Development bonds might be worth considering by both the developed and developing world
By Tom Arms
It’s all about timing, and in my case the time may have arrived for an idea that I first mooted 25 years ago. In 2018 it was shortlisted for a prize in honor of the late Paddy Ashdown.
It if won first prize the idea might have progressed. But instead it has sat on my computer hard drive waiting for the right moment to be pulled out.
The idea concerns foreign aid. Trump has slashed US aid by 80 percent, Britain by 40 percent, France by a third and Germany and Japan by a to-be-announced amount. On top of that, the liberal bastion “The Economist” this week sounded “The Death of Foreign Aid.”
The result will be that literally billions of people will suffer. They will have less money for education, military protection, health and investment in infrastructure projects that can lift their countries out of poverty and create markets for the developed world. Many will die. Many already have.
The Economist argues that the cuts could be silver-lined clouds. That many developing countries have become aid-dependent and the dramatic cutbacks could force governments in the developing world to reorganize and pull themselves up by their bootstraps.
If so, development bonds, might be worth considering by both the developed and developing world. The concept of development bonds had its genesis in Renaissance Italy where bonds were sold to wealthy merchants to fund local building projects. The idea was unearthed by New York to finance the Erie Canal and over the years has become a financial pillar for America’s infrastructure finance. In 2023, $456 billion was raised in municipal bonds. It is estimated that $4.5 trillion is currently outstanding.
Read: Why lowering the yield on 10-year bonds is more important to Trump than the stock market or interest rates
The structure is simple. Wealthy individuals invest in a bond issued by a state or local authority. The bondholders receive regular interest payments which they can deduct from federal income tax. When the bond matures they receive the principal which they invested. This also is untaxed.
My development bond proposal would extend the US system to the developing world. Wealthy individuals, banks, pension funds and others would invest in bonds to build infrastructure projects in the developing world. The investors would deduct the interest payments from taxes due in their country of residence.
There are of course problems. Corruption is an obvious issue. What happens if the president of country X runs off with the bond holders’ money and country X defaults? No investment has guarantee and there have been a small number of defaults in US municipal bonds. To protect development bonds there would need to be a number of safeguards.
For a start, the investment project would need to be approved by the developed country which is losing the tax revenue. There would be a further check by the financial institution that is organizing the issue. There would need to be a system of ongoing scrutiny; possibly involving the media to insure the maximum transparency. And as final guarantee, the bonds can be insured.
Bond issues are already used by a number of developing countries. Kenya, South Africa and India have issued successful “Green Bonds” to help finance environmental projects. Bonds are also issued by the World Bank and the International Finance Corporation.
There are also limited cases of tax incentives for investments in developing countries. These “Blended Finance” models provide tax credits or subsidies for investments that meet certain criteria but they do not allow for tax relief on the interest and principal.
Some development agencies, like the World Bank. Impact Investment Funds, America’s Overseas Private Investment Corporation and Social Impact Funds, have explored mechanisms that allow international investors to receive some form of tax credit or benefit for investing in these types of bonds, although these structures usually focus on social returns rather than tax deductions.
I must confess that international development bonds is not a wholly original idea. Other financial experts with a great deal more experience than my own have suggested financing developing world projects with a system that mirrors America’s municipal bond market.
They have failed to make it off the drawing board for several reasons. First is the problem of corruption as mentioned above. Then there is the risk of default. There is also the problem of international cooperation needed to align tax laws and ensure transparency. Finally, there is the fact that until this year the developing world was receiving quite a lot without– $256 billion last year. This negated the need for a development bond.
In 2025 developing world countries will be lucky to receive a quarter of the largesse of 2024. So, perhaps the time for development bonds has arrived. And perhaps they can, as “The Economist” insists they should, help developing world countries pull themselves up by their bootstraps. It is now clear that they can no longer count on being supported by much-needed aid from the developed world
World Review
World ReviewThe Ukraine ball has bounced from Ukraine’s court to Russia’s court and now back into America’s court.
Donald Trump has always claimed a special relationship with Vladimir Putin– “He listens to me…the war would never have started if I had been in office…I can stop this war in 24 hours.”
Not if Vladimir can help it. As I write this Trump special envoy Steve Witkoff is flying back to Washington after exhausting talks in the Kremlin. He went asking Putin to agree to a 30-day ceasefire. Ukraine had already—under pressure from Trump—said yes.
Putin said…I’ll think about it. Actually he was a bit more diplomatic. He prefaced his hesitation with the normal flattery that must precede any exchange with the American president. He said that he is “aligned” with Trump and “expressed solidarity” with the man in the White House.
Then the Russian leader said: “I need more information, “which is another way of saying “I’ll think about it, “which is another way of stalling.
Putin is stalling because at the moment he is on the offensive. It looks as if he might soon push the Ukrainians out of their Kursk salient. He continues to inch forward in the Donbas and every captured inch improves his negotiating position.
That negotiating position has not changed for three years: Ukraine out of NATO and EU and demilitarized. International recognition for the annexation of the Donbas and Crimea. Sanctions lifted. Zelensky replaced by a Russian puppet.
Trump, however, is not focused on Putin’s long-term aims. He wants a ceasefire now. He has demanded it and has threatened renewed sanctions if his ultimatum is not met. It hasn’t been and Trump’s next move will reveal more about his role as honest broker.
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Tariffs up, down, off, on. Markets crave certainty. They fear uncertainty and they panic at chaos.
Trump’s muddled tariff policy is causing the stock market to dive. And according to Trump’s past statements, the stock market is the best judge of his economic policies.
He started off well. His election in November was followed by big rises. Nasdaq and the Dow Jones reached record highs in December. The S&P 500 two months later. American business was anticipating an economic boom fuelled by a bonfire of government regulations. It didn’t believe that Trump would actually follow through with threats of tariffs.
They were wrong. This week the American president was waging escalating tariff wars on several fronts. Canada, Europe, Mexico and China were the headliners, but not far behind are a host of other countries including India, South Korea, Vietnam, Indonesia, Australia….By this Thursday the S&P 500 was 10 percent below its February high. The Dow Jones was down 9.3 percent and Nasdaq a staggering 14.2 percent.
These figures don’t necessarily mean that a market crash is imminent. But they indicate that businesses are worried. They are worried because Trump’s on/off tariff’s policy means they can’t plan. Should they invest or should they retrench. Should they hire or fire. No one knows so no one invests and the market dives.
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As I write this, 79-year-old former Filipino president Rodrigo Duterte is being arraigned before the International Criminal Court at The Hague for crimes against humanity. The charges relate to what human rights group claim are at least 30,000 extra-judicial killings of suspected drug dealers.
The story behind how Duterte ended up before the ICC is worthy of the darkest of Shakespearean plots.
It started with an alliance between two of the Philippines political dynasties—the well-established Marcos clan and the up and coming Dutertes.
Ferdinand Marcos was forced to resign and flee the country in 1986 after a popular uprising known as the People Power Revolution. He died in 1989 in exile in Hawaii, but his family remained in the Philippines building a formidable political machine for a comeback led by Ferdinand “Bongo Bongo” Marcos Jr.
Duterte was constitutionally barred from running for the presidency in 2022 but had high hopes of handing over the family business to his daughter Sara. Bongo Bongo, however, had positioned himself as a virtual shoe-in but not to such an extent that help from the upstart Duterte clan was unwanted.
So the two families struck a deal. Dutuerte would support the Marcos campaign and in return Sara Duterte would become vice-president and at the next election the Marcos machine would support Sara Duterte for the presidency. In addition, Duterte would be protected for his alleged crimes.
Unfortunately for Rodrigo’s hopes and dreams, his daughter and Bongo Bongo fell out almost as soon as they took office. Relations plumbed new depths last year when Sara Duterte announced that she had hired an assassin to kill President Marcos if anything happened to her.
The Marcos-controlled Congress moved to start impeachment proceedings against Sara Duterte. The Senate trial is due to be held later this year and if she is found guilty Ms. Duterte will be barred from holding public office and the Duterte family’s political ambitions will end.
However, Rodrigo Duterte, still wielded considerable behind-the-scenes power, so President Marcos contacted the ICC and said they would honor an arrest warrant for Duterte despite the fact that the Philippines withdrew from ICC jurisdiction in 2017.
The removal of Rodrigo Duterte is not the end of the matter. The Duterte’s also have a political machine which is likely to organize countrywide protests. But on the other side, Sara Duterte still faces her impeachment trial. And, of course, caught in the middle of this domestic feud is the ICC which has its own problems with the United States threatening to arrest any of its officials who visit the US.
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Tom Arms is foreign editor of Liberal Democrat Voice and the author of “The Encyclopedia of the Cold War and “America Made in Britain.”
