Opinion

Banking on African Infrastructure

JOHANNESBURG – As the US Federal Reserve embarks on the “great unwinding” of the stimulus program it began nearly a decade ago, emerging economies are growing anxious that a stronger dollar will adversely affect their ability to service dollar-denominated debt. This is a particular concern for Africa, where, since the Seychelles issued its debut Eurobond in 2006, the total value of outstanding Eurobonds has grown to nearly $35 billion.


But if the Fed’s ongoing withdrawal of stimulus has frayed African nerves, it has also spurred recognition that there are smarter ways to finance development than borrowing in dollars. Of the available options, one specific asset class stands out: infrastructure.

Africa, which by 2050 will be home to an estimated 2.6 billion people, is in dire need of funds to build and maintain roads, ports, power grids, and so on. According to the World Bank, Africa must spend a staggering $93 billion annually to upgrade its current infrastructure; the vast majority of these funds – some 87% – are needed for improvements to basic services like energy, water, sanitation, and transportation.

Yet, if the recent past is any guide, the capital needed will be difficult to secure. Between 2004 and 2013, African states closed just 158 financing deals for infrastructure or industrial projects, valued at $59 billion – just 5% of the total needed. Given this track record, how will Africa fund even a fraction of the World Bank’s projected requirements?

The obvious source is institutional and foreign investment. But, to date, many factors, including poor profit projections and political uncertainty, have limited such financing for infrastructure projects on the continent. Investment in African infrastructure is perceived as simply being too risky.

Fortunately, with work, this perception can be overcome, as some investors – such as the African Development Bank, the Development Bank of Southern Africa, and the Trade & Development Bank – have already demonstrated. Companies from the private sector are also profitably financing projects on the continent. For example, Black Rhino, a fund set up by Blackstone, one of the world’s largest multinational private equity firms, focuses on the development and acquisition of energy projects, such as fuel storage, pipelines, and transmission networks.

But these are the exceptions, not the rule. Fully funding Africa’s infrastructure shortfall will require attracting many more investors – and swiftly.

To succeed, Africa must develop a more coherent and coordinated approach to courting capital, while at the same time working to mitigate investors’ risk exposure. Public-private sector collaborations are one possibility. For example, in the energy sector, independent power producers are working with governments to provide electricity to 620 million Africans living off the grid. Privately funded but government regulated, these producers operate through power purchase agreements, whereby public utilities and regulators agree to purchase electricity at a predetermined price. There are approximately 130 such producers in Sub-Saharan Africa, valued at more than $8 billion. In South Africa alone, 47 projects are underway, accounting for 7,000 megawatts of additional power production.

Similar private-public partnerships are emerging in other sectors, too, such as transportation. Among the most promising are toll roads built with private money, a model that began in South Africa. Not only are these projects, which are slowly appearing elsewhere on the continent, more profitable than most financial market investments; they are also literally paving the way for future growth.

Clearly, Africa needs more of these ventures to overcome its infrastructure challenges. That is why I, along with other African business leaders and policymakers, have called on Africa’s institutional investors to commit 5% of their funds to local infrastructure. We believe that with the right incentives, infrastructure can be an innovative and attractive asset class for those with long-term liabilities. One sector that could lead the way on this commitment is the continent’s pension funds, which, together, possess a balance sheet of about $3 trillion.

The 5% Agenda campaign, launched in New York last month, underscores the belief that only a collaborative public-private approach can redress Africa’s infrastructure shortfall. For years, a lack of bankable projects deterred international financing. But in 2012, the African Union adopted the Program for Infrastructure Development in Africa, which kick-started more than 400 energy, transportation, water, and communications projects. It was a solid start – one that the 5% Agenda seeks to build upon.

But some key reforms will be needed. A high priority of the 5% Agenda is to assist in updating the national and regional regulatory frameworks that guide institutional investment in Africa. Similarly, new financial products must be developed to give asset owners the ability to allocate capital directly to infrastructure projects.

Unlocking new pools of capital will help create jobs, encourage regional integration, and ensure that Africa has the facilities to accommodate the needs of future generations. But all of this depends on persuading investors to put their money into African projects. As business leaders and policymakers, we must ensure that the conditions for profitability and social impact are not mutually exclusive. When development goals and profits align, everyone wins.

Ibrahim Assane Mayaki, a former Prime Minister of Niger, is CEO of the New Partnership for Africa’s Development (NEPAD) Planning and Coordinating Agency.

By Ibrahim Assane Mayaki

Preempting the Next Pandemic

SYRACUSE – Recent disease outbreaks, like Ebola and Zika, have demonstrated the need to anticipate pandemics and contain them before they emerge. But the sheer diversity, resilience, and transmissibility of deadly diseases have also highlighted, in the starkest of terms, just how difficult containment and prevention can be.


One threat to our preparedness is our connectedness. It was thanks to easy international travel that in recent years the dengue, chikungunya, and Zika viruses were all able to hitch a ride from east to west, causing massive outbreaks in the Americas and Caribbean. Another threat is more mundane: failing to agree about money. Whatever the reason, the fact is that as long as humans fail to organize a collective and comprehensive defense, infectious diseases will continue to wreak havoc – with disastrous consequences.

Building an effective prevention and containment strategy – being bio-prepared – is the best way to reduce the threat of a global contagion. Preparedness requires coordination among agencies and funders to build networks that enable quick deployment of and access to vaccines, drugs, and protocols that limit a disease’s transmission. Simply stated, preparing for the next pandemic means not only building global capacity, but also paying for it.

That’s the idea, at least. The reality of bio-preparedness is far more complicated. For starters, the absence of dedicated funding is impeding implementation of long-term prevention strategies in many countries; a new World Bank report finds that only six countries, including the United States, have taken the threat seriously. Meanwhile, public health officials in many parts of the world struggle to respond to disease outbreaks, owing to a dearth of labs and clinics. And many funding agencies, including governments and NGOs, typically offer only one-year commitments, which rules out long-term planning.

For years, scientists, physicians, and civil-society actors have voiced concern over the lack of reliable, meaningful, and institutionalized investment in pandemic preparedness. These pleas have come, frustratingly, as military funding to thwart bio-attacks, consciously mounted by human actors, has remained robust. But while purposeful and nefarious infectious-disease outbreaks could do massive damage, they remain relatively unlikely. Naturally occurring outbreaks, by contrast, occur regularly and are far more costly, even if they lack the sensational “fear factor” of bioterrorism.

Not that long ago, those of us engaged in the prevention of infectious-disease outbreaks felt more secure about the availability of the resources required to prepare. But in many places, budgets are stagnating, or even declining. This is astonishingly shortsighted, given the relative costs of prevention versus response. For example, what would it have cost to build the clinical and laboratory infrastructure and provide the training needed to identify and prevent the recent Ebola outbreak in West Africa? Precise figures are elusive, but I have no doubt it would have been less than the billions of dollars spent on containment. Preparedness pays.

It is not only the lack of funding that is raising alarms; so are restrictions on how available funds can be used. It is not uncommon for a grant to be restricted to specific activities, leaving major gaps in a program’s capacity to meet its objectives. A funder may, for example, allow the renovation of an existing lab but not the construction of a new one; or funds may support the purchase of a diagnostic machine but not the training of those required to operate it. In many developing countries, communities do not even have the physical buildings in which to test, monitor, or store dangerous pathogens. Myopic funding that overlooks key elements of the big picture is money poorly spent.

Add to these challenges the difficulty of paying staff or ensuring reliable electricity and other essential services, and it becomes clear that preparing for disease outbreaks requires broad engagement with the international aid community. But at the moment, onerous spending rules and weak financial commitments are tying the hands of those working to prevent the next serious disease outbreak.

The number of obstacles faced by scientists and public health experts in the race to contain deadly infectious diseases is staggering. To overcome them, we need to redefine how we think about preparedness, moving from a reactive position to a more proactive approach. Money earmarked for preparedness must be allocated at levels sufficient to have the required impact. Limitations on how it can be spent should be loosened. Funding sources must be opened to allow for multi-year commitments. Health-care providers and first responders must receive proper training. And long-term solutions such as establishing and connecting bio-surveillance systems should be expanded and strengthened, to enable public-health professionals around the world to track and report human and animal diseases and plan defenses together.

Public health is an essential element of global security. Failing to invest appropriately in prevention of infectious-disease outbreaks puts all of us at risk, whenever or wherever the next one occurs.

Stephen J. Thomas, an infectious diseases physician, is Professor of Medicine and Chief of the Division of Infectious Diseases at the State University of New York, Upstate Medical University.

By Stephen J. Thomas

Crypto-Fool’s Gold?

CAMBRIDGE – Is the cryptocurrency Bitcoin the biggest bubble in the world today, or a great investment bet on the cutting edge of new-age financial technology? My best guess is that in the long run, the technology will thrive, but that the price of Bitcoin will collapse.


If you haven’t been following the Bitcoin story, its price is up 600% over the past 12 months, and 1,600% in the past 24 months. At over $4,200 (as of October 5), a single unit of the virtual currency is now worth more than three times an ounce of gold. Some Bitcoin evangelists see it going far higher in the next few years.

What happens from here will depend a lot on how governments react. Will they tolerate anonymous payment systems that facilitate tax evasion and crime? Will they create digital currencies of their own? Another key question is how successfully Bitcoin’s numerous “alt-coin” competitors can penetrate the market.

In principle, it is supremely easy to clone or improve on Bitcoin’s technology. What is not so easy is to duplicate Bitcoin’s established lead in credibility and the large ecosystem of applications that have built up around it.

For now, the regulatory environment remains a free-for-all. China’s government, concerned about the use of Bitcoin in capital flight and tax evasion, has recently banned Bitcoin exchanges. Japan, on the other hand, has enshrined Bitcoin as legal tender, in an apparent bid to become the global center of fintech.

The United States is taking tentative steps to follow Japan in regulating fintech, though the endgame is far from clear. Importantly, Bitcoin does not need to win every battle to justify a sky-high price. Japan, the world’s third largest economy, has an extraordinarily high currency-to-income ratio (roughly 20%), so Bitcoin’s success there is a major triumph.

In Silicon Valley, drooling executives are both investing in Bitcoin and pouring money into competitors. After Bitcoin, the most important is Ethereum. The sweeping, Amazon-like ambition of Ethereum is to allow its users to employ the same general technology to negotiate and write “smart contracts” for just about anything.

As of early October, Ethereum’s market capitalization stood at $28 billion, versus $72 billon for Bitcoin. Ripple, a platform championed by the banking sector to slash transaction costs for interbank and overseas transfers, is a distant third at $9 billion. Behind the top three are dozens of fledgling competitors.

Most experts agree that the ingenious technology behind virtual currencies may have broad applications for cyber security, which currently poses one of the biggest challenges to the stability of the global financial system. For many developers, the goal of achieving a cheaper, more secure payments mechanism has supplanted Bitcoin’s ambition of replacing dollars.

But it is folly to think that Bitcoin will ever be allowed to supplant central-bank-issued money. It is one thing for governments to allow small anonymous transactions with virtual currencies; indeed, this would be desirable. But it is an entirely different matter for governments to allow large-scale anonymous payments, which would make it extremely difficult to collect taxes or counter criminal activity. Of course, as I note in my recent book on past, present, and future currencies, governments that issue large-denomination bills also risk aiding tax evasion and crime. But cash at least has bulk, unlike virtual currency.

It will be interesting to see how the Japanese experiment evolves. The government has indicated that it will force Bitcoin exchanges to be on the lookout for criminal activity and to collect information on deposit holders. Still, one can be sure that global tax evaders will seek ways to acquire Bitcoin anonymously abroad and then launder their money through Japanese accounts. Carrying paper currency in and out of a country is a major cost for tax evaders and criminals; by embracing virtual currencies, Japan risks becoming a Switzerland-like tax haven – with the bank secrecy laws baked into the technology.

Were Bitcoin stripped of its near-anonymity, it would be hard to justify its current price. Perhaps Bitcoin speculators are betting that there will always be a consortium of rogue states allowing anonymous Bitcoin usage, or even state actors such as North Korea that will exploit it.

Would the price of Bitcoin drop to zero if governments could perfectly observe transactions? Perhaps not. Even though Bitcoin transactions require an exorbitant amount of electricity, with some improvements, Bitcoin might still beat the 2% fees the big banks charge on credit and debit cards.

Finally, it is hard to see what would stop central banks from creating their own digital currencies and using regulation to tilt the playing field until they win. The long history of currency tells us that what the private sector innovates, the state eventually regulates and appropriates. I have no idea where Bitcoin’s price will go over the next couple years, but there is no reason to expect virtual currency to avoid a similar fate.

Kenneth Rogoff, a former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University.

By Kenneth Rogoff

Preempting the Next Pandemic

SYRACUSE – Recent disease outbreaks, like Ebola and Zika, have demonstrated the need to anticipate pandemics and contain them before they emerge. But the sheer diversity, resilience, and transmissibility of deadly diseases have also highlighted, in the starkest of terms, just how difficult containment and prevention can be.


One threat to our preparedness is our connectedness. It was thanks to easy international travel that in recent years the dengue, chikungunya, and Zika viruses were all able to hitch a ride from east to west, causing massive outbreaks in the Americas and Caribbean. Another threat is more mundane: failing to agree about money. Whatever the reason, the fact is that as long as humans fail to organize a collective and comprehensive defense, infectious diseases will continue to wreak havoc – with disastrous consequences.

Building an effective prevention and containment strategy – being bio-prepared – is the best way to reduce the threat of a global contagion. Preparedness requires coordination among agencies and funders to build networks that enable quick deployment of and access to vaccines, drugs, and protocols that limit a disease’s transmission. Simply stated, preparing for the next pandemic means not only building global capacity, but also paying for it.

That’s the idea, at least. The reality of bio-preparedness is far more complicated. For starters, the absence of dedicated funding is impeding implementation of long-term prevention strategies in many countries; a new World Bank report finds that only six countries, including the United States, have taken the threat seriously. Meanwhile, public health officials in many parts of the world struggle to respond to disease outbreaks, owing to a dearth of labs and clinics. And many funding agencies, including governments and NGOs, typically offer only one-year commitments, which rules out long-term planning.

For years, scientists, physicians, and civil-society actors have voiced concern over the lack of reliable, meaningful, and institutionalized investment in pandemic preparedness. These pleas have come, frustratingly, as military funding to thwart bio-attacks, consciously mounted by human actors, has remained robust. But while purposeful and nefarious infectious-disease outbreaks could do massive damage, they remain relatively unlikely. Naturally occurring outbreaks, by contrast, occur regularly and are far more costly, even if they lack the sensational “fear factor” of bioterrorism.

Not that long ago, those of us engaged in the prevention of infectious-disease outbreaks felt more secure about the availability of the resources required to prepare. But in many places, budgets are stagnating, or even declining. This is astonishingly shortsighted, given the relative costs of prevention versus response. For example, what would it have cost to build the clinical and laboratory infrastructure and provide the training needed to identify and prevent the recent Ebola outbreak in West Africa? Precise figures are elusive, but I have no doubt it would have been less than the billions of dollars spent on containment. Preparedness pays.

It is not only the lack of funding that is raising alarms; so are restrictions on how available funds can be used. It is not uncommon for a grant to be restricted to specific activities, leaving major gaps in a program’s capacity to meet its objectives. A funder may, for example, allow the renovation of an existing lab but not the construction of a new one; or funds may support the purchase of a diagnostic machine but not the training of those required to operate it. In many developing countries, communities do not even have the physical buildings in which to test, monitor, or store dangerous pathogens. Myopic funding that overlooks key elements of the big picture is money poorly spent.

Add to these challenges the difficulty of paying staff or ensuring reliable electricity and other essential services, and it becomes clear that preparing for disease outbreaks requires broad engagement with the international aid community. But at the moment, onerous spending rules and weak financial commitments are tying the hands of those working to prevent the next serious disease outbreak.

The number of obstacles faced by scientists and public health experts in the race to contain deadly infectious diseases is staggering. To overcome them, we need to redefine how we think about preparedness, moving from a reactive position to a more proactive approach. Money earmarked for preparedness must be allocated at levels sufficient to have the required impact. Limitations on how it can be spent should be loosened. Funding sources must be opened to allow for multi-year commitments. Health-care providers and first responders must receive proper training. And long-term solutions such as establishing and connecting bio-surveillance systems should be expanded and strengthened, to enable public-health professionals around the world to track and report human and animal diseases and plan defenses together.

Public health is an essential element of global security. Failing to invest appropriately in prevention of infectious-disease outbreaks puts all of us at risk, whenever or wherever the next one occurs.

Stephen J. Thomas, an infectious diseases physician, is Professor of Medicine and Chief of the Division of Infectious Diseases at the State University of New York, Upstate Medical University.

By Stephen J. Thomas

The Not-So-Dire Future of Work

WASHINGTON, DC – The future of work is a hot topic nowadays. It has inspired a seemingly endless train of analyses, commentaries, and conferences, and it featured prominently in last week’s annual meetings of the International Monetary Fund and the World Bank. For good reason: new technologies – namely, digitization, robotics, and artificial intelligence – have far-reaching implications for employment. But, contrary to how the story is often framed, a happy ending is possible.


The current debate often skews toward the melodramatic, foretelling a future in which machines drive humans out of work. According to some bleak estimates, 47% of jobs are at risk in the Unites States; 57% in the OECD countries; two thirds in developing economies; and half of all jobs globally (around two billion).

But similarly dire predictions of large-scale job destruction and high technology-driven structural unemployment accompanied previous major episodes of automation, including by renowned economists. John Maynard Keynes offered one; Wassily Leontief provided another. Neither materialized. Instead, technological change acted as a powerful driver of productivity and employment growth.

One key reason is that the technological innovations that destroy some existing jobs also create new ones. While new technologies reduce demand for low- to middle-skill workers in routine jobs, such as clerical work and repetitive production, they also raise demand for higher-skill workers in technical, creative, and managerial fields. A recent analysis estimates that new tasks and job titles explain about half of the recent employment growth in the US.

Given this, the evolution of work should be viewed as a process of dynamic adjustment, not as a fundamentally destructive process that we should seek to slow. To erect barriers to innovation, such as taxes on robots, which some have proposed as a way to ease the pressure on workers, would be counterproductive. Instead, measures should focus on equipping workers with the higher-level skills that a changing labor market demands, and supporting workers during the adjustment process.

So far, education and training have been losing the race with technology. Shortages of the technical and higher-level skills demanded by new technologies are partly responsible for the paradox of booming technology and slowing productivity growth in advanced economies: skills shortages have constrained the diffusion of innovations. Imbalances between supply and demand have also fueled income inequality, by increasing the wage premia that those with the right skills can command.

To address these shortcomings, education and training programs must be revamped and expanded. As the old career path of “learn, work, retire” gives way to one of continuous learning – a process reinforced by the aging of many economies’ workforces – options for reskilling and lifelong education must be scaled up.

This will demand innovations in the content, delivery, and financing of training, as well as new models for public-private partnerships. The potential of technology-enabled solutions must be harnessed, supported by a stronger foundation of digital literacy. At a time of rising inequality – in the US, for example, gaps in higher education attainment by family income level have widened – a strong commitment to improving access for the economically disadvantaged is also vital.

At the same time, countries must facilitate workers’ ability to change jobs through reforms to their labor markets and social safety nets. This means shifting the focus from backward-looking labor-market policies, which seek to protect workers in existing jobs, to future-oriented measures, such as innovative insurance mechanisms and active labor-market policies.

Moreover, social contracts based on formal long-term employer-employee relationships will need to be overhauled, with benefits such as retirement and health care made more portable and adapted to evolving work arrangements, including the expanding “gig” economy. Here, several proposals have already been put forward, including a universal basic income, currently being piloted in Finland and some sub-national jurisdictions such as Ontario, Canada; a negative income tax; and various types of portable social security accounts that pool workers’ benefits.

On both of these fronts, France is setting a positive example. Early this year, the country launched a portable “personal activity account,” which enables workers to accrue rights to training across multiple jobs, rather than accumulating such rights only within a specific position or company. President Emmanuel Macron’s administration is now undertaking reforms to France’s stringent job protections, in order to boost labor-market flexibility. Pursuing such initiatives simultaneously will enable France to capture reform synergies and ease the adjustment for workers.

Technological change will continue to pose momentous challenges to labor markets across economies, just as it has in the past. But, with smart, forward-looking policies, we can meet those challenges head on – and ensure that the future of work is a better job.

Zia Qureshi, a former director of development economics at the World Bank, is a non-resident senior fellow at the Brookings Institution.

By Zia Qureshi

Educating for Myanmar’s Future


GENEVA – The violence that has ravaged Myanmar’s Rakhine State underscores the challenges the country faces on its bumpy road from military rule to democracy. The country is confronting a deep crisis, and urgent action is desperately needed to prevent further violence and assist the huge numbers of refugees and internally displaced people. To address the political, socioeconomic, and humanitarian challenges fueled by the crisis, the Advisory Commission on Rakhine State, chaired by Kofi Annan, recommends urgent and sustained action on a number of fronts to prevent violence, maintain peace, and foster reconciliation.


While global attention has rightly focused on how to end the attacks on Muslim Rohingya, many other, more systemic fixes are critical to Myanmar’s long-term stability. Education reform is one of the most important.

In late August, I was in Naypyidaw, Myanmar’s new capital, with the International Commission on Financing Global Education Opportunity. The Education Commission, as we are known, was there to present findings from our latest report, The Learning Generation, and to share ideas with the country’s leadership on paying for education and improving outcomes. We met with Aung San Suu Kyi, the government’s de facto leader, and Myo Thein Gyi, the education minister.

Our conversations were cordial and productive. By the end, we agreed on this much: sustaining Myanmar’s political transition hinges on improving its education sector.

To many of Myanmar’s leaders, their country is an economic-power-in-waiting. Home to some 53 million people, it is rich in minerals, natural gas, and fertile farmland, and it occupies a strategic location between India and China. Most important, Myanmar is rich in human potential, with a diverse and youthful workforce – the median age is just 28 – ready to take their country forward. What Myanmar lacks are the schools needed to train them.

Before military rule was imposed in 1962, Myanmar’s education system was among the best in Asia. For the next half-century, schools were neglected and underfunded. Starved of resources and teachers, the system atrophied. Rote learning replaced critical thinking, undermining creativity. Today, while some children have returned to the classroom, attendance in many parts of the country remains low, and teaching standards poor, contributing to high dropout rates.

In addition to these shortcomings, Myanmar faces severe human challenges, including endemic poverty, poor health indicators, and a lack of basic infrastructure. Among ASEAN countries, Myanmar has the lowest life expectancy and the second-highest rate of infant and child mortality.

Improving Myanmar’s education system, while tackling its other problems, will not be easy. But it can be done. Vietnam and South Korea offer inspiring examples of countries that transformed their education systems within a generation. As former South Korean education minister and commission member Lee Ju-ho noted during our visit, teaching young people to think critically takes time, but the results can have powerful knock-on effects for a country’s knowledge economy.

Aware of these benefits, Myanmar has put education at the heart of its reform agenda. One priority – to improve inclusivity – is already underway. For example, the government is currently working to encourage instruction in more local languages – more than 100 are spoken in Myanmar – in rural areas. Moreover, the government has increased its education budget, from just 0.7% of GDP in 2011 to 2.1% of GDP in 2014. While spending remains far below the regional average of 3.6% of GDP, funding is moving in the right direction.

To be sure, much work remains to be done. The government’s recently completed National Education Strategic Plan sets out an ambitious five-year timeline to improve “the knowledge, skills, and competencies” of all its students. The Advisory Commission on Rakhine State recommends that all communities should have equal access to education. The Education Commission supports these recommendations. As Suu Kyi noted during our conversation, education will play an increasingly important role in reducing poverty and promoting peace. If members of the current generation are to become productive members of society, she noted, they must be trained in cultural and ethical understanding.

During this fraught period of political transition, inclusive education can help promote a peaceful consolidation of democracy. As the crisis in Rakhine State powerfully illustrates, ethnic and ideological rifts run deep in Myanmar, and accessible, quality education may be the only means by which a common sense of shared identity can be cultivated. And, of course, better training in basic skills can also ultimately boost economic growth and increase social welfare.

The list of challenges facing Myanmar’s leaders is long, and overcoming most of them will be neither quick nor easy. But ensuring that no child loses the opportunity to learn must rank near the top of the country’s agenda.

Caroline Kende-Robb is chief adviser to the International Commission on Financing Global Education Opportunity.

By Caroline Kende-Robb

Central Banks Must Work Together – or Suffer Alone

NEW YORK – Global growth seems to be moving, slowly but surely, along the path to recovery. The International Monetary Fund’s latest World Economic Outlook predicts 3.5% global growth this year, up from 3.2% last year. But there’s a hitch: the easy monetary policies that have largely enabled economies to return to growth are reaching their limits, and now threaten to disrupt the recovery by creating the conditions for another financial crisis.


In recent years, the world’s major central banks have pursued unprecedentedly easy monetary policies, including what a recent Deutsche Bank report calls “multi-century all-time lows in interest rates.” That, together with large-scale quantitative easing, has injected a massive $32 trillion into the global economy over the last nine years. But these unconventional policies are turning out to be a classic game-theoretic bad equilibrium: each central bank stands to gain by keeping interest rates low, but, collectively, their approach constitutes a trap.

In today’s globalized world, a slight reduction in interest rates by an individual central bank can bring some benefits, beginning with weakening the currency and thus boosting exports. But the more countries employ this strategy, the greater the strain on the banking sector. This is already apparent in Europe, where bank equity prices have dropped steadily in recent months.

Moreover, low and especially negative interest rates make holding cash costly, prompting investors to seek riskier investments with higher potential returns. As a result, collateralized loan obligations (CLOs) have more than doubled this year, reaching an overall market value of $460 billion. That looks a lot like the surge in collateralized debt obligations (CDOs) that helped to drive the 2008 financial crisis. While the world has implemented more checks and balances for CLOs than it did for CDOs before the crisis, the trend remains deeply worrying.

Finally, persistently low interest rates can cause people to worry about their retirement funds, spurring them to save more. Far from boosting consumption, as intended, monetary stimulus may create an environment that dampens demand, weakening prospects for economic growth.

Today, no single country can steer the world away from this trap. The United States, which might have taken the lead in the past, has ceded its global leadership position in recent years – a process that has been greatly accelerated during the first year of Donald Trump’s presidency. Moreover, the G20 has lately lost steam in supporting closer coordination of monetary and fiscal policies among the world’s major advanced and emerging economies.

Perhaps a new grouping of the major players – the GMajor? – needs to step up, before it is too late. To gain the needed motivation, monetary policymakers should recall the “traveler’s dilemma,” a game theory parable that highlights the pitfalls of individual rationality.

The parable features a group of travelers, returning home with identical pottery purchased on a remote island. Finding that the pottery has been damaged in transit, they demand compensation from the airline. Because the airline manager – known as the “financial wizard” – has no idea what the price of the pottery is, a creative solution is needed to determine the appropriate amount of compensation.

The manager decides that each traveler should write down the price – any integer from $2 to $100 – without conferring with one another. If all write the same number, that figure will be understood as the price, and thus the amount of compensation each traveler receives. If they write different numbers, the lowest number will be taken as the correct price. Whoever wrote the lowest number would receive an additional $2, as a reward for honesty, while anyone who wrote a higher number would receive $2 less, as a penalty for cheating. So if some write $80 and some $90, they will receive $82 and $78, respectively, in compensation.

At first blush, the travelers are thrilled. The pottery has no actual monetary value, but if they each write $100, all can receive $100 in compensation. One traveler, however, quickly realizes that writing $99 would be a better option, because it would garner that extra $2 reward, and thus a total of $101. That traveler quickly realizes, however, that others must have had the same idea, and so decides to put down $98 instead. But what if the others had the same thought? Better make it $97.

In the end, trapped by this inexorable logic, all travelers end up writing and receiving $2. The outcome may seem a disaster, but it is also the most rational choice – the “Nash equilibrium” of the traveler’s dilemma game. It is clear how the financial wizard came by his moniker.

The moral of the story is simple. The invisible hand of the market does not always lead individually self-interested agents to a collectively desirable outcome. Altruism and regard for others must play a role. If they are missing, the players at least need to coordinate their decisions. Unless central bankers take that message to heart, they will find themselves sweeping up a lot of broken pottery.

Kaushik Basu, former Chief Economist of the World Bank, is Professor of Economics at Cornell University and Nonresident Senior Fellow at the Brookings Institution.

 

The US Cannot Go It Alone On Iran

NEW YORK – US President Donald Trump has announced what was long anticipated: that he will not certify that Iran is complying with the July 2015 “Joint Comprehensive Plan of Action” (JCPOA) signed by the United States, China, Russia, France, Germany, the United Kingdom, and Iran. Nor will he certify that the suspension of sanctions undertaken by the US as part of the agreement is justified and in the vital national interest of the US.


To be clear, such certifications are not required by the JCPOA. Rather, they are required every 90 days by a law enacted by the US Congress soon after the accord was signed. It is also essential to underscore that Trump did not withdraw from the JCPOA itself. What he chose was a compromise: to make clear his disdain for the agreement without leaving it or reintroducing sanctions that were removed as part of it (a step that would be tantamount to US withdrawal).

What happens next is unclear. Congress has 60 days to reintroduce some or all of the suspended sanctions but is unlikely to do so. It might, however, introduce new sanctions tied to Iran’s behavior in Syria or elsewhere in the region. Consistent with this, Trump announced his intention to place extra sanctions on Iran’s Islamic Revolutionary Guard Corps.

If the US were to impose new sanctions for any purpose at any time, it would likely find itself alone. The Europeans, China, and Russia are highly unlikely to join, not only because of financial self-interest, but also because Iran is in compliance with the JCPOA. This is a point made by international inspectors operating under United Nations auspices, as well as by senior US officials, including Secretary of Defense Jim Mattis.

To argue, as some in America do, that Iran is not complying with the spirit of the JCPOA is meaningless: “spirit” is a phrase without legal standing. And while it is fair to argue that much of what Iran is doing in the region is a legitimate cause for concern, it is not grounds for reintroducing sanctions under the accord.

Renegotiating the JCPOA to extend the duration of several of its constraints, make inspections more intrusive, and expand its coverage to missiles is attractive in the abstract. But it is totally unworkable in practice, as Iran and most (or all) of the other signatories of the JCPOA would reject these demands. The threat to terminate US participation in the JCPOA if such changes are not made will thus prove either empty or self-defeating if carried out.

None of this is meant to argue that the JCPOA is a good agreement. Still, Trump’s decision not to certify was unwarranted and ill-advised. The agreement was the result of a collective effort. American unilateralism now could make forging a common front against Iran much more difficult in the future.

Trump’s move is also bad for US foreign policy. There must be a presumption of continuity if a great power is to be great. Unpredictability can provide a tactical advantage, but it is also a strategic liability.

Here there is an obvious link with North Korea. At some point, the US may determine that diplomacy has a role in managing the North Korean nuclear and missile challenges. But America’s ability to offer a credible diplomatic path will be seriously undermined if others judge that it cannot be trusted to stand by agreements.

There is also a more immediate problem: if the US sets in motion a dynamic that causes the JCPOA to unravel, and Iran resumes nuclear activities currently precluded by the accord, a crisis will erupt at a time when the US already has its hands full with North Korea.

Despite these considerations, it would also be a mistake to focus just on the US announcement and not also on Iranian behavior. In the short run, the world needs to contend with an Iran that is an imperial power, one that seeks to remake large swaths of the Middle East in its image. What is needed is a policy of containment of Iran across the region – including support for the Kurds in northern Iraq and Syria, as well as of other groups and countries that are pushing back against Iran.

In the longer run, the challenge is to deal with the JCPOA’s flaws, above all with its sunset provisions. The agreement “parked” the nuclear problem, rather than resolving it. Important provisions of the accord will expire in either eight or 13 years. At that time, inspections will not prevent Iran from putting in place many of the prerequisites of a nuclear weapons program that could be made operational with little warning.

It cannot be assumed, as some do, that Iran’s intentions and behavior will moderate over the next decade or 15 years. On the contrary, Iran is more likely to remain a hybrid regime in which a government coexists with a permanent religious authority and with powerful military forces and intelligence units that exercise considerable political influence and largely operate outside the government’s control.

Dealing with an ambitious and powerful Iran thus entails a broad range of other open-ended challenges that define the ever-turbulent Middle East. Without the JCPOA, however, those challenges would become even more daunting.

Richard N. Haass is president of the Council on Foreign Relations and author of A World in Disarray: American Foreign Policy and the Crisis of the Old Order.

By Richard N. Haass

Closing the Education Gender Gap

WASHINGTON, DC – Completing primary school in Niger was never a certainty for Aishetu Mahmoudu Hama, given all the obstacles that stood in her way. “It was hard to study,” she recalls. “We sat on the ground – sometimes on a mat, sometimes just in the dirt.”


But Aishetu persevered, and she is now a 23-year-old university student. Aishetu knows that without school, her life chances would likely be confined to herding, farming, getting married, and having a lot of children. There simply would be no other opportunities for her to pursue.

Like the female teachers who inspired her to learn, Aishetu wants to be a role model to younger girls and her own siblings. She hopes that her story will motivate them to complete their education, too.

On this International Day of the Girl, Aishetu stands as proof of the difference that education can make for girls and the people around them. But the struggles that Aishetu overcame also remind us that education remains beyond reach for far too many girls.

Consider one appalling statistic: The number of girls not attending school, despite having fallen by 40% since 2000, still stands at 130 million. This helps to explain why women struggle more than men to find meaningful, well-paying work, and why the share of women in the global workforce persistently lags behind that of men.

Making matters worse, even where girls’ educational attainment has grown rapidly, commensurate improvements for women in the workforce have remained elusive. According to a 2015 study by the World Economic Forum, “while more women than men are enrolling at university in 97 countries, women make up the majority of skilled workers in only 68 countries and the majority of leaders in only four.”

These gender gaps represent a major generational challenge for large and small businesses alike. Worldwide, companies are already struggling to find enough qualified workers for their increasingly automated work processes. The International Commission for Financing Global Education Opportunity reported last year that nearly 40% of employers are having difficulties recruiting workers with the right skills.

Businesses investing in lower-income countries also need their workers to be healthy. This is more likely when mothers are educated: they and their families tend to be healthier than in the case of less educated mothers. In fact, research shows that if all childbearing-age women were to complete secondary education, the number of children dying before age five would drop by about 350,000 each year.

The businesses investing in developing- and emerging-market countries that are home to most out-of-school girls thus have an interest in helping girls get the education they deserve. If educational outcomes improve, we will likely see far more women pursuing the higher-level technical training that today’s workplaces are demanding.

To put 130 million additional girls into school, we will have to overcome an array of stubborn barriers. In many countries, educating girls is not considered important, owing to expectations that they will work exclusively at home or on the family farm. Early marriage, sexual assault, a lack of sanitary facilities for menstruating girls, and humanitarian crises are just some of the factors that make completing an education more difficult for girls than for boys. And in remote areas in particular, school fees and arduous commutes pose further challenges.

Even if these cultural, political, and geographic hurdles can be cleared, wealthier countries will need to commit far more resources to educating girls in developing economies than they have in the past. Shockingly, the share of donor countries’ overseas development aid that is allocated for education has shrunk over the last six years, and is now smaller than it was in 2010. Donor countries urgently need to reverse that trend.

The Global Partnership for Education has been one of the leading catalysts in educating girls over the past decade and a half. Thanks to GPE funding, an additional 38 million girls in developing countries were enrolled in primary school from 2002 to 2014.

To build on that progress, GPE will hold a financing conference, co-hosted by the Senegalese and French governments, on February 8, 2018, in Dakar. We are appealing to donors around the world to help us reach $2 billion in annual funds by 2020.

With sufficient funding, GPE can support the education needs of 870 million children in more than 80 countries. And it can help developing countries build education systems that will give girls like Aishetu the chance to realize their potential. When girls and women are empowered through education, they can and do transform the world for the better. Investment in their potential is a bet that can’t lose.

Julia Gillard, a former prime minister of Australia, is Board Chair of the Global Partnership for Education.

A Smarter Approach to Refugees

BRUSSELS – In recent years, few issues have generated as much public debate as the plight of refugees. With an unprecedented number of people uprooted by political instability, conflict, or persecution and forced to seek protection beyond their countries’ borders, the inadequacy of international responses has been laid bare.


One central problem with current approaches is that they fail to ensure sustainable futures for refugees. Meeting refugees’ basic needs – food, shelter, medical care, and safety – is essential. But so is providing the knowledge, tools, and opportunities displaced people need to support themselves and their children in countries where they seek asylum, in countries to which they are resettled, or when they return home.

Such a strategy will require new methods, partnerships, and financing mechanisms. It will not be easy, but there are already heartening examples. Over the last year, countries in the Horn of Africa, home to almost four million refugees, and other parts of East Africa have all been pursuing bold efforts.

Last September, at the United Nations Leaders’ Summit on Refugees in New York, the leaders of Djibouti, Ethiopia, Kenya, and Uganda committed to providing more comprehensive support for their respective refugee populations, as well as for host communities. These countries have also moved to apply the Comprehensive Refugee Response Framework (CRRF) and the principles of the New York Declaration for Refugees and Migrants.

By providing better access to jobs, education, health care, and land, and moving toward integrated service-delivery for refugees and their hosts, these countries are helping refugees become more self-reliant and lead more dignified lives. And they are reaping the benefits of improved security and more economically productive residents.

African countries are taking these efforts further, and the European Union stands ready to support them, including through the EU Emergency Trust Fund for Africa. In March, the members of the Intergovernmental Authority on Development (IGAD) regional bloc – Djibouti, Eritrea, Ethiopia, Kenya, Somalia, Sudan, South Sudan, and Uganda – convened the first-ever high-level summit focused on developing a regional approach to delivering durable solutions for Somali refugees.

At that summit, which received strong support from the EU and the UN Refugee Agency (UNHCR), IGAD heads of state and government expanded on their earlier commitments and laid out a comprehensive plan of action, which recognized the need for action in four key areas:

• Stabilizing Somalia, to enable the voluntary and sustainable return of refugees;
• Protecting refugees within host countries, including by supporting their integration and self-reliance;
• Strengthening sub-regional cooperation;
• Increasing international burden-sharing.

Last month, IGAD foreign ministers convened in Brussels, together with the EU and the UNHCR, to assess progress, identify challenges, and set priorities for the coming months. This systematic, comprehensive, and forward-looking approach promises to go a long way toward helping not just the refugees themselves, but also their host communities and, when the time is right, their home countries. Donors also stand to benefit, as these efforts reduce the need for costly and indefinite emergency responses.

The EU has helped to pioneer this promising approach. With our 2016 policy framework Lives in Dignity, we have adjusted our policies to include more development assistance at the outset of a humanitarian crisis. In 2016 alone, we allocated €130 million ($153 million) to support long-term solutions for refugees in East Africa.

In Somalia, the EU is leading efforts to promote stability, in order to facilitate the voluntary return and reintegration of refugees. To that end, last May, we made available an additional €200 million ($236 million), to be used to respond to security challenges, create economic opportunities, and enhance democratic governance.

In Kenya, the EU, the government, and the UNHCR are spearheading a development project for an open settlement near Kalobeyei Township in Turkana, the country’s poorest region. Bordering South Sudan, Uganda, and Ethiopia, Turkana has long been host to many refugees. With new waves of South Sudanese refugees entering Kalobeyei, the township is introducing a model that promotes cooperation and resource-sharing between refugees and their host communities, while providing both groups with better access to education, health care, and other services.

At the Refugee Solidarity Summit in Kampala, Uganda, the EU pledged €85 million ($100 million) to support a progressive refugee policy, which offers refugees opportunities to nurture their skills and integrate into local communities. That money, together with the pledges of EU member states, represents more than 80% of the total amount committed to support Uganda’s refugee programs. Next month, we aim to buttress these efforts by scaling up our support for the implementation of the CRRF.

But, as powerful as the EU’s support has been, it is not enough. The rest of the international community, including donors, international financial institutions, and the private sector, must marshal its resources, whether financial, political, diplomatic, or technical, to help roll out forward-looking refugee policies across affected countries.

Such an effort must include broad support for investment in the necessary social and economic infrastructure, as well as promotion of entrepreneurship among refugees. It also demands sustained political leadership focused on ending conflicts and building inclusive societies in refugees’ home countries. That leadership must come not only from the affected countries, but also from neighbors, such as the broader Red Sea region, and from the international community.

With the world’s support, refugees can be empowered to develop their skills not just for their own benefit, but for that of their host countries, too. And, in cases where they can return to their homes, they will be prepared to start anew.

Neven Mimica is European Commissioner for International Cooperation and Development. Christos Stylianides is European Commissioner for Humanitarian Aid and Crisis Management.

By Neven Mimica and Christos Stylianides

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