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"Homeward Bond" - New York Times Op-Ed on diaspora bonds

Dilip Ratha's picture

The New York Times published an opinion piece on diaspora bonds over the weekend. In this piece, Ngozi and I highlight the potential for mobilizing diaspora wealth for financing infrastructure investments in Africa and other developing regions.

At a time when donor countries are facing fiscal difficulties, new sources of funding and innovative ways to leverage available donor funding are required for meeting the financing needs in developing countries. Indeed, innovative mechanisms for channeling investments to dynamic developing countries may even provide a way out of weak demand and excess capacity prevailing currently in the developed countries. As highlighted by Justin Lin, "a global push for investment along the line of Keynesian stimulus is the key for a sustained global recovery; however, the stimulus needs to go beyond the traditional Keynesian investment....By far the greatest opportunities for productivity-enhancing investments are in developing countries..." (see here ).

Even if we were out of the crisis situation, standard official aid, plain vanilla bonds, or relationship-based bank lending cannot meet the investment needs of developing countries which to-date are perceived as high-risk by institutional investors. For long-term and low-cost financing, innovative mechanisms that mitigate credit default risks and operational risks of projects in developing countries must be found. Such innovative mechanisms would involve credit enhancements in the form of credit and political risk guarantees, creative use of collateral (future flows if existing assets are not available), and explicit linking of debt service to performance of projects (via performance-indexed bonds). I have outlined some such ideas in another article "New Paths to Funding".

Comments

Submitted by Anonymous on
I think it's a great idea...however, it will be hard to convince members of the Diaspora to actually buy the bonds. I'm a part of the African Diaspora and I've seen how our leaders have squandered donor funds over the decades. So many projects haven't materialized and Africa is growing poorer. How will you guarantee a return and mitigate the risk of leaders misusing these funds. More importantly how will you persuade me to give you this money as oppose to give it directly to my family.

Submitted by peter van dijk on
Dear Madam/Siir, Investors, local or foreign, want a real return on investment, meaning promising income compared to all costs and all risks. Shareholders of development finance institutions such as of World Bank are not investors by such standards. And in times of crises that becomes clear, when they want to use their funds for public goals at home. Now the investment banking expert comes out with an old often repeated paradigm, that of people who fled their country to invest in their countries of origin. Again either they either will give some development finance out of patriotic charitable (social) feelings or they will invest in projects that give good returns immediately. For all who visit capitals in Africa but especially in Asia it is clear that local people or people who fled their countries have no objectives for developing the entire country and emancipate the entire population. A simple and clear signal is the extremely low salaries of local workers and their weak legal protection. Another signal is that the children of rural people go to the cities and have no interest anymore in toiling the land for long days for minimal income so that low food prices for local people can be assured. People's pride of their countries is abstract, not at all related to the realities of poverty, inequality, filth, criminal abuse of natural resources and other evidence of injustice. In conclusion, before a broad local alliance can be forged for broad infrastructure development, the emancipation of all citizens and the eradication of absolute poverty, so-called "development" will only come from drops leaking over from pure profit-maximising greed called economic growth. At the end of 19th century Europe citizens and enlightened industrialists and politicians developed inclusive societies with minimum legally and politically enforceable rights for all citizens. They realised that economic growth is not a development motor. This came as a result of social and religious revolutions and wars, stimulated by artists and academics. Academics and artists in countries with massive poverty seem to prefer the salons of the wealthy, especially those far away from their own countries. Sad indeed. Respectfully, Peter van Dijk BSD City, Indonesia

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