 26 categorized
advanced economies gain from the utilization of the openness variable. In
addition, the openness variable is extremely skewed, indicating that some
members benefit at a vastly disproportionate rate in comparison to others.209 A
cap to openness would help to control for some of the disproportionate gains from
smaller advanced economies but still allow for openness to benefit emerging and
less developed economies.210 In the 2013 IMF data report, two types of caps to
openness were identified: a cap on the absolute level of openness relative to
market GDP and a cap on the boost a member receives relative to its GDP blend.
Advanced nations are more likely to be affected by the second cap by virtue of
its usage of the GDP blend.211

The next change in formula should be to increase the weight of GDP as a
whole and to increase PPP GDP within the GDP blend. The increase in weight
to overall GDP should come from the variability factor. The increase in PPP GDP
within the blend should result in a 50% PPP GDP and 50% market rates GDP
combination. This would strike a balance between market rates reflecting an
ability to contribute to the IMF and the fact that the majority of emerging
economies have higher PPP GDP rates than advanced economies.212

In addition to the above variables, the compression factor is a vital tool in
ensuring that the dispersion between nations is not as severe. In its simplest terms,
it is the variable that takes from the rich and gives to the poor.213 The compression
factor is a controversial subject, but because it is required in the 15th General
Review of quotas, it will remain a topic of discussion.214 The compression factor
should for the foreseeable future, remain the same. Simulations indicate how
emerging and advanced economies would gain and/or lose from an increase or
decrease in the compression factor. There remains a larger consideration when
looking at equalizing, to an extent, the largest and smallest quota
shareholders—an ability to actually pay their quota. A smaller compression factor
would result in losses to emerging economies and aid in the over representation
of several advanced economies.215 However, increasing the compression factor
in conjunction with the above suggestions results in the formula that gives the one
of the largest possible gains to less developed and emerging nations. This is not

208. IMF, Reform of Quota and Voice in the International Monetary Fund—Report of the

Executive Board to the Board of Governors, para. 9 (Mar. 28, 2008).

209. July 2013 Report, supra note 198.

210. Id.

211. Id.

212. IMF, Quotas—Data Update and Simulations, Staff Reports A, para. 4 (Sept. 2016).

213. IMF, Quotas—Data Update and Simulations, Staff Reports B, para. 22 (Sept. 2016).

214. Id. para. 8.

215. See data set 4, Tables 14-15; IMF, Quotas—Data Update and Simulations, Staff Reports

(Sept. 2016).



516 INDIANA INT’L & COMP. LAW REVIEW [Vol. 30:491

necessarily a bad thing, until it is taken into account that the IMF will likely need
an overall quota increase as part of the 15th General Review. 

The IMF has three lines of defense against financial shocks: quotas,
multilateral borrowing agreements, and bilateral borrowing agreements. Under
normal circumstances, the IMF utilizes funds from its quotas to provide financing
for nations in crisis.216 If the IMF’s quota resources may be insufficient, the IMF
can utilize multilateral borrowing arrangements to aid in financing. These
arrangements are made up of IMF member states that agree to lend to the IMF in
extraordinary circumstances.217 Currently, the IMF has one multilateral borrowing
arrangement in effect: the New Arrangements to Borrow.218 The second of the
multilateral borrowing arrangements, the General Arrangement to Borrow,
expired December 28, 2018.219 The third and final line of defense is the bilateral
borrowing arrangement. If quotas and multilateral arrangements are insufficient
to provide funds to nations in need, for example during a systemic global
financial crisis, bilateral borrowing arrangements could be invoked.220 In 2016,
bilateral borrowing agreements commenced with total commitments reaching
SDR 316 billion, or approximately $460 billion USD. These arrangements are
slated to end in 2019 with an option to extend to 2020 if the members of the
bilateral borrowing arrangement consent.221 For reference, the IMF’s current
quota total reaches SDR 477 billion, or 677 billion in USD.222 With the bilateral
swap arrangement system nearly reaching the total of the IMF’s current quota, the
IMF would be wise to increase its quota share to offset the financial hit that will
come from the expiration of the bilateral swap arrangements. The question is,
then, how much should the IMF increase its overall quota share in the 15th

General Review of quotas?
The IMF has proposed two options: a 70% and a 115% overall quota

increase.223  Out of the two options considered, the larger would be the most
beneficial for the IMF as a whole. The New Arrangements to Borrow has been
extended to November 2022, but there is no guarantee that the arrangement will
continue beyond that date.224 A 70% increase in overall quota would amount to
SDR 330 billion, which is just under 460 billion USD. A 70% increase in overall
quota would allow for the IMF to keep its current lending capacity following the
2019 expiration of bilateral swap arrangements. However, if the Fund wants to
protect itself against the possibility of losing both its multilateral and bilateral

216. Where The IMF Gets Its Money, INT’L MONETARY FUND (Mar. 8, 2019)

https://www.imf.org/en/About/Factsheets/Where-the-IMF-Gets-Its-Money [https://perma.cc/X4VL-

MJMF].

217. Id.

218. Id.

219. Id.

220. Id.

221. Id.

222. Where The IMF Gets Its Money, supra note 216.

223. December 2016 Report, supra note 155.

224. Id.



2020] NEW HORIZONS IN INFRASTRUCTURE INVESTMENT 517

swap arrangements, it will need to increase its overall quota to 115%.225 An
increase of 115% would “broadly restore the ratio of quotas relative to an average
of relevant economic indicators to levels observed in previous general reviews of
quotas.”226

A concern then arises in addressing the balance between a quota and a
nation’s ability to pay that quota. With the gains in the proposed formula,
emerging and less developed countries will have an increase in both voting power
and financial contribution requirements. Because of the current instability
regarding the future of multilateral swap arrangements beyond 2022, and the
expiration of bilateral swap arrangements in 2019, the IMF as a financial
institution would be best suited to account for the financial losses in increasing
its overall quota to mitigate its anticipated losses. In doing so, it is possible that
with a formula that gives maximum gains to emerging and less developed nations
will be unwieldy at best and unsustainable at worst. As such, the compression
factor within the proposed ideal formula should remain the same as the
compression factor in the previous 2008 IMF formula, and PPP GDP should
remain at a 50/50 split with market rates GDP. 

While there are alternatives that allow for poorer countries to meet the
increase in quotas, the alternatives only go so far.227 When IMF quotas are
changed, nations must produce twenty five percent of the increase in SDR.
However, the IMF can allow for the payment to be made in the currencies of
other members, or in the member’s own currency.228 The problem with this
alternative is that in the event of a global financial crisis, it is the SDR basket that
is used, meaning only the United States Dollar, Euro, Chinese Yuan, Japanese
Yen, and Pound Sterling are largely usable.229 

V. HOW COMPETITION FROM THE AIIB CAN INCENTIVIZE THE

UNITED STATES TO REEVALUATE

A. Voting Structure

It is recognized that the proposed quota would result in a drastic shift in
formal power within the IMF. The question then arises, why would advanced
economies, specifically the United States, want to risk power? Even more so, why
would the United States react to the AIIB’s presence by relinquishing its power
within the IMF? To answer both these questions, it must be first examined why
the AIIB is an unprecedented rival to the IMF, and then how the United States
benefits from the proposed changes. 

The Asian Infrastructure Investment Bank stands on the shoulders of the

225. Id.

226. Id.

227. See Articles of Agreement of the IMF, supra note 4, at art. 3 § 3(a).

228. Id.

229. Where The IMF Gets Its Money, supra note 216.



518 INDIANA INT’L & COMP. LAW REVIEW [Vol. 30:491

Chiang Mai Initiative, a regional monetary fund.230  Regional monetary funds do
many of the same functions of the IMF. They hold reserves of currencies and
provide liquidity should its member states need funding.231 Regional monetary
funds can act as a gateway to IMF funding, providing an extra level of support
before nations are forced to turn to the IMF.232 However, many regional monetary
funds currently incorporate or complement the IMF.233 The reasons for including
the IMF vary among regional monetary funds. For larger loans, regional
monetary funds may have to draw upon the resources of the IMF.234 The Chiang
Mai Initiative, for example, required its members to submit to the IMF for any
request above 20% of the CMI’s available currency.235 The African Monetary
Fund appears to be the result of small IMF quota share, and as a result exists more
as a supplementary organization rather than a competitive organization to the
IMF.236 South America attempted to withdraw from the IMF and create its own
regional fund, the Banco del Sur, but its members did not have sufficient credit
to access the international markets, and the bank has yet to be capitalized.237 

B. How the AIIB Differs from the Regional Monetary Funds

Unlike regional monetary funds and bilateral or multilateral currency swaps,
the AIIB stands wholly independent of the IMF, existing with its own
surveillance function, capital funds, and detailed governance organization.238 The
AIIB also has a much larger capital stock than regional monetary funds, holding
at its current state one hundred billion USD.239 The AIIB combines the benefits
of a regional monetary fund, namely, regional identity and awareness, with the
stability of an international financial institution. Because the AIIB is focused
largely on Asia, it is uniquely positioned to aid in Asian financial crises.
Furthermore, because a large majority of members in the AIIB are still regional,
there is greater incentive for member states to make careful financial decisions.240

Most importantly, though, the AIIB fills a gap within the global financial
scene—the gap of a true competitor to the IMF. While the IMF struggles to
maintain its legitimacy in the modern day, the AIIB appears to be growing its
legitimacy as an institution exponentially. What originally began as an
organization by Asian nations for Asian nations has expanded to include non-
regional members that wish to join. Twenty-six non-regional nations, including

230. See supra Section II.

231. Desai & Vreeland, supra note 82, at 115.

232. Id.

233. Id. at 117, 118.

234. Id. at 117.

235. Id. 

236. Id. at 118.

237. MARES &  TRINKUNAS, supra note 197.

238. See generally Articles of Agreement of the AIIB, supra note 10.

239. Id. at art. 4.     

240. Desai & Vreeland, supra note 81, at 114.



2020] NEW HORIZONS IN INFRASTRUCTURE INVESTMENT 519

the United Kingdom, Madagascar, Egypt, and Canada have joined the AIIB as of
January 21, 2019.241 The AIIB lacks the history and stigma many of these nations
have faced in their experiences with the IMF. Many of the grievances the
founding AIIB nations experienced were reflected in the AIIB articles of
agreement. For example, Article XIII section 10 states “the bank shall pay due
regard to the desirability of avoiding a disproportionate amount of its resources
being used for the benefit of any member.”242 The members of the Board of
Governors are unpaid, with the exception of the bank reimbursing expenses
related to attending meetings.243 From the beginning, the Board of Governors is
an elected body and the number of basic votes is 12%, as opposed to the IMF’s
5%.244 The AIIB’s pull is clear in its membership list: 25 members are non-
regional, and account for ¼ of the voting power within the institution. Non-
regional members include major allies to the United States, such as  Germany,
Britain, Canada, Australia, and South Korea.245

C. Advantages for the United States in Altering Structure of IMF

The proposed formula is clearly a strategic move for the United States. The
United States is now falling into a classification of “declining states,” a former
hegemonic power that given enough time will be surpassed by rapidly growing
emerging nations like China.246 The key distinction, though, is that the United
States may be down, but it is not out for the count. Likewise, legitimacy
regarding the IMF has waned, but it is not completely absent. The United States
likely will never retain the power it held post-Bretton Woods in the beginnings
of the IMF, but there is still opportunity to retain power and control over some
aspects of the global financial markets and IMF. 

Politically, giving emerging nations more formal political power within the
IMF through increased quota shares is beneficial both domestically and
internationally. With a fall in economic position comes a rise in domestic
scrutiny. Domestic politicians may be less likely to support multilateral financial
commitments like the IMF’s New Arrangements to Borrow.247 Shifting to the
proposed quota formula is beneficial because the United States is able to leverage
some of the literal costs of IMF membership onto developing nations. In a very
literal sense, the cost of maintenance of the IMF’s institution is reduced through
an increase in cost dispersion. The United States’ spending is likewise reduced
(at least in terms of the amount slated for the IMF).248 

Internationally, a nation with veto power permitting such drastic changes that

241. See Members and Prospective Members of the Bank, supra note 9.

242. See Articles of Agreement of the AIIB, supra note 10, at art. 13 § 5.

243. Id. at art. 22 § 3.     

244. Id. at art. 28 § 1(i).

245. See Members and Prospective Members of the Bank, supra note 8.

246. KAYA, supra note 6, at 28, 30.

247. Id. at 30.

248. Id.



520 INDIANA INT’L & COMP. LAW REVIEW [Vol. 30:491

appear to benefit only emerging nations will increase legitimacy in the IMF by
sending a message to nations that the United States does not intend to use the
IMF as a tool to further its policies. Such changes could also show emerging
nations a new era of the IMF—one of transparency and fair representation. The
15th general review of quotas could usher in an opportunity to “rebrand” the
organization. Because the United States had a hand in the creation of the IMF, it
follows that the United States manufactured the IMF in part aligned with its
preferred policies.249 The United States, then, would likely prefer the continuance
of the IMF to an alternative financial institution that was created by another
entity. If the value of continuing the IMF as an organization exceeds the harm of
a marginal decrease in institutional power, the result would be an accommodation
by the United States. The United States would be inclined to agree to relinquish
some institutional power in favor of pacifying disgruntled member states.250 

Even with the proposed quota formula change, the United States retains its
veto.251 United States’ power is weakened, but it remains the largest shareholder
of the IMF. An increase in the quota share and voting rights of emerging and less-
developed nations also comes with an increase in surveillance, and to an extent,
control. The more involved a nation is in an organization, the more that nation is
constrained by the rules and regulations of that organization. Ayse Kaya explains,

[D]eclining states can ‘bind’ the rising states in institutional settings
under which a ‘state seeks to exert some control over another state’s
policies by incorporating it in a web of institutional arrangements.’ The
more the rising states can be brought into the framework of existing
institutions and made to participate in these institutions, the more their
actions can be controlled.252

What the United States loses in formal political power, it gains in informal
political power. As largest shareholder of the IMF, the United States retains its
informal political pressure and can utilize that pressure more effectively against
nations more involved with the IMF. Previously, the largest shift in political
power within the IMF was the 2010 quota reform.253 It is difficult to imagine any
further drastic economic reforms prior to the creation of the AIIB. From a basic
economic standpoint, no entity would leave a position of gain without a perceived
greater gain.254 Before the AIIB, the United States’ hold on the IMF was strong,
and resulted in an imbalance of power benefiting the United States. However, the
AIIB has modified that balance. In jeopardizing the monopoly of the IMF over

249. Id.

250. Id. at 31.

251. See illustrative calculation 9, IMF, Quotas—Data Update and Simulations, Staff Reports,

30 (Sept. 2016).

252. KAYA, supra note 6, at 30. 

253. The 2010 quota reform resulted in a 100% increase in overall quota share. IMF, IMF

Quota and Governance Reform—Elements of an Agreement (Oct. 2010).

254. See Rational Choice Theory, ENCYCLOPEDIA BRITANNICA, https://www.britannica.com/

topic/rational-choice-theory (last visited Dec. 30, 2019) [https://perma.cc/D7TB-95CL].



2020] NEW HORIZONS IN INFRASTRUCTURE INVESTMENT 521

the global financial sector, there are new considerations for the United States in
its cost-benefit analysis. Now, there is great benefit to the maintenance of the IMF
as a strong, if not the strongest, international financial organization. In pacifying
the long-held complaints of emerging nations, the United States would be able to
mitigate some of its decline in economic importance and relevance that may come
with a new competitor. 

VI. PROSPECTS FOR THE FUTURE

Because the emergence of the Asian Infrastructure Investment Bank is an
unprecedented occurrence, the future is rife with possibility. Many questions
remain: Will the AIIB succeed  long-term? Will there be two IMF-like
organizations? Will more competitors join as regional financial organizations
mimic the AIIB’s structure? Will the IMF remain, or will it be surpassed? Only
time will tell for many of these questions, but some evidence suggests that the
AIIB is here to stay. 

The AIIB has two major advantages to its position: It is now, at the time of
this Note, three years old.255 The AIIB has surpassed the pitfalls that destroyed or
stalled its predecessors.256 Additionally, it was the “right thing at the right time.”
Simply by virtue of being an international financial organization that is not the
IMF, the AIIB could potentially gain an initial legitimacy boost from the
aggrieved IMF member nations. However, the AIIB has yet to experience a
global financial crisis. Some risks are still present for the fledgling international
financial institution. For example the AIIB’s capital shares only reaches a ¼ of
the IMF’s current SDR quota. China’s share of the AIIB’s voting rights reaches
26.5%, resulting in veto power.257 The issues nations experienced with the IMF
and its relation to the United States may be present in the AIIB, just with China
as the hegemonic state as opposed to the United States. 

A. Changes to the IMF

While the AIIB is new and relatively inexperienced, the effect of such an
organization on the IMF brings to light another consideration: how will the IMF
change? The answer is, to some extent, already taking form. The IMF’s yearly
statistics and data updates have consistently incorporated new calculations and
studies to determine the best possible course forward. The IMF has moved to
pacify many of the most glaring issues with representation—the Executive Board
is an all elected entity, many developing nations and emerging nations have
already begun to experience quota increases, and the IMF continues to make
strides on increasing transparency.258 It is possible that from the example set by
the AIIB, the IMF Board of Directors may elect to live outside Washington, DC

255. Articles of Agreement of the AIIB, supra note 10, at art. 58 § 1.

256. See supra Section VI.

257. Members and Prospective Members of the Bank, supra note 8.

258. IMF, IMF Quota and Governance Reform—Elements of an Agreement (Oct. 2010); IMF,

Promoting Inclusive Growth, Annual Report 2017, at 35 (2017).



522 INDIANA INT’L & COMP. LAW REVIEW [Vol. 30:491

or the IMF may increase the weight of basic votes to match that AIIB’s 12%.
The most important change to the structure of the IMF will undoubtedly be

the change to the IMF’s quota formula. As stated above, it would be in both the
IMF and the United States’ best interest to combine an overall quota increase of
115%, a cap to the openness variable, and the elimination of the variability factor
for which the weight is redistributed to GDP. Further, the GDP blend should be
modified to a 50/50 PPP GDP/GDP at market rates as the revised quota formula.
This formula should be accompanied by a 115% increase in overall quota to
cover for the possibility of expiration of the New Arrangements to Borrow in
2022. However, with a competitor for finance arrangements, there is a possibility
that the IMF may have a reduced need for capital reserves.

B. Changes To the Structure of the Global Financial Scene

Much like the internal structure of the IMF, many changes have begun to take
form in the global financial scene.  As a result of many grievances lobbied toward
the IMF, the 2010 quota reforms came with large strides in redistributing power.
China is now the 3rd largest member of the IMF.259 Brazil has looked elsewhere
for IMF alternatives and expanded its trade and investments with China.260 There
have been proposals for two-tiered systems for the co-existence of monetary
funds, so it is possible the IMF and AIIB could co-exist.261 This likely would be
with the IMF remaining as a lender of last resort and the AIIB as a first line of
defense against financial distress. Nations may be more likely to initially turn to
the AIIB than they would the IMF, and the AIIB may be able to intervene earlier
as a result.

A potential third competitor to the AIIB and IMF, the New Development
Bank, has begun to take form with its headquarters in Shanghai, China.262 This
bank has a subscripted capital share of 50 billion USD with 100 billion USD as
authorized capital, making it capital-wise approximately the same size lender as
the AIIB.263 It signed its first loan in December of 2016.264 Unlike the Asian
Infrastructure Investment Bank, the New Development Bank appears to be
approaching its growth model slowly.265 Brazil, India, China, Russia, and South
America must at all times make up at least 55% of its voting power, so it by
definition will lack representation among member states.266 

259. IMF, IMF Executive Directors and Voting Power, supra note 113. 

260. MARES & TRINKUNAS, supra note 197.

261. Desai & Vreeland, supra note 81, at 116.

262. Articles of Agreement of the New Development Bank, art. 4.

263. Id. at art. 2.

264. Press Release, New Development Bank, NDB Signs First Loan Agreement for Financing

Shanghai Lingang Distributed Solar Power Project (Dec. 21, 2016).

265. New Development Bank, NDB’s General Strategy: 2017-2021, 26 (June 30, 2017)

https://www.ndb.int/wp-content/uploads/2017/07/NDB-Strategy-Final.pdf [https://perma.cc/U2EJ-

4795].

266. Articles of Agreement of the New Development Bank, supra note 262, at art. 8 § 15.



2020] NEW HORIZONS IN INFRASTRUCTURE INVESTMENT 523

VII. CONCLUSIONS

Currently, the IMF is facing a crossroads: during a time when it is
experiencing a crisis of legitimacy and criticism, a new challenger has appeared.
The AIIB appears to provide many of the same functions of the IMF, but does not
have the stigma associated with the IMF’s past mistakes. If the IMF wishes to
stay relevant and withstand the pressure of its newfound competition, it should
incorporate an overall increase of 115% to IMF quotas and include a cap to
openness, dropping the variability factor and incorporating its weight into a blend
of 50% PPP GDP and 50% GDP at market rates.

This is a drastic shift in power from advanced economies to emerging
economies, but the most powerful states, specifically the United States, do have
incentives that can make such a change feasible. For the United States, increased
domestic scrutiny over its international financial relations would create a greater
incentive to leverage its literal costs related to its position in the IMF onto
emerging nations. That increase in participation from emerging nations, in turn,
would also result in greater control for the United States through institutional
rules and regulations. Looking forward to the future of the international financial
scene, it is likely that the Asian Infrastructure Investment Bank and the IMF will
exist in tandem to each other, but there are rising possibilities of even more
competitors. Although unlikely, it is possible that in the future the AIIB could
serve as a lending option for nations with collateral while the IMF continues to
serve conditions-based loans to nations that either do not have collateral or do not
wish to give collateral. In this scenario, the two institutions would not necessarily
be in direct conflict and would instead provide more choice for debtor nations
when the nations take on loans.

With this lending, it is very hard to imagine the AIIB being a truly politically
neutral counterpart to the IMF and the criticism that the IMF is politically
influenced by the United States. Although the AIIB may not be imposing
conditions akin to IMF conditionality, the AIIB taking collateral for some loans
still results in a potential political influence. China, in having the largest stake in
the AIIB, would then have a physical bargaining chip to potentially utilize in
political negotiations. Simply by virtue of having a large stake in the AIIB, China
has a natural bargaining power with nations that are member states. Smaller
nations seeking favorable initiatives to be passed may try to curry favor with
China in hopes that China will vote in line with those initiatives. It is easy for a
young institution to claim that it will be a less-biased alternative, but given time
the AIIB could very well become the target of the very same criticism that
allowed for its entrance into the financial market—that the institution is too
influenced by its largest quota-state. 

However, the Asian Infrastructure Investment Bank, unlike its predecessors,
will remain in the global financial market. Its membership will likely continue to
grow, and it is possible that even the United States will eventually come to join



524 INDIANA INT’L & COMP. LAW REVIEW [Vol. 30:491

the institution. There still remains questions on whether the AIIB will press its
“Beijing Consensus” ideology upon its debtor nations, or if the AIIB will remain
focused on collateral-based lending as opposed to conditions based lending.
These remaining questions will be answered in time as the world watches the
AIIB stand as a formidable competitor to the IMF.