Prosperity Bonds Agency - Call to Action to G7

By HUSEYIN BURAK ERTEN

Discover the Power of Prosperity Bonds: A Call to Action for the G7

Unlock the potential of innovative financial solutions with "Prosperity Bonds Agency-A Call to Action to G7." This groundbreaking book explores the urgent need for global collaboration to implement prosperity bonds and address the world

• Language: English
• Publisher: US NEXUS
• Release date: May 31, 2024
• ISBN: 9798218445768

HUSEYIN BURAK ERTEN

ABOUT THE AUTHOR - HUSEYIN BURAK ERTENThe professional odyssey of Huseyin Burak Erten is marked by a rich tapestry of achievements spanning over three decades, underscoring his profound impact within the global financial services sector, particularly in Luxembourg, Malta, and beyond. Esteemed roles such as President and Director across notable entities such as www.uscapital.us have highlighted his acumen in deal structuring, business development, and financial innovation. A Boğaziçi University alumnus, Erten's linguistic proficiency in English and intermediate French complements his academic prowess. His career, adorned with pivotal roles in fund management, structured finance, and international diplomacy, reflects a legacy of versatility and significant influence. Erten's financial expertise extends to strategic positions in several corporations and advisory capacities, including a Senior Policy Advisor role at COH Foundation https://www.coalitionofhope.org/, emphasizing his comprehensive understanding of finance, real estate, policy, and development. His licensure as a fund manager in Luxembourg and Malta as part of Q Group www.qgroup.capital showcases his regulatory acumen, while his contributions to innovative funding methods and fund structures have set benchmarks within the industry. Erten's distinguished journey, from initiating pivotal real estate ventures in Turkey to authoring insightful literature on project finance, illustrates a career dedicated to financial excellence and innovation. Burak has been highlighted in prestigious publications such as USA Today- https://www.usatoday.com/story/special/contributor-content/2023/10/20/top-10- emerging-entrepreneurs-of-2023/71257901007/, The100 Magazine for Finance Professionals- https://www.thetop100magazine.com/h-burak- erten,The CIO Today- https://theciotoday.com/magazines/highly-acclaimed-the-5-most-innovative- entrepreneurs-to-watch-in-2023/.Burak is an Honored Listee of Marquis Who's Who 2024Burak authored the following books titled:Unlocking Capital: The Influence of Bonds in Project Finance. https://a.co/d/6PDgFfaUnlocking Capital: The Insider's Guide to Luxembourg Financial Structures https://a.co/d/ixzmg4MUnlocking Capital: How to Speak the Language of Wall Street: https://a.co/d/bvImyFP Unlocking Capital: How to Structure Bankable and Bondable Projects: https://a.co/d/7aKoH2U

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Preface

In this digital age, where rapid change aligns with the evolving dynamics of geopolitics and our ways of life, I embarked on a journey to find practical solutions for efficient capital deployment in both developed and developing markets. My inspiration was drawn from the ‘Plug and Play’ concept of Dell Computers, an idea that revolutionized its industry years ago.

The financial architecture I propose is not entirely new; it comprises various components that are already accepted and recognized by global capital markets. It embodies the principle of "Share the Risk, Share the Prosperity," promoting the meaningful and fair deployment of resources for all involved.

A significant objective of this proposal is to bridge the gap between developed and emerging markets, fostering a world built on shared values of fairness, equity, respect inclusivity, and diversity. I propose that the G7 establish a bond issuance agency where participating nations share the repayment risk, facilitating low-cost, long-term bond issuances based on their inherent credit ratings. These bonds would be sold in global institutional capital markets, leveraging the notion of governments acting as catalysts to mobilize private capital.

Drawing from several capital market structures in the USA and EU, I have integrated various components into this bond architecture to offer numerous benefits for investors. The capital deployment strategy relies on the principle of risk syndication, ensuring that each project is structured as listed bonds in the EU. This promotes good corporate governance, transparency, institutionalism, and accountability through a diverse ecosystem of global capital market players. This approach aims to bridge developed and developing markets, enabling emerging market project sponsors to learn advanced capital market methodologies—teaching them to fish rather than merely providing the fish.

The proposed agency seeks to unify the G7 and emerging markets, incorporating best practices from structured finance, project finance, securitization, insurance, risk mitigation, risk syndication, and compliance. It is a non-concessionary, profit-oriented entity designed to prevent wealth transfer from one nation to another. I have proposed multiple safeguards to protect G7 taxpayers from shouldering the burden of defaulted projects. On the contrary, this financial architecture has the potential to benefit the treasuries of participating nations, imposing a minimal financial burden on their public debt management.

This agency will address numerous global issues, including economic stimulus, job creation, refugee movements, poverty alleviation, and increased investments in ESG-impact investing. It aims to provide equal opportunities for capital deployment across all global markets, regardless of their development status.

The plight of refugees seeking better lives elsewhere is a pressing issue. If these individuals are given hope, jobs, prosperity, and freedom in their homelands, they would likely choose to stay and thrive there. This agency seeks to reverse the current tide of displacement by increasing prosperity and access to capital, offering a tangible solution to this global challenge. Would people be willing to leave their countries if they had prosperity and freedom at home? I believe they would prefer to visit other countries for entertainment or business purposes rather than as refugees.

My goal in developing this financial architecture is to demonstrate how significant issues can be addressed using existing structures and concepts. By occasionally shifting our perspectives, we can find innovative solutions to complex problems. My objective with this proposed architecture is to create win-win solutions without losers.

The Prosperity Bonds Agency model aims to connect developed and developing markets through enhanced corporate governance for financing and developing projects that support a shared future founded on freedom, respect, prosperity, and security. We face challenging times, and our civilization is at a crossroads. While some foresee a multipolar world, I believe we must find alternative ways to avoid global conflicts and foster hope and prosperity instead. Can we find alternative ways to bring hope and prosperity to humanity instead of resolving our issues through wars?

The future hinges on whether we uphold constitutional republics, liberties, and democracies or succumb to dark regimes and autocracies. Practical and pragmatic solutions are essential. This financial architecture is my contribution, but it requires collective effort to safeguard and advance the world we share. What does the future hold for us? Are we headed towards a world of constitutional republics, liberties, and democracies, or one under the control of autocracies?

We must come together to identify and implement real, practical solutions rather than fixating on issues that, in hindsight, may appear illogical when viewed from the perspective of the next 50 years.

I believe in a world of abundance rather than scarcity. Our current way of life, built on the post-WWII rules-based global order, is at risk. Only by creating a more inclusive and fairer world can we preserve and build upon the achievements of the past.

Under the leadership of the US, NATO, G7, and similar mechanisms, we have avoided another world war, achieved significant advancements in lifespan, healthcare, science, and inclusivity, and maintained peace and prosperity. Critics may argue otherwise, but the internet’s invention and the global GDP’s growth are testaments to the collaborative efforts of the US, EU, G7, NATO, and other organizations. I encourage those with opposing views to consider what the world might have been like under the leadership of the Soviet Union or China over the past 80 years instead of the US, EU, and other Western nations.

Creating a better future for the next generations is crucial. Everyone desires a better life for their children, peaceful living, and freedom. Spreading prosperity is key to achieving these goals. Fair wealth distribution addresses social injustices, crime, and public disorder. By providing hope and opportunities, we can foster peaceful, just societies and greater access to global capital. Can we create more inclusivity by providing better opportunities for global capital access? I believe we can.

In my view, the term geopolitics is outdated. I would like to coin a new term here The world is shifting towards "Valuepolitics," where people unite based on shared values and future goals, transcending geographical boundaries. This concept will shape political analysis in the coming era, as individuals worldwide seek democracy, liberties, and rights regardless of their governments. People advocating for democracy, liberties, and rights are unified in their desire for a better future, regardless of their current governments or locations. I believe the Prosperity Bonds Agency will contribute to "Valuepolitics" becoming the new term instead of geopolitics.

In this digitally borderless age, we have the opportunity to create a better humanity by uniting with those who share our values and aspirations for a better, freer world, all while preserving our national identities and nation-states. We must shift our perspective and approach towards so-called conflicting opinions that arise from the current geopolitical system.

The same applies to the definition of the Economy, traditionally focused on managing scarce resources. Could it be time to redefine the economy based on abundance? Economists should consider this perspective, focusing on efficient and inclusive resource distribution to positively impact global societies. This task belongs to economists, but my two cents on the issue is to incorporate the concept of distributing abundant resources in more efficient and inclusive ways to create equitable solutions and positive global impacts when formulating a new definition of the economy.

I have been inspired by great leaders such as President George Washington, President Mustafa Kemal Atatürk, Alexander Hamilton, President Andrew Jackson, President Ronald Reagan, Giuseppe Garibaldi, Gilbert du Motier Marquis De Lafayette, and Emperor Marcus Aurelius. Their contributions have paved the way for our current way of life. I encourage readers to learn about these great men, as understanding their achievements underscores the importance of preserving and advancing our world for future generations. Their legacies inspire us to create a more equitable and inclusive world, fostering economic prosperity for all.

When prosperity is not shared, economic hardships affect everyone. This applies to countries, individuals, and companies. Prosperity is achieved through hard work, but when it is not shared, liberties are restricted, and the consequences spread faster than the initial creation of wealth. Sharing prosperity unlocks freedom and liberty, creating a more joyful life for everyone. My proposal aims to demonstrate that we can achieve widespread prosperity without burdening anyone, providing opportunities for those willing to strive for their dreams.

I am hopeful that this financial architecture will inspire similar initiatives by the USA, EU, G20, or multilateral financial institutions, as the model is replicable and scalable.

Hoping for a peaceful and more equitable world,

H. Burak Erten

Discover the Power of Prosperity Bonds: A Call to Action for the G7

Unlock the potential of innovative financial solutions with "Prosperity Bonds Agency - A Call to Action to G7". This groundbreaking book explores the urgent need for global collaboration in addressing the world’s most pressing challenges through the implementation of prosperity bonds.

In a world where rapid change aligns with the evolving dynamics of geopolitics and our ways of life, H. Burak Erten embarked on a journey to find practical solutions for efficient capital deployment in both developed and developing markets. Inspired by the ‘Plug and Play’ concept of Dell Computers, Erten proposes a financial architecture that integrates various components already recognized by global capital markets.

The principle of "Share the Risk, Share the Prosperity" promotes the fair and meaningful deployment of resources. Erten’s vision is to bridge the gap between developed and emerging markets, fostering a world built on shared values of fairness, equity, respect, inclusivity, and diversity. The proposed G7 bond issuance agency would facilitate low-cost, long-term bond issuances based on the inherent credit ratings of participating nations, leveraging the notion of governments acting as catalysts to mobilize private capital.

Drawing from several capital market structures in the USA and EU, Erten offers numerous benefits for investors through this bond architecture. The strategy relies on risk syndication, ensuring each project is structured as listed bonds in the EU, promoting good corporate governance, transparency, institutionalism, and accountability.

This non-concessionary, profit-oriented entity is designed to prevent wealth transfer from one nation to another, with safeguards to protect G7 taxpayers from defaulted projects. The agency addresses global issues such as economic stimulus, job creation, refugee movements, poverty alleviation, and increased investments in ESG-impact investing.

The book also provides real-world examples and case studies that illustrate the transformative impact of prosperity bonds on both developed and emerging markets. It compares prosperity bonds with other initiatives like China’s Belt and Road and the EU’s Global Gateway, highlighting their advantages.

Gain insights into practical steps and strategies for deploying prosperity bonds, from governance structures to risk syndication and stakeholder engagement. Be inspired by a compelling vision for a more equitable and sustainable world and find out how you can be part of this global movement.

Erten’s model is applicable and replicable for many initiatives to be launched with participating members from other organizations, regional or global. This financial architecture is a model that can unlock capital in many other ways with participants of differing natures.

Join the movement towards a more prosperous and sustainable world with "Prosperity Bonds Agency - A Call to Action to G7

Chapter 1:

The Inevitable Need for Prosperity Bonds

The world today is facing newer and far bigger challenges than the past decades, resulting in the limitation of resources and loss of financial assets. Natural catastrophes are becoming increasingly common and severe as a result of climate change, endangering millions of people’s lives and safety. The COVID-19 pandemic is still wreaking havoc on businesses and societies all across the world, highlighting healthcare system flaws and aggravating already-present inequities. The wealth of the richest 1% of the world’s population has surpassed that of the bottom 50%, signaling growing income inequality. Security and stability are still being threatened in many places by political unrest, armed conflict, and terrorism.

Additionally, the growth of populist and authoritarian leaders poses a threat to democratic advancements and the preservation of human rights. These challenges are far more interlinked than we think and require global collaboration since they affect all countries at some level or another. Therefore, to progress toward a sustainable and equitable future, there is an inevitable need to find innovative solutions that can prevent alarming economic and social disruptions and offer long-term benefits.

For this, the introduction of prosperity bonds is one potential remedy. These financial products can offer a way to raise money for sustainable development efforts, including infrastructure for renewable energy, affordable housing, and educational programs. By investing in these projects, investors can support the international effort to meet the challenges of our time in a dignified manner.

One of the potential benefits of issuing prosperity bonds is that they could play a crucial role in preventing autocrats from gaining control of emerging markets. Autocrats frequently use debt as a strategy to seize control of the economy and the political system in many developing nations. They take out loans from foreign lenders and use the money to fund side ventures and other endeavors that are more in line with their personal interests than those of the general public.

This strategy frequently results in unmanageable debt levels and economic instability, which ultimately have catastrophic effects on these nations. Prosperity bonds can offer an alternate source of funding in these circumstances that is not vulnerable to the same political risks and pressures. Emerging markets can attract capital from foreign investors interested in financing sustainable development.

However, prosperity bonds offer advantages outside of emerging markets. Developed nations can also gain from this strategy by using prosperity bonds to finance initiatives that aid the transition to a more sustainable and equitable economy. Investments in renewable energy infrastructure, for instance, can reduce carbon emissions and lessen the effects of climate change while also generating employment and stimulating the economy.

Prosperity bonds have advantages for the economy as well as for social and political stability. Investors can contribute to addressing the underlying causes of political instability and violence, such as poverty and inequality, by funding projects that specifically target these arenas. As a result, societies may become richer and more stable, making them less susceptible to extremism and violence.

It’s crucial to remember, though, that prosperity bonds are not a panacea for all global issues. They are but one of several and most efficient tools available for addressing global risks and concerns. The success of prosperity bonds equally depends on the projects being financed. For example, the governance and transparency of the issuing entity, the interest of investors in prosperity bonds, the overall quality and aim of the project, are all important factors that could help in determining the probable impact of prosperity bonds in the desired sector.

To put simply, prosperity bonds can offer an inventive way to tackle the ever-changing difficulties we now face. These financial instruments can contribute to the creation of a more sustainable and fair future for everybody by serving as a source of subsidy for viable development initiatives. Moreover, they can be crucial in preventing autocrats from taking control of emerging markets and in advancing global social and political stability. Thus, to guarantee that this instrument is employed in a transparent, responsible, and just manner, it is indispensable to approach it with caution and due diligence.

The Dire Situation

The Sustainable Development Goals (SDGs) have drastically deviated from their original course, and current converging crises have only made matters worse. The poorest nations in the world are already experiencing a fiscal downturn that will suggestively impede their capability to address both scarcity of resources and environmental change for many years. As anticipated, their finances have been completely emptied as a result of the pandemic, rises in the cost of commodities brought on by Russia’s invasion of Ukraine, as well as interest rate increases and the strengthening of the dollar, which have made borrowing more expensive. The consequences are far-reaching, with rising inequality and poverty.

As reflected in the statistics, a total of 71 million people fell into poverty between March 2022 and June 2022 as a result of rising food and gasoline prices.

Also IMF has highlighted that in 2022, the debt crisis affecting emerging economies and low-income nations will affect roughly one-third of developing economies and two-thirds of low-income countries. In 2021, low-income nations paid an average of 27.5% of their finances on debt settlements, which is twice as much as they did for social protection, four times as much as they did for healthcare, and twice as much as they did for education. As a result, there has been widespread austerity, and by 2025, it is expected that over half (55%) of people in low-income nations and 85% of people in middle-income countries will still be impacted by austerity measures. Extensive budget cuts in health, education, and social safety are already a result of this, which disproportionately affect impoverished families.

Besides, for the first time in 25 years, extreme wealth and extreme poverty have both expanded significantly at the same time.

Despite having made the smallest contributions to climate change, low- and middle-income countries are already suffering from its most detrimental effects, with the poorest people being the most impacted. Furthermore, as was the case during the financial crisis of 2008, there is a real risk of a wider global banking crisis and recession. This would make inequity worse and make an already poor situation even worse.

The Bridgetown Initiative and the Summit for a New Global Financing Pact, held in Paris in June 2023 and aimed at enhancing resilience to climate change and taking stock on all the means and ways of increasing financial solidarity with the South, advocating for climate finance in response to the staggering challenges at hand, which have generated discussions on how to generate money for development and the environment. However, the $27.4 trillion required to address the financing challenge is not covered by the proposed Capital Adequacy Framework (CAF) reforms, which are intended to leverage the balance sheets of Multilateral Development Banks. In addition, placing too much focus on lending during a debt crisis runs the risk of overshadowing the necessity of increasing aid and favorable financing for low- and middle-income nations.

Furthermore, the redistribution of Special Drawing Rights (SDRs) is another proposed financial innovation but is an insufficient fix. The majority of the $650 billion in SDRs that the IMF issued in 2021 went to high-income nations, and the reallocation pledges fell short of the requests for trillions of dollars to deal with the crisis. SDR reallocations and more ambitious SDR issuances are required to close the financial gap in low- and middle-income nations.

Some Affordable Solutions

Recent history has demonstrated that when there is enough political will, governments can discover ways to raise substantial money. For instance, affluent nations were able to quickly find trillions of dollars to deal with the Covid-19 situation. To address the major climate and social investment demands in low- and middle-income countries (LICs and MICs), the same level of urgency and ambition is required. In order to satisfy these needs in 2023, wealthy nations could take four crucial actions. These actions show that, with the appropriate political will, providing the required finances to solve the critical issues faced by LICs and MICs is both feasible and probable.

1. Addressing Aid Promises and Repayment of Debt

The initial and essential step towards resolving the urgent challenges faced by underprivileged nations is to honor the commitments of aid made by the most prosperous economies. Historical evidence demonstrates that aid can have a noteworthy influence on saving lives and reducing inequality, especially when it is provided as consistent, long-term budget support. Regrettably, wealthy nations have consistently failed to meet their obligations, leading to a startling debt of $6.5 trillion in aid owed to Low-Income Countries (LICs) and Middle- Income Countries (MICs) since the UN 0.7% resolution was passed in 1970.

Affluent nations have a responsibility to fulfill their ongoing 0.7% commitments and begin repaying their aid debt. By increasing the collection of progressive taxes and fulfilling aid commitments, it would be possible to generate enough financial resources to cover the funding gap in crucial sectors such as health, education, and social protection in low-income and middle-income countries. In addition, it would help to support debt cancellation initiatives that aim to reduce their debt to a sustainable level.

It is important to stress that donors should follow strict aid effectiveness standards. They should avoid using accounting tactics that dispense a majority of aid for domestic purposes, such as covering in-country refugee expenses and donating vaccines. Ensuring maximum impact and efficacy in aid allocation requires transparency and integrity.

2. Agreeing to a transformative debt swap.

One of the challenges that LICs and MICs face is the pressure to accumulate substantial debt to address the climate crisis. This approach not only worsens their current debt situation but also restricts their access to financial resources for other urgent requirements. Currently, almost two-thirds of countries eligible for International Development Association (IDA) loans are either at high risk or in debt distress. As a result, they are not qualified to receive concessional loans. Likewise, a quarter of the countries that are eligible for the International Bank for Reconstruction and Development (IBRD) are experiencing comparable debt distress, which renders IBRD loans at market rates inappropriate.

However, there is a feasible solution to this problem. High-income countries could borrow $11.5 trillion to help low-income and middle-income countries cover their climate-related costs. The sum is lower than the amount borrowed by these nations in reaction to the pandemic. Additionally, it would only slightly raise their debt-to-GDP ratio, which would still be lower than the highest point seen during the pandemic.

The ‘Big Debt Swap’ is an initiative that has the potential to finance climate mitigation, adaptation, and loss and damage requirements of low-income and middle-income countries (LICs and MICs). This could help these countries effectively address the challenges posed by climate change. This step is important for high- income countries to fulfill their responsibility, as they have contributed the majority of climate-heating carbon emissions to the atmosphere. Through the implementation of this debt swap, wealthy nations can take practical steps to address the disparities resulting from their past carbon emissions, which contribute to almost 50 to 70 percent of the overall carbon emission, thereby fostering a fairer and more sustainable future for everyone.

The ‘Big Debt Swap’ is an initiative that has the potential to provide significant financing for climate mitigation, adaptation, and loss and damage requirements of low-income and middle- income countries (LICs and MICs).

3. Committing to additional Special Drawing Rights (SDRs).

The allocation of $650 billion in Special Drawing Rights (SDRs) in 2021 resulted in substantial advantages. These SDRs were utilized by ninety-eight Low-Income Countries (LICs) and Middle-Income Countries (MICs) for a range of purposes, including the procurement of vaccines, funding welfare payments and wages, and providing budget support. Furthermore, 55 countries utilized SDRs to pay off a debt of $7.6 billion to the International Monetary Fund (IMF). This accomplishment would not have been possible without the financial assistance provided by SDRs.

In order to provide additional assistance to low-income and middle-income countries, affluent nations should not only accelerate the redistribution of a minimum of $100 billion from the current SDR issuance, but also pledge to introduce two new issuances of $650 billion each by 2030. Implementing such a measure would significantly aid in meeting the climate financing requirements of Low-Income Countries (LICs) and Middle-Income Countries (MICs). Alternatively, it could enhance their abilities to spend on social welfare. Furthermore, this would improve the capacity of High-Income Countries (HICs) to fulfill their financial obligations, as mentioned earlier.

For these new issuances to be effective, it is crucial that High-Income Countries (HICs) commit to reallocating a fair portion of their Special Drawing Rights (SDRs) to Low-Income Countries (LICs) and Middle- Income Countries (MICs). Moreover, the redistribution of resources should be done in a way that ensures that the countries receiving them are not burdened with debt or subjected to any conditions.

4. Bringing in new taxes on affluent individuals and corporations

It is worth acknowledging the fact that we live in a world that is not limited by resources, despite the commonly held belief that financing is necessary. Despite the accumulation of wealth by a privileged few, poverty and hunger persist in many nations, especially the poorest ones, as public budgets continue to suffer from the impacts of successive crises. The enormous rise in assets owned by the wealthiest individuals and corporations can be attributed to government and central bank interventions in the economy. These interventions were necessary measures, but they inadvertently led to considerable inflation of private wealth for a select few.

Oxfam’s calculations suggest that affluent OECD DAC countries could generate almost $1.1 trillion for their annual budgets by implementing a progressive net wealth tax of up to 5%. When combined with the reallocation of SDRs, this would generate enough funds to cover the aid requirements mentioned earlier and service the Big Debt Swap.

Since the year 2020, the billionaires’ fortune have augmented by an astonishing $2.7 billion every day. In 2022, despite over 800 million people struggling with poverty and hunger, ninety-five food and energy companies saw an enormous increase in profits. They experienced a windfall profit of $306 billion, which is a 256% increase compared to the average of the previous three years. A considerable amount of these profits has been directly allocated to affluent shareholders. It is noteworthy that certain corporations and shareholders have gained from external disruptions, resulting in vast profits that cannot be solely attributed to their own efforts.

Figure 1 INCREASE IN BILLIONAIRE WEALTH IN $US TRILLION - OXFAM

The main problem is not the lack of funds but rather the unequal distribution of wealth among a small group of individuals. Allocating a large portion of the excessive wealth and profit to public welfare would be essential in creating a fairer and more sustainable world.

Oxfam’s calculations suggest that affluent OECD DAC countries could generate almost $1.1 trillion for their annual budgets by implementing a progressive net wealth tax of up to 5%. When combined with the reallocation of SDRs, this would generate enough funds to cover the aid requirements mentioned earlier and service the Big Debt Swap.

In addition, there are several progressive taxation options available that could generate lucrative funds to address issues such as poverty, inequality, and climate change. The proposed options consist of implementing steep and progressive tax hikes on the incomes of the ultra-wealthy, their property, land, and inheritance, as well as the profits earned by the most affluent corporations, particularly those that have experienced windfall profits. Implementing levies on fossil fuels and financial transactions has the potential to generate substantial revenue. In addition, it is important to consider implementing a top-up tax that discourages investments in economic activities that have a negative impact on the environment and contribute to the acceleration of climate change.

In summary, if the governments of wealthy nations exhibit a readiness to execute daring and forward- thinking tax reforms, there would be a surplus of funds at their disposal. It is unacceptable for the wealthiest nations to claim that they are unable to allocate the necessary trillions of dollars towards social and environmental initiatives in the most impoverished countries. Mobilizing these funds only requires political will and commitment, which is evident.

B3W was proposed as the G7’s strategic response to global challenges, in particular the global infrastructure gap; the COVID-19 recovery; and the perceived need to counter China’s economic and political influence in the developing world.

5. The Fifth Alternative - Prosperity Bonds

Risk Syndication: Participating countries share the risk associated with the repayment of the bonds. The distribution of risk reduces the burden on any single country and promotes collective responsibility.

Off the Balance Sheet – Contingent Liability: Prosperity bonds can be structured as an off the balance sheet- contingent liability with proper structuring, meaning they do not directly impact a country’ public finances. They are contingent liabilities, which are potential obligations that may arise in the future. This allows countries to manage their financial positions more effectively.

Non-concessionary Form of Finance: Unlike many existing or planned initiatives, Prosperity Bonds are not concessional, which means they do not involve grants or lower than market cost of financing. This aspect ensures that there is no additional burden on taxpayers.

Diversified Investment Exposure: The management of Prosperity bonds agency will aim to generate fixed income and provide upside potential to bondholders. Additionally, it creates exposure to multiple asset classes. This diversification helps spread the risk and potentially enhances the overall returns for bondholders.

Compliance with Rules and Regulations: The management of Prosperity Bonds operates within the boundaries of relevant rules, regulations, and compliance requirements. This ensures that the initiative maintains transparency, accountability, and adhere to legal frameworks.

What Makes Prosperity Bond a Viable Investment Option?

The importance of prosperity bonds in emerging markets cannot be overelaborated, considering the presence of influential financial institutions like the IMF, World Bank, Development Finance Corporation of the United States, inter-American Development Bank, and Islamic Development Bank. For several decades, the idea of government participation or partnerships in providing financing solutions for emerging markets has been predominant. This practice originated in the post-World War II era when several institutions, such as the United Nations, were established. These institutions ultimately played a pivotal role in shaping the current global financial system. Financial institutions involve a diverse range of stakeholders, including governments who have a crucial role in providing equity. Several instructions also release bonds with potent credit ratings, akin to the World Bank, to finance wide-ranging projects. The organization lends various kinds of support, such as equity, technical assistance programs, grants, and other resources. The question here is: why establish another bond agency? The Agency being proposed should have a well-defined mandate that sets it apart from the World Bank, IMF, and similar development banks. Ideally, the establishment of a prosperity bond issuing agency would be done under the guidance of the G7, which will solely focus on issuing prosperity bonds for both developed and frontier markets with a limited mandate in order to address critical geopolitical and geo-economic challenges we are facing by establishing a streamlined, well-defined process.

TIME IS OF THE ESSENCE

Here, it’s important to acknowledge that the Agency’s mandate would expire when the bonds expire. The institution in question would refrain from engaging in equity investments, incorporating funds, or offering senior debt, unlike other institutions that currently do so. This significant dissimilarity differentiates it from others. The necessity of having an agency like this becomes apparent when we take into account the worldwide efforts made by G7, including Build Back Better World (B3W) initiative that was launched under the leadership of President Joe Biden in June 2021 by the UK. The initiative was concentrated on the need to meet the estimated $15 trillion required to bridge the infrastructure projects globally by 2040.

The Global Getaway Project is another ambitious initiative that has also been undertaken by the European Union. Their efforts emphasize the need for increased funding in emerging markets and the urgency of doing so.

Why would the G7 announce such programs and convene if there was no urgent need? We already have established the World Bank and other institutions which could suffice the needs. This suggests that there is a real need for deployment of capital. Furthermore, the decisions made to fund global projects, specifically those related to infrastructure and manufacturing, were intended to incentivize private capital from institutional investors and corporations. Relying solely on private capital poses certain challenges, particularly in light of the recent recovery from the COVID-19 pandemic and its impact on corporate balance sheets and inflation.

If a trillion-dollar worth of bonds were to be issued, countries such as Canada, Japan, Italy, US, Germany, France, and potentially the EU, Taiwan, South Korea, Australia, and the UK would participate in the bond through risk syndication with each country exposed to a repayment risk of 5-15 %

Therefore, it is necessary to adopt an alternative approach that involves the participation of governments, private capital, institutional investors, and private corporations in funding infrastructure and manufacturing initiatives. This proposal suggests that the Agency be included under the G7, with the G7 nations acting as the founding members. Additionally, other developed markets are encouraged to participate. The Agency plans to issue bonds with credit ratings that are based on the participating nations or structures. This will most likely result in AA or AAA ratings, which will ensure that low-cost funds are available. However, investors in this agency will assume a passive shareholder role, distinct from the active and impactful involvement typically seen in institutions like the World Bank or IMF. The objective is to create a streamlined process of deployment while the strict controls mechanisms ensure a transparent and close supervision of the deployment of the capital as a result of structuring each project deployment in the form of listed bonds.

The present geopolitical landscape, acknowledged by both the US administration and the G7, has significantly influenced emerging markets, highlighting a clear dichotomy between democracies and autocracies.

Many countries are presently experiencing a range of economic challenges, including liquidity issues, deficits in foreign currency, crumbling economies, and a pressing need for long-term capital investments to ensure stability and maintain public order. Therefore, it is indispensable to find a feasible solution for setting up the Agency, which functions on a risk syndication model. If a trillion-dollar worth of bonds were to be issued, countries such as Canada, Japan, Italy, US, Germany, France, and potentially the EU, Taiwan, South Korea, Australia, and the UK would participate in the bond through risk syndication with each country only exposed to repayment risk of 5-15 percent.

As per this approach, the repayment of the bonds would not be the sole responsibility of any of the nations involved. The risks would be shared among the contributors instead. For example, the US government could assume 15 percent of the risk, the EU 15 percent, the UK 5 percent, other G7 nations to have 5-10 percent and so on.

The Role of Prosperity Bonds in Addressing Global Challenges

Investing in Western capital markets involves navigating through demanding compliance and regulatory restrictions. Notwithstanding the assets, institutional capital funds are restricted by the mandates specified in their private placement memorandums (PPMs), their ability to distribute funds freely is limited, as they are required to adhere to specific portfolio breakdowns. Although companies may wish to expand their reach into emerging markets, their efforts are often hampered by concerns surrounding corporate governance, transparency, and corruption.

Compliance issues can arise when there are differences between emerging markets and established capital markets. Moreover, mandates can further limit the deployment of capital. The main difficulty is to identify a catalyst that can enable the investment of private institutional capital in emerging markets. The present system, which is influenced by development banks, is not successful in effectively tackling this problem. There is a persistent disconnect between local markets and Western developed markets, which can be attributed to lack of understanding and cultural differences. If a pension fund plans to become an equity partner in a multi-family development in Tunisia, there are several complexities and uncertainties to consider. One of these is determining the decision-making authority. Prosperity bonds can provide a solution to mitigate jurisdictional risks. These bonds are supported by the robust credit and credit rating of G7 participating companies, which helps institutional funds avoid initial project exposure.

The prosperity bonds agency seeks to promote financing of small and medium-sized enterprises (SME’s) and micro-lending institutions as well.

Deployment Strategy of Prosperity Bonds

Each project whether developed in emerging or developed markets will be structured as listed bonds with risk syndication among local players including local government, banks, insurance companies, sponsor, Local General Contractor – Developer as well as International Developer & EPC’s.

In essence, the deployment strategy mirrors that of the issuance strategy with risk participation among various local players. The projects will be structured as listed securities creating an asset class whose sole purchaser will be the Prosperity Bonds Agency in the beginning.

This overall strategy will allow G7 nations to act as a catalyst to deploy institutional and private capital