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Lieber Society Military Prize

If you are a member of a nation's regular or reserve armed forces (not just the US military), think about submitting a paper to the American Society of International Law's annual Lieber Society Military Prize paper competition.  The submission for the 2011 prize is due by December 31, 2010.  Details below the fold.

The Degraded State: Some Can’t Even Get Checking Accounts

Here's an interesting story from FP's The Cable: Several dozen countries can't get checking accounts with which to operate their embassies in Washington.  Angola is the lead example: the Bank of America shut down its accounts here and no one else appears to want its business. The Angolans, frustrated and running out of options, are considering reciprocity measures, such as closing...

Microfinance Meltdown in India

I have done a fair amount of work in microfinance and closely related areas (development finance involving business clients with larger-than-microfinance loans) in the developing world, and am overall a big fan.  As many people are.  The question that has long loomed, however, is whether it can or should scale upwards to become a full-fledged part of the global capital markets, or whether it should remain a highly subsidized development activity for very poor people or, most plausibly, some of both.  I wrote about this problem in an article in 2002 — asking whether sufficient attention had been given in the conceptualization of microfinance to the question of whether it was supposed to serve as:

• a genuinely economic connection between very poor people and the capital markets, or instead
• a kind of “faux-market” in which the tools of the market were deployed as a form of artificially sustained discipline over the efficient use of resource, but nonetheless massively subsidized and, in that sense, never genuinely part of the global capital markets but instead always some sort of philanthropy.

I, like everyone else I have known in this field, have wanted to see some of the first, some of the second and, most crucially, some kind of “venture philanthropy” merger of the two that would somehow combine:

• the discipline of genuine capital markets to induce efficient use of capital to promote geniune economic growth;
• access to much larger pools of capital than are available to government aidagencies or NGOs, through the commercial capital markets;
• subsidies or guarantees to facilitate the entry of for-profit entities into the sector, in order to help them gain experience with loan-making, monitoring, default, and other costs of microfinance, and to overcome the problem of microfinance’s problematic diseconomies of scale compared to other commercial lending;
• the many social benefits of microfinance for both very poor people and not-so-poor but still poor people as separate groups; and above all,
• scalability.

So, back in the 1990s, I proposed internally to the Open Society Institute structures of credit guarantee facilities that would allow a consortium of philanthropic and government aid agencies to offer part-guarantees to banking institutions seeking to enter the sector, with the aim of doing all the above good things.  At the time — and in most situations in which I’ve inquired about this since, with the very particular exception of India — the response from the microfinance organizations was, well, that’s nice — but as a matter of fact, at this point we don’t suffer from a general lack of capital.  We can get capital at a zero or negative capital cost in the form of interest free loans from governments or straight out donations.  We don’t need to tap the capital markets, even in a subsidized form at this point, thanks very much.  Maybe someday; not now. The reasons why this is so are important.  The microfinance providers with whom I was speaking were generally in the business of microfinance for poor people in which the transaction costs were clearly extraordinarily high for the size of the loan and possible rate of return, if one took into account all the monitoring and active involvement with the borrowers, etc., etc.  And that was leaving aside completely the transaction costs of the foreign donors and any other upstead costs; it was just the narrow cost of a local NGO engaging in microfinance loans.  Everyone likes to tout — or anyway did like to tout — the fantastic repayment rates of these microloans as evidence of client creditworthiness .  But within the sector, practitioners have always been very clear that this is on account of large investments at the front end of monitoring and reliance upon the heavy hand of social stigma and joint and several liability (as a substitute for material collateral) of other members of a “lending circle” as disciplinary mechanisms to ensure repayment. This is nothing new; microfinance practitioners, although sometimes evangelical in their zeal for it as a development tool, have a pretty decently practical streak, and recognize that this is a subsidized — heavily subsidized — activity when it comes to most clients.  It is another instance of the problem that much of development, as William Easterly tirelessly points out and Jeffrey Sachs seems gradually to be acknowledging, is not a scalable activity.  It takes place at the capillaries, and the blockages are not the mass flows of capital — it is what happens in the “last mile.”  Talking with a finance academic who has decided to start teaching in this area — he remarked somewhat ruefully, I can’t get my students interested in this because the whole point of finance is scalability.  But there are many extraordinarily bright and experienced finance experts, people who perhaps made some money on Wall Street and decided to do something more personally satisfying in the last fifteen years, who have been bringing an immense amount of sophistication to the problem of applying finance to development.  Parts of it have worked, and parts of it are showing the problems, which is a somewhat understated way of stating the current banking for the poor crisis in India.

Israel Behind Stuxnet Attack on Iran?

I'm going to leave it to the cyberwar legal experts to discuss the legal issues, but regarding the recent Stuxnet worm that Iran reports infected particularly its nuclear program, the New York Times says ...

Costa Rica Files ICJ Case Against Nicaragua

This is all you can do, I suppose, when you don't have an army to resist invasions (and can they bring Google in as a third party?) (CNN) -- Costa Rica has taken its border dispute with Nicaragua to international court, repeating claims that its territory has been invaded. In a statement Thursday, Costa Rica's foreign ministry said the country had filed...

China’s Drone Production

China has been moving to catch up with the US and Israel in production of military UAV drones, reports the Wall Street Journal today, in an article by Jeremy Page (Friday, Nov. 19, 2010, A11).   The article says that the uptick in drone output has surprised the West: Western defense officials and experts were surprised to see more than 25...

Lindsey Graham on All Options Open re Iran and Nukes

Tod Lindberg, editor of the Hoover Institution's Policy Review, reports in the Weekly Standard on a blunt message delivered by Senator Lindsey Graham (R-NC) at a discussion meeting of senior transatlantic policy makers, the Halifax International Security Forum.  It's not a forum that would attract a lot of attention, but the attendees are very senior in transatlantic relations and NATO....

CEDAW is Back! U.S. Senate Holds CEDAW Hearings

Here we go again!  The U.S. Senate Committee on Foreign Relations may hold a hearing today on U.S. participation in the Convention for the Elimination of Discrimination Against Women (I say may because I can't seem to find it on the Senate FRC schedule).  This is at least the third time the Committee has looked at CEDAW and, I believe,...