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?

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  1. Great Ghost of Gödel Inactive
    Great Ghost of Gödel

    Claire Berlinski, Ed.:

    So basically, you’re suggesting we impose a global boycott and siege upon ourselves. Basically. And saying that we could survive it — which we probably could — but I don’t think we’d like it, much.

    Keep in mind I’m suggesting this as a contingency upon international trade being “not worth it,” as measured by actuaries insuring international shipping, who in turn are paying security forces to protect them. In other words, if the fixed costs of security and insurance leave international trade profitable, great! If not, I’d call that a pretty good definition of “the world has gone to hell,” wouldn’t you?

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  2. Claire Berlinski, Ed. Member
    Claire Berlinski, Ed.

    anonymous: In the case of the U.S., obviously maintaining its ability to import manufactured goods from Asia, export high technology and aircraft, and import energy is important, as is maintaining freedom of the seas and air to facilitate those imports.

    Agreed so far.

    But what conceivable interest do U.S. citizens have in the internal affairs of countries such as Syria, Yemen, Afghanistan, Iraq, Tunisia, or any of the other long list in which the U.S. has meddled?

    Let’s break this down. First let’s define “meddling.” I think it’s fair to say that from the beginning of the Second World War to the end of the Cold War, the United States created and maintained a global system such that almost every country on the planet was influenced by it — in many cases to the point of being dismembered; others had an entirely new systems of governance imposed upon them, or were otherwise unrecognizably transformed. Only the most ardent ideologue would maintain that all of this “meddling” was for the ill: The defeat of the Nazis, imperial Japan, and Soviet communism were not only in our interests in a direct sense, but ended the enslavement, murder, torment, and unspeakable suffering of billions. The creation and maintenance of a stable world order in which trade and capitalism flourished lifted countless billions from starvation, misery, and grinding poverty. Was this “in our interest?” I would say this is the wrong question; the question to ask is “Were we the greatest nation in human history nation because we did this?” And the answer is, “yes.”

    It was, however, also in our interest to “meddle” this way. Chaos, war, and totalitarianism pose threats — to varying degrees — to the United States’ physical security and economic well-being; particularly because it is in their nature to spread if unchecked — as we discovered when we tried to stay out of these conflicts.

    The sense of security we’ve long enjoyed from our geographic isolation is, growingly, illusory. In the age of ICBMs and nuclear weapons, even countries very physically far from us can impose terrible costs upon us. Cyber attacks can cripple us. Terrorism — while not in my view as great a threat as some Americans believe — is a serious threat. The world’s economic interdependence means we’re vulnerable to other country’s economic shocks, and thus do have a direct interest in minimizing them.

    The 2007 financial crisis has already caused great damage to the fabric of democracy in the US. Another several shocks on that order could well do unthinkable damage. Such shocks could easily come in the form of disruptions to the supply of oil from the Gulf: It’s not correct to say that we’re on the road to energy independence and thus no longer vulnerable to oil price shocks, because the rest of the world isn’t anywhere near that point. A global economic crisis precipitated by the capture of those resources by a hostile regional hegemon would do devastating damage to the US economy, too.

    So the arc of chaos is something that should concern us, yes, and containing that chaos is very much in our interest.

    The “internal affairs” of these countries concern us because no country is a black box: They behave as they do because of their internal dynamics.

    To take the countries you list one by one:

    Why should we be interested in Syria?

    Even if we decided we didn’t give a toss about the human suffering — which is unlikely, given that the United States is not comprised psychopaths, and the suffering is unbearable — the war is destabilizing the entire region, and giving rise to groups like ISIS that while not yet able to destroy a major American city, are driven by an ideology that makes this a compelling goal for them. Given their brutality and the ease with which they’ve expanded and replenished their ranks, it seems to me the height of folly to assume they’d be uninterested in or incapable of acquiring the means to carry out a mass-casualty terrorist attack on the United States or one of its allies. Similarly, the “internal affairs” of Syria are what’s caused some four million Syrians to flee, destabilizing neighboring countries and in the process, I fear, laying the groundwork for the ushering into power of governments in Europe that will be profoundly antithetical to US interests. That’s why I’m interested in Syria’s “internal affairs.” (And whether or not we’re interested in Syria’s internal affairs, they are interested in us.)

    Yemen? I agree with you that we don’t have an interest in Yemen, although we certainly had an interest in ensuring that AQAP was destroyed, particularly because this is the branch of AQ most likely to attempt transnational attacks against the United States. To that end, we have an interest in Yemen’s “internal affairs,” at least to the extent of preferring to have a government in place there that cooperates with our counter-terror efforts. A Yemen that’s a failed state and safe haven for Al Qaeda operatives is a real and direct threat to the security of the US (which is why our support for the Saudis in hastening Yemen’s descent into total chaos is, in my view, lunatic, but my objection isn’t that we’re meddling, per se, but that we’re meddling stupidly.)

    Afghanistan — I agree with you. I always felt the correct response to September 11 was a series of utterly savage retaliatory raids, then get the hell out. I never believed it a reasonable war aim to try to build a real country out of Afghanistan. Not since Genghis Khan had anyone invaded the place successfully, and nothing suggested we had what it took to be the first.

    We “meddled” in Iraq because Saddam Hussein violated the cease-fire terms of the 1991 armistice; and we “meddled” in 1991 because Iraq had invaded and annexed a UN member state, and was thus within easy striking distance of Saudi oil fields. Control of these fields, along with Kuwaiti and Iraqi reserves, would have given Saddam control over the majority of the world’s oil reserves and put his thumb on the carotid artery of the global economy.

    We “meddled” in 2003 because we believed, overwhelmingly, that Saddam was developing weapons of mass destruction. (This was correct, although he had long ago halted the nuclear component of the program.) That was an intelligence failure — ours. Had we been correct, the invasion would surely have been the right decision. But we were wrong. In that sense, we are in part responsible for the chaos we’re now seeing in this region, so it likewise makes sense to say that we have a moral obligation to do what we can to mitigate the damage and care for the people who are fleeing from the destruction, if it is humanly possible and compatible with our own survival.

    As for Tunisia, the way we “meddled with it” seems to have been quite positive: Although most of the credit goes to the Tunisians themselves, it doesn’t seem that the assistance we provided them in the wake of Ben Ali’s downfall — positioning the International Republican Institute, National Democratic Institute, and International Foundation for Electoral Systems to work with the new political parties and citizen groups, supporting new democratic institutions — was misplaced. Critical issues from constitutional reform and independent media to women’s rights and transitional justice were addressed through programs supported by the United States, and the democracy-training programs we offered seemed, at least, to do no harm: Tunisia held three credible, democratic elections in a row with our help, all with excellent electoral transparency and a statistically valid parallel vote count. I think we can count Tunisia — for now — as a success story.

    Why is the U.S. or any other civilised nation obliged to cope with the consequences of catastrophes caused by dysfunctional culture, politics, or religion in inconsequential countries? “Build a wall around it and don’t look at what happens inside” may not satisfy people’s humanitarian instincts, but it will probably lead to better outcomes than importing millions of people from an alien culture

    Depends how it’s done. The US has successfully integrated wave after wave of people from alien cultures; so, in fact, has Europe.

    who cannot be assimilated

    There’s no law that says so; many people from these regions have been assimilated, and I believe it’s well worth studying the places in Europe where assimilation has been more and less successful to try to figure out why, because it’s not random.

    into countries whose welfare states are already on the verge of collapse due to debt and demographics.

    Europe’s not on the verge of collapse in the way Syria is. This is a wealthy continent. As for the demographics, well, immigration is a solution to that, not a problem. And Europe’s not much closer to collapse owing to debt and social spending than the US, although it depends which countries we’re talking about. The problem in Europe is sluggish growth, which is only going to be cured by structural reform. If the arrival of these immigrants is the spur to enacting it, that would be a great blessing. (Sadly, it probably won’t be.)

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  3. Robert Lux Inactive
    Robert Lux

    Claire Berlinski, Ed.:Depends how it’s done. The US has successfully integrated wave after wave of people from alien cultures; so, in fact, has Europe.

    Fourth generation Hispanics in the U.S. vote 80% statist Democrat. This is hardly a model of assimilation. Do you read Heather MacDonald, Victor Hanson? Immigration of the last 40 years is utterly unlike anything of earlier eras given the rise of identity politics. Or the infusion of postmodern Marxism into the legal academies, sociology, etc.

    who cannot be assimilated

    There’s no law that says so; many people from these regions have been assimilated,

    No one who is serious believes Muslims have been integrated in Germany, Sweden, etc.  Again, major five year study of Moroccan and Turkish immigrants in Austria, Belgium, France, Germany, Holland and Sweden and determined:

    “Almost 60 per cent agree that Muslims should return to the roots of Islam, 75 per cent think there is only one interpretation of the Koran possible to which every Muslim should stick and 65 per cent say that religious rules are more important to them than the laws of the country in which they live.

    Read also Thilo Sarrazin.  He’s right about much, though the bien pensant try to shut him up.

    • #63
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