Refugee Bonds: How Could This Idea Be Made to Work?

 

Hundreds-of-migrants-walk-along-a-highway-in-HungaryGary N. Kleiman, a DC-based emerging market specialist and a columnist for my old haunt, Asia Times, has an idea for financing relief efforts for the global refugee crisis: sovereign refugee bonds. Obviously, the idea is still germinal. He writes about it here at Beyond Brics:

The plight of tens of thousands of Middle East refugees pouring daily into eastern and western Europe has prompted EU and UN emergency action to raise billions of dollars for unmet previous pledges as well the historic fresh influx. But the funding model that relies on governments supplemented by private donations has long been unable to keep pace with the global spread of internal and external displacement now affecting 60m people, 80 per cent in developing countries, according to the UN’s latest figures.

Financial markets, both debt and equity, could be mobilised for emerging economy frontline states to provide a new, long-term source for immediate infrastructure and social needs and future professional training and employment entry. Sovereign refugee bonds would be a logical start, building on existing investor local and foreign-currency portfolios across emerging market regions. Issues could carry partial guarantees from the World Bank and other development lenders, but more creditworthy governments are in a position to continue normal borrowing on commercial terms that could be discounted with a commitment to carefully track the proceeds for a range of refugee hosting and resettlement purposes.

The Syrian and Iraqi exodus to Europe opened a clear developed-emerging market and east-west split, as cash-strapped governments were unable to absorb asylum seekers without additional aid or special funding. Greece and then Hungary strained to handle the numbers, and Hungarian Prime Minister Viktor Orban criticized the EU quota system that was agreed at Germany’s behest as a preliminary response. His stance may have been tinged with xenophobia, but with public debt at 80 per cent of GDP and foreign investors holding one-third of domestic state bonds, fiscal room to manoeuvre is limited. …

Jordan, Lebanon and Turkey have already absorbed millions of refugees from next-door conflicts under severe financial strains. Turkish officials reported spending $7.5bn to date directly from the budget, with the EU just recently offering cash assistance. …

Jordan depends on a combined $7bn in IMF and Gulf aid and the US has guaranteed a sovereign bond. … Lebanon’s debt burden is 140 per cent of GDP, and economic growth will only be 2 per cent this year. … Iraq had contemplated the traditional sovereign bond route for resources to handle a big internally displaced population, but abandoned plans with yield demands well above 10 per cent.

In north and sub-Saharan Africa, Tunisia is inundated with Libyan refugees and Kenya has taken them from Somalia and Sudan. In Asia, Rohingya boat people from Burma have fled to Malaysia and elsewhere; and in Latin America, Mexico is a way station for Central Americans escaping violence.

All these countries are included in emerging and frontier financial markets and structures could be found to tap global investors otherwise overlooked as a durable crisis funding solution. The refugee instruments could fit with World Bank and Islamic Development Bank plans to float their own special bonds for Middle East projects, and migration policy organisations and foundations have expressed interest in considering pilot issues. Middle and lower-income economies most affected, working with a dedicated task force of banks and fund managers, should pioneer landmark financial market approaches to meet the unprecedented tragedy.

Now my first reaction was, Whoa there, pardner, one global financial meltdown wasn’t enough for you? You want the World Bank and other development lenders to guarantee these financial instruments? Worked out great with those subprime mortgages, didn’t it?

I’m not at all into the idea of having these bonds guaranteed by a government entity. But what about the the idea of raising bonds — without that kind of a guarantee — to fund the construction of new cities with new infrastructure, private housing, private hospitals, and private schools? And why couldn’t the refugees themselves be the labor force that builds them? This would immediately begin integrating them into the workforce, and give them some choice about the kind of city and community they want to build. I doubt they’d be keen to build the sort of grim, socialist high-rises on the city outskirts into which previous waves of immigrants were stuffed in Europe by central planners. No one wanted to live in those; and they’re one of the reasons social integration was less successful than it could have been. New refugees, given an ownership stake in new construction, might build some lovely new cities and neighborhoods — even, perhaps, ones so attractive that native Europeans might want to live in them, too. They’d earn an income from working on these projects, and learn new job skills. Then, because they were employed, not taking handouts, they could afford to buy the houses they’d built and pay to use the schools and hospitals.

It seems as if the bonds would provide a reasonable rate of return for this kind of project over the years, doesn’t it?

What do you think? Could it work?

Published in Economics, General
Like this post? Want to comment? Join Ricochet’s community of conservatives and be part of the conversation. Join Ricochet for Free.

There are 63 comments.

Become a member to join the conversation. Or sign in if you're already a member.
  1. Jimmy Carter Member
    Jimmy Carter
    @JimmyCarter

    No, it wouldn’t work. If those “refugees” were interested in civilized market forces Their home wouldn’t be the third world hellholes They’re fleeing. You must first begin with Their culture and ideas.

    But! If Yer willing to do for Them what You say, then let’s try it on Their home turf. Let’s begin by overthrowing Their third world government, razing the shacks, and installing those market forces You mentioned and see where it leads Them. You say We’ve done this before? Hmmmm.

    Step one: admit some just ain’t compatible with Western Civilization.

    • #1
  2. Percival Thatcher
    Percival
    @Percival

    He left out midnight basketball.

    I don’t know – even with the capital outlay, it doesn’t seem likely that the refugees will be able to throw up a city somewhere. It would be great to be wrong about that.

    Sorry. I’ve been gazing into an abyss all day, and Freddy was right – it does gaze back.

    • #2
  3. Great Ghost of Gödel Inactive
    Great Ghost of Gödel
    @GreatGhostofGodel

    Jimmy Carter:Step one: admit some just ain’t compatible with Western Civilization.

    Not without trepidation or regret have I come around to the Fortress America position, but here I am. Bring all of out troops stationed overseas home. Defend our borders without mercy. If the rest of the world is hell bent for leather on destroying itself, whether rapidly with open war or slowly with insane economics and/or immigration policy, so what? We’re perfectly capable of being self-sufficient as a nation, and it never was a good idea to be the world’s police. Legal immigrants prepared to go through a multi-year assimilation program, including intensive English education, are welcome. Everyone else gets sent home. If you come from a terror-sponsoring nation, we will do racial and religious profiling, and you may have to submit to several years of continuous surveillance before you can become a citizen. Honor killings or genital mutilation get you a one-way ticket home, ditto preaching jihad on American soil. And so on.

    In short: we need to quit acting like we need the rest of the world at all, let alone that we need the rest of the world’s governments to like us. We’re supposed to be different from everyone else. So let’s actually be different, keep attracting people because we’re better, and make no excuses for being better—and being loners.

    • #3
  4. MarciN Member
    MarciN
    @MarciN

    I believe this is possible and a good idea.

    I truly do.

    There is no country on earth that did not start out as a blank piece of paper.

    Why can’t we find pieces of land and grow countries?

    Even a water supply could be managed: Israel (hat tip to Claire for this information) relies on desalinated water that is both potable and affordable.

    I worked on a book years ago written by a big-time real estate developer (John McMahan, Professional Property Development, 2007–one of those books I was surprised by how much I enjoyed the subject and the author), and he started the book with a short history of land development across America. Development was going pretty well until the 1950s came along with the beginning of the ever-growing repressive government (federal, state, and local) regulations. The book got me to daydreaming about whole new towns along the nation’s highways.

    Building new towns, cities, states, and countries would work for refugees.

    And perhaps some steps would need to be involved to speed up the startup time in terms of a government. Liberia was the only colony America ever had. It was a colony of the American Colonization Society from 1816 to 1862. Its purpose was to create a country for the freed slaves from the United States. It is still doing well. If it were a business, the colonization period would be called its “incubation period.”

    • #4
  5. MarciN Member
    MarciN
    @MarciN

    Also (I can’t believe I found this): Tom Meyer’s piece about a way to help Central America in situ. This, obviously, would not work in the Middle East, but it could work in our hemisphere.

    It is past time to conceive of good solutions for refugees and people displaced by wars or natural disasters. Creating permanent welfare states will never work.

    • #5
  6. Jimmy Carter Member
    Jimmy Carter
    @JimmyCarter

    MarciN: It is past time to conceive of good solutions for refugees and people displaced by wars or natural disasters.

    We have already; it’s called Western Civilization, generally, America, specifically. All They have to do is stop what They’ve been doing for 1000+ years and emulate it. That’s it. It ain’t magic. But They won’t, because doing so would be admitting Their way of Life is inferior. So, [insert definition of insanity].

    MarciN: Creating permanent welfare states will never work

    Subsidization creates permanent welfare states that will never work.

    • #6
  7. Claire Berlinski, Ed. Editor
    Claire Berlinski, Ed.
    @Claire

    MarciN: It is past time to conceive of good solutions for refugees and people displaced by wars or natural disasters. Creating permanent welfare states will never work.

    Agree. This conception of refugees as people who need to stay in camps on endless welfare programs is as damaging to them as the original war that made them into refugees. Tons of evidence to suggest that refugees are on the whole more entrepreneurial, more risk-taking, and more productive than native populations — when you get them out of those camps and into the labor market. The refugees from Partition are the most driven and entrepreneurial people in India, for example. Investing in refugee special economic zones — as opposed to donating money to build refugee camps — seems a much more fruitful idea to me. Areas of low taxation and regulatory burden, in which money raised from bonds provides the up-front capital for building infrastructure, houses, schools, medical facilities — and the refugees themselves built the communities in which they want to live, and thus have an economic and psychological stake in them — seems to me that’s well worth trying, since we know there’s no future for these people in massive, unfunded refugee camps.

    • #7
  8. Mike Rapkoch Moderator
    Mike Rapkoch
    @MikeRapkoch

    Claire Berlinski, Ed.:

    MarciN: It is past time to conceive of good solutions for refugees and people displaced by wars or natural disasters. Creating permanent welfare states will never work.

    Agree. This conception of refugees as people who need to stay in camps on endless welfare programs is as damaging to them as the original war that made them into refugees. Tons of evidence to suggest that refugees are on the whole more entrepreneurial, more risk-taking, and more productive than native populations — when you get them out of those camps and into the labor market. The refugees from Partition are the most driven and entrepreneurial people in India, for example. Investing in refugee special economic zones — as opposed to donating money to build refugee camps — seems a much more fruitful idea to me. Areas of low taxation and regulatory burden, in which money raised from bonds provides the up-front capital for building infrastructure, houses, schools, medical facilities — and the refugees themselves built the communities in which they want to live, and thus have an economic and psychological stake in them — seems to me that’s well worth trying, since we know there’s no future for these people in massive, unfunded refugee camps.

    I should probably use a pseudonym for this–I might get run out of town–but there is an enormous amount of land in Eastern Montana where a community or two could be built. It’s mostly desert but the refugees could probably make better use of it than the average Joe. It would be a way to privatize a bunch of government land. Between the Forest Service and the BLM something like 24 million acres. And hey, if terrorists show up they’ll be met by a gazillion private firearms owners.

    • #8
  9. MarciN Member
    MarciN
    @MarciN

    I would love to see these ideas take root. What happened in the Gaza strip–you surely know way more about this than I do, but–was a refugee camp horror story. The United Nations thinks in terms of temporary relief efforts. They do not know how to build a town, a city, or a country. All they understand–and it’s partly due to the personality of the people drawn to this kind of work–is short-term relief. They’ve messed up everywhere they’ve gone–Haiti is another one of their disasters. They need some clear-headed Republicans to take over and come up with sustainable towns, cities, and countries.

    I worked on an economics book in 2008, the Prahalad-Krishner, The New Age of Innovation, part of which talked at length about working in emerging economies. Prahalad is the author of The Fortune at the Bottom of the Pyramid. Granted, microloans have run into trouble lately–the borrowers have found it difficult to pay the loans back. But I am convinced the idea is a good one. It just needs to be fixed.

    All we need to do is find someone who can put everything we’ve learned in the last twenty years together. I believe investors would not lose their money because we should know by now how to do this. We have learned from our mistakes with the IMF and our other failed experiments.

    Some kid somewhere in college is working on this . . . :)

    • #9
  10. Mike LaRoche Inactive
    Mike LaRoche
    @MikeLaRoche

    No.

    • #10
  11. Percival Thatcher
    Percival
    @Percival

    You did ask how to make it work, so …

    The first step is to keep the U.N. out of the process. Those clowns couldn’t organize a two car funeral.

    An Egyptian billionaire, Naguib Sawiris, has been talking about buying a Greek island for the refugees. He is looking to put together a $100M joint stock company to fund it.

    After providing for immediate needs, the trick would be to put together some kind of industry capable of generating revenue. Resort hotels, maybe.

    • #11
  12. MarciN Member
    MarciN
    @MarciN

    Mike Rapkoch: And hey, if terrorists show up they’ll be met by a gazillion private firearms owners.

    I love this. My son went to school in Montana. He would laugh too. :)

    • #12
  13. MarciN Member
    MarciN
    @MarciN

    Mike LaRoche:No.

    I promise we won’t put them in Texas. :)

    • #13
  14. MarciN Member
    MarciN
    @MarciN

    Percival:You did ask how to make it work, so …

    The first step is to keep the U.N. out of the process. Those clowns couldn’t organize a two car funeral.

    An Egyptian billionaire, Naguib Sawiris, has been talking about buying a Greek island for the refugees. He is looking to put together a $100M joint stock company to fund it.

    After providing for immediate needs, the trick would be to put together some kind of industry capable of generating revenue. Resort hotels, maybe.

    Agreed on the UN. I wish I could take over that organization and redesign it. It has so much potential. It is just corrupt and useless the way it works now.

    I love the idea of the Greek island. And I bet some of the countries like Saudi Arabia that have been spending money on the refugees would kick in some startup money.

    Having run a couple of nonprofits, I can say confidently that people love one-time-only donation opportunities. There’s the startup money.

    • #14
  15. MarciN Member
    MarciN
    @MarciN

    I drove across the country on Route 80 from Cape Cod to San Francisco with my daughter Kate. Route 80 follows the Lewis and Clarke trail, the first railroad line, and the first telegraph lines. It’s the transcontinental route for the Eisenhower highway system–imagine that as recently as World War II, we had no continuous road all the way across the country. At any rate, at one rest stop Kate and I were reading about the “great Mormon migration.” What a sad story. Then we got to Salt Lake City. The most amazing sight–it’s new, basically. And straight up and down. Salt Lake City is built on the side of a mountain. Some people would have thought that building a city there would be impossible. But the Mormons rolled up their sleeves and did it. It’s gorgeous.

    People have incredible potential.

    • #15
  16. Claire Berlinski, Ed. Editor
    Claire Berlinski, Ed.
    @Claire

    MarciN: Having run a couple of nonprofits, I can say confidently that people love one-time-only donation opportunities. There’s the startup money.

    I don’t think any model based on donation — or nonprofits — is adequate to the scale of the catastrophe. We’re looking at 60 million refugees worldwide. At present rates of geopolitical chaos, this number might well double in the coming ten years. The scale of this is completely beyond what can be solved through charities, nonprofits, kickstarter, bake sales, or taxation on wealthy nations. The solution has to involve a way for people to make money by investing in them. Like investing in “emerging markets” — except those markets are large numbers of stateless people.

    • #16
  17. Claire Berlinski, Ed. Editor
    Claire Berlinski, Ed.
    @Claire

    Great Ghost of Gödel: We’re perfectly capable of being self-sufficient as a nation,

    Do you think we should trade with other nations? If so, what’s your vision for ensuring freedom of navigation without the US navy? If not, are you envisioning complete autarky? Any historical examples of autarky to which you’d appeal as the successful model?

    • #17
  18. Marion Evans Inactive
    Marion Evans
    @MarionEvans

    So0000 go into debt to support the citizens of another country who have crashed your border? Makes no sense.

    Please understand that if you want to be humanitarian, there are over a billion people in poor countries who would love to move to Europe and the US. The solution is not to take them in and spend $10,000 per refugee per year to integrate them (housing, education, health care etc). The solution is to help them fix their own countries, which would cost us a lot less.

    Also worry about the backlash in Europe, which is already starting. Look at the leading parties in recent polls. Not pretty.

    • #18
  19. John Penfold Member
    John Penfold
    @IWalton

    Almost anything will work with some cultures, overseas Chinese, non Muslim Indians, Jews from almost anywhere. But Arab Muslims? We can’t fix those who can’t fix themselves, and if some brilliant group came up with a fool proof plan, governments would get deeply involved and corrupt it.

    • #19
  20. MarciN Member
    MarciN
    @MarciN

    Marion Evans:So0000 go into debt to support the citizens of another country who have crashed your border? Makes no sense.

    Please understand that if you want to be humanitarian, there are over a billion people in poor countries who would love to move to Europe and the US. The solution is not to take them in and spend $10,000 per refugee per year to integrate them (housing, education, health care etc). The solution is to help them fix their own countries, which would cost us a lot less.

    Also worry about the backlash in Europe, which is already starting. Look at the leading parties in recent polls. Not pretty.

    I want to create new countries. That’s what I’m trying to say. I don’t think it is realistic for any existing country to assimilate the growing group of refugees.

    • #20
  21. Xennady Member
    Xennady
    @

    MarciN:I love the idea of the Greek island. And I bet some of the countries like Saudi Arabia that have been spending money on the refugees would kick in some startup money.

    Will the Greeks love the idea of having one of their islands colonized by foreigners? Foreigners of the same religion as the people who once terribly oppressed them? Or do they simply not get a vote?

    I suspect I know the answer.

    Anyway, I suggest shipping the refugees to the Empty Quarter of Saudi Arabia, presumably called the Empty Quarter because it’s Empty.

    Then, that Egyptian billionaire can do whatever he wants for them without having to lower himself to begging for money from infidels.

    He can just get it directly from the Saudis, who I’m sure would love to donate vast sums to care for their Kingdom’s new guests.

    Right?

    • #21
  22. Xennady Member
    Xennady
    @

    MarciN:I want to create new countries. That’s what I’m trying to say. I don’t think it is realistic for any existing country to assimilate the growing group of refugees.

    Where? Montana? Do the rest of the citizens of the United States get a vote on that?

    Those refugees already have a country. They appear to have ruined it.

    Sad Panda. But it’s their country, and they should live in it. Or- something else.

    • #22
  23. Guruforhire Inactive
    Guruforhire
    @Guruforhire

    In all seriousness this only ends with the refugees going home.  The only question is how much bloodshed gets the world there.

    The blood will be on ya’lls hands for failing to deal seriously with reality.

    • #23
  24. Vectorman Inactive
    Vectorman
    @Vectorman

    Mike Rapkoch:

    I should probably use a pseudonym for this–I might get run out of town–but there is an enormous amount of land in Eastern Montana where a community or two could be built. It’s mostly desert but the refugees could probably make better use of it than the average Joe. It would be a way to privatize a bunch of government land. Between the Forest Service and the BLM something like 24 million acres. And hey, if terrorists show up they’ll be met by a gazillion private firearms owners.

    Sorry for going slightly off thread, but I don’t understand why the Federal Government can’t sell almost all the Forest Service (FS) and BLM land over the next 25+ years. It’s a three-fer:

    1. It helps pay down our immediate debt
    2. As FS and BLM personnel retire, no additional outlay for salaries
    3. The new owners can be taxed on the value of their land and any improvements, including the additional income such land would develop

    Like vouchers for school education, it is a political question, not logical.

    • #24
  25. John Penfold Member
    John Penfold
    @IWalton

    Xennady:

    MarciN:I love the idea of the Greek island. And I bet some of the countries like Saudi Arabia that have been spending money on the refugees would kick in some startup money.

    This has endless possibilities.  The Chinese can build an artificial island in the SC Sea, and it will probably have oil so the Saudi’s could see an end to the subsidies.  Of course they’d have to import Chinese to actually do the work.

    • #25
  26. MarciN Member
    MarciN
    @MarciN

    anonymous:

    MarciN: And perhaps some steps would need to be involved to speed up the startup time in terms of a government. Liberia was the only colony America ever had. It was a colony of the American Colonization Society from 1816 to 1862. Its purpose was to create a country for the freed slaves from the United States. It is still doing well. If it were a business, the colonization period would be called its “incubation period.”

    Per capita GDP in Liberia (2014 estimate) is US$ 484. GDP per capita peaked in 1980 and has declined or stagnated since. Around 15% of the population has formal employment. On the 2010 Corruption Perceptions Index, Liberia scored 3.3 on the scale of 0 to 10, where 10 means no corruption, and ranked 87th out of 178 countries. The 2010 literacy rate was 64.8% for men and 56.8% for women. Between 58 and 66% of women have undergone female genital mutilation. The country has one of the highest rates of rape and other violence against women in the world.

    I did not know that. Sigh. I did know about Taylor. I just didn’t put the two together.

    • #26
  27. MarciN Member
    MarciN
    @MarciN

    Creating new countries is the best answer here. Not incorporating them into other countries. Not sending them back where most will meet death.

    The only other answer is to kill the people in the refugees’ original countries who are driving the refugees out. But I don’t see how to do that–that doesn’t mean it can’t be done. I just don’t know how it would work, and I can’t comment one way or the other.

    It is too late to say don’t get involved. They are here.

    We have missed many opportunities to get ahead of this. I think it is too late.

    • #27
  28. MarciN Member
    MarciN
    @MarciN

    Claire Berlinski, Ed.: I don’t think any model based on donation — or nonprofits — is adequate to the scale of the catastrophe.

    But I’m thinking about startup money.

    If we do this right, it will be self-sufficient.

    • #28
  29. MarciN Member
    MarciN
    @MarciN

    Most of the time when we’ve tried to help the poor in an existing countries, the money goes to the thugs rather than to the poor.

    If we–the United States and Western Europe–created new countries, then we get to exert some control and investment money would be used wisely.

    • #29
  30. Claire Berlinski, Ed. Editor
    Claire Berlinski, Ed.
    @Claire

    MarciN: Creating new countries is the best answer here.

    Or cities within established countries. Just not ghettos — prosperous, attractive, thriving cities.

    • #30
Become a member to join the conversation. Or sign in if you're already a member.