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(News Focus) Korean AIIB vice president's abrupt departure sparks controversy

All Headlines 16:24 July 12, 2016

By Kim Boram

SEOUL, July 12 (Yonhap) -- As the China-led Asian Infrastructure Investment Bank (AIIB) has started to search for a replacement for Vice President Hong Ky-ttack, who virtually stepped down last month, controversy over the organization's opaque policymaking procedures and power imbalance between Europe and Asia has arisen at home and abroad, analysts here said Tuesday.

The AIIB was formally launched on Jan. 16, with 57 founding members, including South Korea, in a bid to promote economic growth in the Asian region by supporting infrastructure investment and to counterbalance the international money lending framework, such as U.S.-led Asia Development Bank (ADB) and the World Bank.

South Korea has a 3.81 percent stake, the fifth-largest among member countries after China, India, Russia and Germany, in that order.

Hong, who took office as one of the five vice presidents and the chief risk officer (CRO) of the AIIB in February, abruptly applied for a leave of absence in June as he drew fire for mismanaging a troubled shipbuilder while he was the head of the state-run Korea Development Bank (KDB).

The KDB had repeatedly given loans to Daewoo Shipbuilding and Marine Engineering Co., the country's third-biggest shipyard, which was hit hard by a global downturn in the industry and has posted massive losses.

The South Korean government has called for creditor-led tougher corporate restructuring in the local shipbuilding industry, and at the same time, it has vowed to take strict legal and administrative action against those responsible for Daewoo Shipbuilding's debacle.

In line with the move, the Board of Audit and Inspection said Hong was the key figure who made the decision to give a bailout to the sinking shipbuilder, resulting in a huge waste of taxpayers' money.

Following the criticism, Hong left the post and did not appear at the AIIB's inaugural meeting in Beijing on June 25, where South Korea's Finance Minister Yoo Il-ho attended.

His leave is widely regarded as a resignation as the Beijing-based bank carried out an organizational change, creating a new vice president seat with the chief finance officer (CFO) role and relegating the CRO-vice president to the rank of director general.

Then, it posted four new job openings Friday, including posts of vice president for finance, or CFO, and director general for risk management, or CRO.

Experts noted that the AIIB made the decision to reorganize the vice presidency in order to wield full control over the international organization, which was intended to keep the U.S.-led World Bank and the ADB in check, amid Hong's controversial step-down.

"For China, Hong's accountability is not a big deal when it comes to serving his vice presidency, but (China) removed the post right after he left. It means that China is moving to manage the organization on its own authority," said Oh Jung-geun, a professor at Konkuk University.

"A vice president can participate in a decision-making process, but a director general is not eligible. As we lost one slot there, China's influence increases."

Diplomatic sources said French Thierry de Longuemar, the incumbent CFO, is expected to fill the vacancy soon, although the AIIB secretariat denied the rumors.

If de Longuemar becomes one of the five vice presidents, the political chess board at the AIIB will slant toward European countries as Germany, Britain and France outnumber the Asian countries of India and Indonesia.

As a result, the AIIB-led projects aimed at expanding investments in the Asian region will likely be swayed by non-Asian countries, the professor said.

Finance Minister Yoo said earlier that the government will make full efforts to help a South Korean official take a vice presidency at the international bank or the new director general seat.


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