New China-led regional bank needs rules to prevent boondoggles - Obama

WASHINGTON (Reuters) - U.S. President Barack Obama warned on Tuesday that the China-led Asian Infrastructure Investment Bank (AIIB) needs strong rules for governance and transparency to ensure projects benefit the people who live near them.

Obama said he was not opposed in principle to the bank, which most U.S. allies have joined, but said the institution risked funding projects where money was misused unless there were guidelines like those used by the World Bank and International Monetary Fund.

"When these countries borrow money, even from a development bank, for a boondoggle project that doesn't work, they're often times still on the hook for paying that money back," Obama told reporters at a news conference with Japanese Prime Minister Shinzo Abe.

Without strong rules, the bank could fund projects that "may be very good for the leaders of some countries and contractors, but may not be good for the actual people who live there," Obama said.

He said he wanted to "dispel" reports the United States tried to convince its allies to stay out of the bank.

"That is simply not true. It sprung up out of one story after the Brits decided that they were going to join up and then folks have just been running with it," Obama said, adding he was "all for" the AIIB, if the bank was well run.

Abe also spoke about the need for "fair governance" of the AIIB, but emphasized he saw "eye to eye" with China on the need for financing of infrastructure in Asia.

"For Japan to participate in the AIIB is a decision that we have not taken yet," Abe said.

Obama said more financing for improved Asian infrastructure could be good for trade and the world economy,

"China's got a lot of money," Obama said. "To the extent that China wants to put capital into development projects around the region, that's a positive."

(Reporting by Roberta Rampton, Jeff Mason and Nathan Layne; Editing by Ted Botha)