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Australia can only influence the AIIB if it joins

America’s second-most senior diplomat, Deputy Secretary of State William Burns, is retiring, and this week he penned some parting words of advice for his colleagues. While his wisdom is worth reading in its entirety, one point is particularly germane to Australia’s foreign policy choices: ‘connect leverage to strategy’. This means ‘effective strategy requires leverage, connecting concepts and goals to available instruments of national power’.

The Australian Government is facing a tricky strategic decision: whether or not to sign up as a founding member of the recently launched Asian Infrastructure Investment Bank (AIIB). The economic demand for such an institution is widely recognised and reform of existing architecture is stalled in the US Congress. But as an initiative of the Chinese Government, it is opposed by the US on the basis that there is no guarantee the new institution will adhere to international lending norms.

Washington’s strategic concerns are obvious: the new institution will give China an added mechanism to advance its broader interests, likely at the expense of the US.

Canberra is caught in the middle. China is Australia’s largest trading partner and the Abbott Government is trying to conclude a free trade agreement with Beijing. Snubbing the AIIB risks harming those delicate negotiations. Moreover, the creation of the bank is an inevitability and, as argued here recently by Philippa Brant, without a seat at the negotiating table Australia has no hope of ensuring that the bank will be designed according to best practices.

On the other hand, the US is Australia’s closest ally, and Secretary of State John Kerry allegedly made a personal request to Prime Minister Abbott not to join. Thus, whatever its decision, Australia is going to disappoint one …read more

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