March 20, 2015 / 3:05 AM / 3 years ago

Japan split on joining AIIB bank, caught between US, China

TOKYO (Reuters) - Japan is split over joining a China-led development bank, concerned about missing out on the rapidly coalescing global movement for the institution while also worried about alienating ally United States and helping bolster rival China, officials said.

Finance Minister Taro Aso signaled for the first time on Friday that Tokyo could be part of the Asian Infrastructure Investment Bank (AIIB) if it can guarantee a credible mechanism for providing loans.

But other top officials took a more skeptical stance, reflecting a split in the government of Prime Minister Shinzo Abe over whether the AIIB would help or hinder Japan’s interests.

“We have a cautious position about participation,” said top government spokesman Yoshihide Suga.

Around 30 countries, including Britain and Germany, have decided to participate in Beijing’s flagship economic outreach project, but Washington, Japan’s main ally, has urged countries to think twice before joining, citing worries about governance and environmental safeguards.

“Views are split within the Japanese government on whether to join the AIIB,” said a person with close knowledge of Japan’s financial policy-making.

The result of the standoff within the government, said a senior official in the ruling coalition, is that Japan’s participation “is not going to happen under the Abe administration.”

Japan is hesitant to join out of concern over China-led lending practices, over its relations with Washington and over the AIIB’s potential rivalry with the Asian Development Bank (ADB), the Manila-based multilateral institution dominated by Japan and the United States, officials said.

By custom, the ADB is headed by a former senior official from the Bank of Japan or the country’s finance ministry.

But the source familiar with Japan’s policy-making said Tokyo should get involved to help ensure best practices and to avoid being left out. “Now it has become awkward as Europe joins but the U.S. and Japan stay out.”

Finance Minister Aso told a news conference that the AIIB needs to have its board of directors screen and approve individual cases in deciding provision of loans.

“We have been asking to ensure debt sustainability, taking into account its impact on environment and society,” he said after a cabinet meeting.

“We could (consider joining) if these issues are guaranteed. We’ll give it careful consideration from diplomatic and economics viewpoints.”

If the bank can address debt sustainability, environmental and societal concerns, “there could be a chance that we would go inside and discuss,” he said. “But so far we have not heard any responses.”

Suga, the chief cabinet secretary, interpreted Aso’s comments to mean that “unless such issues are resolved, participation would be impossible.”

Additional reporting by Yuko Yoshikawa and Kaori Kaneko; Editing by William Mallard and Raju Gopalakrishnan

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