DiasporaBond

Some quick (and really draft) notes on the #DiasporaBond idea that’s been discussed recently. The notes are based on my 2008 paper (see below). These are draft notes outlining general principles of a potential program – more certainly can be added.

Aleksandr V. Gevorkyan (July 31, 2018)

  • DiasporaBond in strict sense is a financial debt instrument, by which a country borrows from its expatriate (diaspora) community (affiliated by ethnic, religious, cultural, or other characteristics).
  • BENEFIT-1: a small economy with large diaspora is able to tap into international capital markets, otherwise closed off to the country or outcompeted by similar but stronger economies (what’s happening in #EmergingMarkets these days).
  • BENEFIT-2: borrowing at patriotic discount, i.e. borrowing at interest rates lower than would be borrowing in a competitive.
    • The reason: “diaspora” is assumed to be more altruistic in its intentions towards historical homeland and is willing to buy-in at a discount driven by patriotic motives
  • BENEFIT-3: potentially a substantial economic development booster

And some points to “consider”:

  • As a capital market instrument with longer maturity than short-term loans, DiasporaBonds are best to finance long-term projects
    • infrastructure (for prosaic reasons, roads, sewers, water supplies, energy); education & healthcare (building new facilities, revamping existing); capital financing for new residential development; capital financing for new industrial sectors / techno parks development
  • DiasporaBond is non-inflationary, this means it is not intended as consumer or business credit facility
    • Unless, of course, a host of serious macroeconomic conditionalities and strict checks/balances system are enforced.
  • On the latter point, conditions are appropriate as DiasporaBond financing would normally go towards areas in the national economy otherwise not appealing to a committed global investor.
  • Regulation: with all the usual players in place (Min Finance, Central Bank, investment bankers, etc), there perhaps should also be a State – Diaspora Supervisory   Board in some form – as an oversight, bringing Diaspora expertise, and advisory group – with a clearly defined (and limited) mandate.
  • WHO-1: DiasporaBond cannot not solely target labor migrants (or recent expatriates). Trends in remittances transfers are not indicative of the diaspora’s interest in purchasing a long-term sovereign bond at a discount rate with unspecified risks of repayment
  • WHO-2: Part of the DiasporaBond program’s success would be conditioned on availability of range of options for members of the “old” and the “new” diaspora in a range of denominations
  • WHERE: a DiasporaBond program requires clear identification of the applicable jurisdiction for any disputes and any other obligations to lender/borrower
  • DiasporaBond Exchange Program—may help individual investor to donate their bonds as charitable contributions to school, universities, hospitals, etc as a way of boosting endowments of the latter. Additionally, an exchange mechanism may be created to facilitate further financial market deepening.
  • Reaching beyond altruistic diaspora with the DiasporaBond requires solid presence in the international financial markets, macroeconomic and institutional predictability.
  • DiasporaBond may[!] lead to initiation of more stable large scale capital funding for a small open economy from a more diverse investor pool.
  • DiasporaBond is not a guaranteed success. Promoting and competing for diaspora investment interest requires massive dedicated effort and soft-capital concentration.

READ:

Gevorkyan, A.V. 2008. Fiscal Policy and Alternative Sources of Public Capital in Transition Economies: the Diaspora Bond. Journal of International Business and Economy, 9(2): 33-61. https://www.researchgate.net/publication/324133338_Fiscal_Policy_and_Alternative_Sources_of_Public_Capital_in_Transition_Economies_Diaspora_Bond

Most definitive reference on the topic: http://www.israelbonds.com/Home.aspx

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