Remarks at USF Commencement Ceremony

I made the following speech at the University of San Francisco graduation ceremony on Friday, December 14, 2012.

Fr. Privett, Members of the Board of Trustees, Dr. Bartlett, Deans and Faculty of the college.  Thank you.  On behalf of all the graduates, I would like to thank all the family members and friends, including my own, who have supported all of us as we’ve pursued our education.  To those family members and friends here in this church today, and to those who could not be here today: Thank you.  The least we can do to honor you is give you a round of applause. 
My first visit to Africa was about five years ago.  I was young, and according to the new studies my wife tells me about with excessive enthusiasm, my male brain was not yet fully developed.  I was single, had never been to a developing country before, and went to Tanzania mostly because the idea of traveling outside my comfort zone scared me and I didn’t want to not do something potentially meaningful just because it scared me.  Clearly my brain was not fully developed.
I was also very eager to make a difference.  The Africa I thought I knew was the Africa of Save the Children brochures: poor and in need of help.   I was comparatively rich and looking to help…surely this would work out.  Well…my first foray into helping was as a nursery school teacher, during which time I likely did not revolutionize the East African educational system, to say the least.  Mostly I spoke in English and said many incredible things which were probably not as incredible to the kids I was teaching, who did not speak English.  It was a little discouraging.   So when another volunteer told me about a local orphanage that needed help, I signed up.  The orphanage, I was told, was called Matumaini, the Swahili word for “Hope.”
There were twenty kids living in this orphanage, sharing 4 beds.  Each kid had exactly one outfit of clothing.  Volunteers in our program donated money to build a chicken coop and bought mattresses for the beds.  Never before had I felt so strongly that something was black and white.  These kids needed help, and we had money.  It was simple.
When I returned to Tanzania two years later, Matumaini had twice as many beds, with a fully functioning chicken coop, mattresses on every bed, and a staff of three full-time employees.  It also had twice as many kids.  Some “orphans,” I was told, were not even really orphans.  Poor families decided to send them to Matumaini where they could be guaranteed regular meals, but breaking families apart in the process.  It had never occurred to me to think about a method of help that might avoid such a problem because I never foresaw the problem in the first place.  Things were not as simple as I had thought.
When I started the International Studies program at USF, I was hoping to gain some clarity.  I can’t say that it came right away.  Mostly, my classmates and I just got depressed as we learned about the intractable conflicts and problems facing the world and the unintended consequences stemming from noble efforts to make things better.  We learned about how a campaign to donate shoes to Africa destroyed the domestic shoe industry in one country, eliminating jobs and fostering dependence.
This was a monumental downer.  Presumably we were getting this degree to go do some good in the world, and yet the merits of even the simplest acts of giving were now being questioned.  For the students in our program, it was a serious challenge we had to meet: how to remain positive, how to remain engaged, and how to adapt our thinking to understand that the world’s problems are more complex and multifaceted than we had realized.
It was also a challenge that was unquestionably necessary.  What I experienced in Tanzania, but didn’t realize until I got to USF, is that good people want to help, but they also want to feel helpful, and sometimes feeling helpful and helping are not the same thing.  And sometimes the difference between the two consists of a gap in knowledge: knowledge of other cultures, of other people’s motives, even of global systems. USF helped us to fill in those gaps, but it also helped us to recognize them.  Understanding what we don’t understand made us more likely to listen, more likely to question, and more likely to dig deeper to find the root of problems. 
Therein lies the beauty of our education.  The world, after all, does have problems, and those problems do have solutions.  USF helped us to figure out what they might be and what we can do to help.  It is inspiring to feel that you have a better understanding of the world than you did just over one year ago, and that you can attribute that improvement to something more than just brain development.
Gandhi once said that “nothing you do as an individual matters, but it is vitally important that you do it anyway.”  I am hesitant to be the first person in graduation speaker history to disagree with Gandhi, but here I might venture to argue that he was being a tiny bit pessimistic.  At USF we learned much more than simply how to slave away against impossible odds. We learned how to understand the world so as to acquire the humility necessary to realize that our schemes and programs are often not as obviously brilliant as we would like them to be.  We learned how to then not give up on trying to make a difference.  How to then have a real impact on the world.  So with apologies to Gandhi, if there’s one thing I learned at USF, it’s this:  Everything you do as an individual matters, and it is vitally important that you do it. 

Court Ruling Gives Argentina More Time to Fight Vultures

Court Ruling Gives Argentina More Time to Fight Vultures

First Posted at Jubilee USA Network’s Blog the Debt:
http://jubileeusa.typepad.com/blog_the_debt/2012/12/court-ruling-gives-argentina-more-time-to-fight-vultures.html#more
 By: Andrew Hanauer

The “Debt Case of the Century” took a surprisingly positive turn this past week when a U.S. Court of Appeals ruled that Argentina has more time to appeal a ruling against it in its battle with vulture fund creditors.  Argentina had faced a December 15 deadline to make a terrible choice: pay the vulture funds that are holding the country hostage or default on all of its creditors.  For now, at least, that choice will not need to be made.

The appeals ruling was made in response to a ruling by U.S. Judge Thomas Griesa that Argentina could not pay back the creditors which had accepted a debt renegotiation with the country after its 2002 default unless it also paid back the small minority of creditors that refused to accept the deal.  Those creditors are largely so-called vulture funds that swooped in and bought Argentine debt at rock-bottom prices and then sued for repayment of the full amount of the original loan.  Griesa ruled that if Argentina did not pay back the vultures along with its other creditors, any bank that accepted repayment on behalf of those other creditors could be found to have violated the law.  As a result, Argentina would have to choose to abide by the ruling and pay the vultures or not pay anybody and default.

The appellate ruling now gives Argentina more time.  But the ruling itself may have had little to do with Argentina’s compelling moral arguments against the vultures and more to do with the complaints of Argentina’s other creditors, which argued that it was unfair for the vultures to receive 100% payment when the vast majority of stakeholders were accepting only 25-30%.  As Business Insider points out, this argument has far-reaching implications for international debt: “After all, why should any creditor accept a restructuring deal at all if another bond holder can hold out and get all their money?”[1]

Confused?  You’re not alone.  One of the struggles of the debt relief movement is that clear and compelling moral issues, often determining the fate of some of the world’s poorest people, are shrouded in the technicalities of international finance.  Argentina’s battle with the vultures is no exception: the issues are confusing and the stakes are high.  In the hopes of providing some clarity, here is some historical background on the situation.

The plot of Argentina vs. The Vultures is captivating enough for a Hollywood movie.  Such a movie, to accurately capture the essence of this story, would need to start with Argentina’s brutal military dictatorship of the 1970s, during which time 30,000 Argentineans “disappeared.”[2]  The dictatorship borrowed heavily from foreign creditors, racking up large sums of debt largely in an effort to fund repressive institutions and enrich corrupt leaders.  By the time the dictatorship ceded power in 1983, the country was more than $45 billion in debt.[3]

When dictatorships borrow money, the subsequent debt is often labeled as “odious” or “illegitimate” on the grounds that the loans were not incurred with the consent of the nation’s people and were often spent on projects that brought little public benefit.  Such lending also has been shown to fuel capital flight (the act of sending money abroad where it cannot be taxed or later recovered) and to incentivize leaders to loot natural resources.  It also has helped tyrannical regimes maintain power longer. 

In Argentina, lending did all of the above, but it also led to more lending aimed at paying off the dictatorship’s debts.  Such lending is not odious in the classical sense because it was borrowed by a democratic government, but it is the direct result of illegitimate loans.  This is crucial in the Argentine case because some of the country’s creditors are claiming that Argentina’s current debt is legitimate because most of it came after the military regime was ousted; however, new loans are used to repay old loans, which is how the debt cycle continues.

As Argentina’s debt grew ($148 billion by 2001), the country implemented a number of austerity measures at the behest of the International Monetary Fund, and its economy only got worse.[4]  In 2002, the Argentine government dramatically altered course, rebuffed the IMF, and initiated a remarkable economic turnaround.  The government “re-nationalised key productive sectors like aviation, pensions and most recently oil, increased social protection and income transfers to the poor, and reduced poverty substantially. Real wages have increased, and wage inequalities have been reduced.”[5]  Argentina is now a dazzling economic success story, one of the strongest economies in the world just a decade after a period of instability so severe that at one point the country had five different presidents in two weeks.[6]

At this point we reach the beginning of the current drama.  Argentina defaulted on its debt, but offered to renegotiate it and even paid off the IMF in one lump sum (to achieve economic freedom) rather than declare its debt odious and repudiate it.  Despite only being offered 25 to 30 cents on the dollar, roughly 90% of creditors accepted the deal, and Argentina has been paying them back, mostly from its currency reserves.  Under United States bankruptcy law, if 70% of creditors accept a certain course of action, the so-called “hold-out” creditors must do so as well.  And yet a group of hold-outs, mostly hedge funds that bought Argentine debt at record-low prices, have refused to accept any rescheduling and continue to demand that Argentina pay them back in full.  These are the vulture funds.

The lead vulture fund in this case is NML Capital, led by billionaire vulture capitalist Paul Singer.  Singer has gone to such great lengths to try to compel Argentina to pay him (which Argentina’s president has vowed she will never do) that he even recently orchestrated the seizure of an Argentine naval vessel by authorities in Ghana on the grounds that Argentine property was subject to confiscation given its outstanding debts.

Do Singer and his fellow vultures have any standing whatsoever to demand repayment on these debts?  No.  Aside from the fact that the debt was largely illegitimate in the first place, the vultures refused to accept the terms of the vast majority of Argentina’s creditors.  They could have received repayment, but chose instead to be intransigent.  More importantly, they are merely speculators, not legitimate lenders. They bought the loans at rock-bottom prices, illustrating the risk they were willing to take as multimillionaires gambling for either a large payout or a loss of insignificant proportions to them.

Argentina is not the only entity to take issue with the vultures.  In the latest court case, the country’s other creditors – the ones who accepted the renegotiation – argued that it was unfair that the creditors who negotiated with Argentina in good faith should have to accept 25 cents on the dollar for their loans while the vultures received repayment in full.  They further argued that Judge Griesa’s ruling was harmful in that non-holdout creditors would be completely denied even the lower rate of repayment if Argentina refused to pay the vultures and opted for default.

In this sense, “hold-outs” is truly an apt phrase for Singer and his fellow vultures.  Because of their refusal to accept large profits on loans they never made rather than the astronomical profits they now seek, the hold-outs are dragging an entire country and its creditors through a drawn-out legal process, threatening an entire sub-set of international financial norms in the process.  All the while, they continue to hold Argentina hostage, both figuratively in American courtrooms and literally in a west-African port.  Hostage-taking: even actual vultures don’t do that.  

Photo of the President of Argentina Cristina Fernández de Kirchner.


[1] Business Insider, “Now We Know How Argentina Wants to Resolve Its Battle with Hedge Funds,” by Linette Lopez, November 29, 2012.  http://www.businessinsider.com/argentina-solution-to-hedge-fund-lawsuit-2012-11#ixzz2E9uwSRtA
[2] Dearden, Nick, “Argentina Showed that Justice Means Standing up to Financial Markets,” Huffington Post, August 8, 2011.  http://www.huffingtonpost.co.uk/nick-dearden/argentina-showed-that-jus_b_920872.html
[4] World Bank, 2012
[5] UKGuardian, “Why Argentina is Now Paying for its Dangerously Successful Economic Story,” by Jayati Ghosh and Matias Vernengo, December 3, 2012.  http://www.guardian.co.uk/commentisfree/2012/dec/03/argentina-paying-economic-vulture-fund
[6] Dearden, 2011

Lending to Dictators: Bad Loans, Good Business

Lending to Dictators: Bad Loans, Good Business

Walter Wriston, former Citicorp chairman, declared that “Countries never go bankrupt.”

By: Andrew Hanauer\

Published on Jubilee USA’s Blog the Debt, http://jubileeusa.typepad.com/blog_the_debt/2012/12/lending-to-dictators-bad-loans-good-business.html#more
Consider the following narrative: a western creditor, perhaps a bank or a government, lends money to an African country.  The African country is run by a dictator, an eccentric man who has changed the name of his country from a western colonial moniker to that of an authentic African word at the same time that he spends much of his free time shopping in Paris.  The money loaned to this dictator, shockingly, does not go to build a hospital in a rural area.  It does not go to build roads or wind farms.  It does not create jobs.  It is spent on foie gras and champagne, two of the dictator’s favorite things, and perhaps on the guns necessary to ensure that nobody else takes his place.  It is spent on a villa in Spain and an apartment in Central Park West.  It is spent, in short, on the dictator himself, though the loan will be repaid, of course, by the public.  A selfish act, yes, but champagne can be very expensive…

This type of situation is the epitome of “odious debt,” a term used to refer to debt that is incurred for illegitimate purposes by a dictator but paid back by the democratic government that follows.  Academics and activists are fond of invoking odious debt as a moral and legal framework within which to call for the repudiation of some developing nation debt, particularly with regards to Africa, where a wave of democratization in heavily indebted countries swept away some of history’s longest serving dictators in the early 1990s.  The narrative above is a common one, and is often advanced by advocates of the repudiation of odious debt.  It is compelling, and features a clear cut villain (dictator) and victim (Africans).  What it lacks, however, is a proper understanding of the third party involved in odious debt: the lender.

In the developing nation debt conversation, creditors are often portrayed as neutral third parties.  Yes, it is acknowledged, they lent to dictators, but they were misled by false promises and their kind-hearted attempts to reform broken African states were thwarted by corruption and greed.  Their money was stolen, and now they are forced to choose between demanding repayment from some of the poorest people on earth and accepting the claim that they are not entitled to repayment at all.  In some cases, they are accused of having been negligent (“they should have known better”), and thus bearing some responsibility for the debt problem, though not moral culpability.

This façade of neutrality does not account for the numerous incidents in which western lenders deliberately lent money to repressive regimes despite full awareness of both the nature of the borrower and the final destination of the borrowed funds.  This lending had catastrophic effects on African countries and their people, and was entirely avoidable.  In some cases, lenders extended loans to further their own economic interests; in other cases, western governments lent money solely for political reasons.  Sometimes loans were pushed for internal institutional reasons, and reflected a broken system more than a sinister manipulation by a particular entity.  Regardless, creditors have interests and motives for lending, and those interests often matched those of the borrowing despot for selfishness and greed.  Lenders are not neutral.  And they deserve a starring role in any accounting of Africa’s odious debts.

Perhaps the symbol of irresponsible lending is former Citicorp chairman Walter Wriston.  Wriston (in)famously declared that “sovereign nations don’t go bankrupt,” essentially implying that long after a dictator has left office, the residents of a country will have the capacity to pay the bill, no matter how poor they might be.[i]  So even if a despot were to flee with his stolen loans and stash the money in an opaque Swiss bank account, a lender could rest assured that repayment would come, and with interest.  In the 1960s and 1970s, lenders took this assurance to heart, giving billions of dollars to kleptocrats, tyrants and military dictatorships, knowing full well that much of it would be stolen, laundered and/or used to repress dissent.  These loans are now being repaid by citizens of African countries who rarely benefited from the money in the first place, while the creditors have in many cases received repayment for the original loan plus huge sums in interest.  And in many cases, the loans actually perpetuated autocratic rule, thus consigning Africans to additional years of dictatorial rule and its accompanying misery.

Why, one might ask, would western governments and private creditors do this?  Unfortunately, a number of perverse incentives exist for loaning money to dictators:

  1. It’s the money.  If you’re confused as to why creditors would lend money to thieving dictators given the financial risk, just remember Walter Wriston.  If countries don’t go bankrupt, creditors don’t lose their money.  And while it may take years for the country to pay back the loan, the accrued interest often means the creditors make a hefty return on their original “investment.”  These loans are often accompanied by upfront fees which the creditors simply take out of the amount of the loan.  The borrowing despot doesn’t care, because he’s still getting free money.  But the people stuck with the bill pay that much more. 
  2. It’s that time of year.  Economics professors Leonce Ndikumana and James K. Boyce note that for many creditors, including multilateral institutions such as the World Bank, lending money near the end of a fiscal quarter is deemed critical.  After all, “failure to use appropriated funds by the end of the fiscal year may trigger reduced appropriations the following year.”[ii]  As a result, loan agents are urged to push loans regardless of the recipient, and “a loan officer who delays loans…owing to concerns about leakage of the money into private pockets…is not on the fast track to a promotion.”[iii]
  3. It’s the Communists (or Terrorists).  Much lending is also done for political reasons, regardless of the human rights record of the loan recipient.  Mobutu Seso Seko is the most commonly cited example of this; the Zairian dictator was a notorious kleptocrat who stole billions of dollars from his impoverished citizens and ruthlessly repressed dissent, but he was friendly to the West.  The end result was that the money kept flowing, and while Mobutu’s personal wealth was estimated in the billions, the Democratic Republic of the Congo (DRC) now has a debt burden hovering around $10 billion.  In short, creditors got paid, Mobutu got rich and the DRC got stuck with the bill.

Law professor Anna Gelpern argues that in many cases, odious debt is certainly odious but it is not truly debt.  That is, many of the loans made by western governments to African dictators, particularly those made for political reasons, were essentially grants and not loans, but had to be classified as loans to garner domestic support.[iv]  That African countries are now paying back these obligations is a result of the lack of western domestic support for such assistance to dictators in the first place, and speaks to the odious nature of these “debts.”

Realizing the extent of western complicity in Africa’s debt crisis should call into question many of the assumptions we make about both Africa and the West.  So often, western institutions are portrayed as neutral arbiters of senseless third-world conflicts or problems.  So often, the truth is murkier.  Westerners seeking to help the third-world through programs and aid might first want to push their governments to obey the Hippocratic Oath, and “first do no harm.”


[i] Ndikumana, Leonce, and Boyce, James K., Africa’s Odious Debts, Zed Books, 2011, page 29
[ii] Ibid, page 23
[iii] Ibid.
[iv] Gelpern, Anna, “Odious, Not Debt,” published in the Journal of Law and Contemporary Problems, 2007.