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Gary 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