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Second Reading Speech by Mrs Josephine Teo, Senior Minister of State for Finance and Transport, for the Asian Infrastructure Investment Bank Act 2015

17 Aug 2015

1. Madam Speaker, I beg to move, “That the Bill be now read a Second time.”

Reasons for Joining AIIB

2. Madam Speaker, I would first like to outline why Singapore has become a signatory to the Articles of Agreement for the establishment of the Asian Infrastructure Investment Bank, or “AIIB”.

3. The AIIB seeks to drive infrastructure development and regional connectivity in Asia through financing support for its members. Working in partnership with other international financial institutions such as the World Bank Group and Asian Development Bank, the AIIB will play an important role in addressing development challenges. The AIIB is a timely initiative, given that the scale of infrastructure needs in Asia is significant.

4. More importantly, the creation of the AIIB signifies an additional milestone in, and a strengthening of, the existing international financial architecture. It is critical for Singapore, as an international financial centre, to remain plugged into the network of international financial institutions. We have thus decided to participate early and pro-actively in the negotiations for the AIIB Articles of Agreement, working with other countries to ensure that the AIIB will have good governance and high standards.

5. As a member of this region, Singapore welcomes new initiatives that will promote greater infrastructure investment. Better infrastructure and connectivity will facilitate regional economic development, and in turn provide positive spinoffs for the Singapore economy. It also creates opportunities for Singapore companies seeking to tap Asia’s growth. For example, Singapore-based companies will have the opportunity to participate in the AIIB’s projects in the transport, water, logistics and urban development sectors, to name a few.

6. Being a member of the AIIB reinforces our ties with countries in Asia and beyond. The AIIB enjoys good support around the world. A total of 50 countries have signed the AIIB Articles of Agreement, with another seven countries expected to sign by the end of this year. All ASEAN countries have joined as prospective founding members of the AIIB. Other prospective founding members include major economies from Asia, Oceania, the Middle East, Latin America and Europe.

7. We are confident that the AIIB will enjoy the legitimacy and credibility of a multilateral institution of high standing.

Singapore’s Subscription to the AIIB

8. Let me now move on to explain our capital subscription amount to the AIIB.

9. The AIIB will be established with an initial authorised capital of US$100 billion. Of this, regional members will subscribe to US$75 billion, while non-regional members will subscribe to the other US$25 billion. There are 57 prospective founding members to the AIIB, of which 30 are regional countries and 27 are non-regional countries.

10. Singapore plans to subscribe to US$250 million or 0.25% of the AIIB’s total authorised capital of US$100 billion. This is an appropriate level of contribution to the AIIB, taking into account our current subscriptions to the World Bank and the Asian Development Bank. Amongst ASEAN countries, Singapore will be ranked 6th in terms of the size of our capital subscription to the AIIB.

11. Singapore’s capital subscription of US$250 million will give us 0.48% of the total voting share in the AIIB. Of the US$250 million, 20% or US$50 million is to be paid-in, over five equal annual instalments. The remaining 80% or US$200 million of callable capital will not be paid in, except when decided by AIIB members in extraordinary circumstances. This is similar to the practice in other international financial institutions. To date, institutions such as the World Bank and the Asian Development Bank have not drawn on their callable capital.

12. The full capital subscription of US$250 million will be set aside from the surpluses built up in this term of Government.

Provisions in the AIIB Bill

13. Madam Speaker, it is necessary that appropriate legislation be enacted to enable Singapore to ratify the AIIB Articles of Agreement and become a member of the Bank. To this end, the AIIB Bill enables Singapore to deposit an Instrument of Ratification stating that the Government has accepted the Agreement in accordance with Singapore’s laws and that the Government will carry out its obligations under the Agreement.

14. Clause 4 of the Bill authorises the Singapore Government to subscribe to US$250 million of the initial authorised capital of the Bank. It also provides for Singapore to subscribe to future capital increases, provided that our total subscription does not exceed twice the initial subscription amount, except with Parliamentary approval. This is similar to the approach that we took for the ADB Act. Singapore's subscription to the Bank will be charged to the Consolidated Fund, similar to our capital subscriptions to the World Bank and Asian Development Bank.

15. The Bill also gives legal effect to the provisions in the AIIB’s Articles of Agreement relating to the status, immunities, privileges and exemptions of the AIIB and its officers. These are on par with those that Singapore has accorded to other international financial institutions such as the International Monetary Fund, the World Bank and the Asian Development Bank.

16. Madam Speaker, I beg to move.