Season 6, Episode 2
This week on 20 Minute Takes, we hear from economist Nishan de Mel. In front of a live audience, Nishan talks about how he and his organization, Verité Research, attempted to tackle corruption in governance in Sri Lanka, as well as what it means to participate in inherently unjust structures with an eye toward truth and transformation. Rick Barry, executive director of the Center for Christian Civics, hosts this episode.
Excerpts for this episode were recorded at an event put on by the Center for Christian Civics and Christians for Social Action called “Faith That Makes Our Politics Better,” which took place in Washington DC, earlier this summer.
Dr. Nishan de Mel is the executive director of Verité Research. He has taught and researched economics at both Harvard and Oxford and, in the 1990s, sat on multiple presidential task forces in Sri Lanka, helping to shape a wide array of public policies.
You can follow Nishan on X (formerly Twitter).
20 Minute Takes is a production of Christians for Social Action.
Host: Rick Barry
Producer: Nikki Toyama-Szeto
Editor: David de Leon
Music: Andre Henry
Transcript
[00:00:00] Rick Barry: Hello, I’m Rick Barry, the co-founder and executive director of the Center for Christian Civics, and I’ll be your host for this episode of 20 Minute Takes. Since 2015, the Center for Christian Civics has been promoting biblical, nonpartisan, theologically robust civic discipleship. We’ve been empowering the church to think, speak, and act differently in a deeply divided public square.
Recently, as part of a new ongoing partnership with Christians for Social Action, economist Nishan de Mel stopped by our offices in Washington, DC, for a live conversation and audience Q & A. Nishan is the Executive Director of Verité Research, which is based in Sri Lanka, and he’s a deeply thoughtful Christian.
He’s also the architect of a new, really innovative kind of government bond that actively promotes anti-corruption measures every time that it’s used. At a moment when Sri Lanka was facing a pretty drastic financial crisis, Nishan was motivated by his Christian faith to design a solution to the problem that would make the government work better and empower the country’s most vulnerable citizens.
He got major lenders from around the world to agree to lend money to the Sri Lankan government, with lowering interest rates over time if the government meets certain benchmarks for transparency, stability, and good governance. And, I know I just made this seem a little technical, but over the course of our conversation, Nishan makes some really compelling, really inspirational points about how work like this is actually part of our calling as Christians to imagine and pursue a more complete expression of Christian justice and faithfulness in the world.
Nishan has extensive experience in the academic and public policy and private sectors, but our interview and our audience Q& A were mainly about this new governance-linked bond and how he understood his work on it to actually be an expression of his Christian faith. Today, we’re sharing some highlights from that interview, as well as some highlights from the audience Q & A.
[00:02:25] Rick Barry: We’ve talked a little bit about the problem. Now let’s talk about your solution. Can you tell us a little bit about the governance-backed bonds? What’s different about them compared to other kinds of government debt?
[00:02:38] Nishan de Mel: It’s one of the ironies of the world, right? That we lend to the poor at higher prices than we lend to the rich.
And I’ll come back to that. So remind me to explain why that is. There is a reason behind it. But another movement that has happened, I said we keep postponing important decisions and we postpone climate change for way too long. And so everybody’s jumped on the bandwagon to incentivize actions on climate change.
And one of the things we’ve created along the way is climate-linked bonds. So we tell people: “Look, when you lend to a country, we’d like to find a way to give the country some concession, provided it does some stuff on climate change.” But when we do that, of course, who’s going to pay that? So there are third parties, there are foundations, funds that come and tell bondholders, “If you structure your bond, that gives them this kind of concession, you know, we’ll take that or find some, or we’ll take the risk on behalf of you about repayment so you can lend at a lower rate because really the price difference is risk for bondholders.” So bondholders—and that’s why we lend at a higher price to the poor—we think there’s more risk of being able to get the money back, and of course, risk is effectively a cost. So, the whole class of poor people, honest and dishonest, get charged a higher price because now they’re in a particular risk group.
Just like health insurance will charge you a higher insurance if you’re more at risk of getting ill, when you’re in a class of people that are more at risk of not paying, you get charged a lot more, and most poor countries in the world are in that class. And they pay a great deal more. So, in the climate bonds, what somebody comes and does is, one method, is they tell bondholders, “Look, we will guarantee repayment. We are a triple-A rated U. S. organization. And by taking on that risk, you can lend to us at, not 7 percent, but 4 percent. Maybe we’ll enter the country at 5 percent and tell the country that extra 2 percent you must spend on climate change activities, or extra 1. 5 percent,” right? So, we have these instruments. What we did was, we said, look, one of the factors about risk is actually bad government, or bad governance.
It’s corruption. This is what puts countries at risk of default. And we’d like to structure something that does that, it isn’t trying to solve the climate is a global public good, but there is another kind of public good about how populations are affected by governments that are corrupt. And this is another excuse that bondholders give for not wanting to restructure debt or lend less.
They’re saying, “Well, why are you getting us to pay the cost of corrupt governments? You, you guys elected them,” etc. So what we said is, “Look, why can’t we do a governance linked bond?” Where bondholders say, “Look, we’ll give you a discount on the coupon or the interest you pay if you meet A, B, C, D, a list of governance actions that meaningfully reduce or de-risk the country’s ability to pay in the future.”
So, and of course this comes out of really understanding Sri Lanka quite a lot. We understand that we are having trouble, even democracy as we are, keeping our governments or political leaders from doing things that are serving vested interests, not the public interest. Serving tobacco companies, not the poor; serving multinationals, but not the small businesses.
And that’s because there is a kind of unholy union between the very rich and those who have a lot of wealth and those who have a lot of political power. Because you bend the rules of decision making to serve the interest of those who have more money. This does happen all over the world which you know.
And sometimes it’s at a level that is crippling. And in Sri Lanka, we thought our economic problems are crippling for this reason. Why not look at trying to solve the problem? So, so we kind of turned the bondholders’ story back on them. They say “We can’t lend to you cheaper because you’re high risk and your governments might be corrupt.”
We said, “Well, in that case, would you be willing to reduce the price of your lending if we gave you commitments or set up some KPIs, key performance indicators, benchmarks, that actually reduce risk by dealing with corruption?” So that was the innovation here, that nobody had thought that you could do a bond that links governance performance to the price of the debt.
So it was a crazy idea initially, but we were able to demonstrate analytically that 95 percent of the countries that restructured their debt repeatedly had lower governance indicators than those that restructured once and were okay. So we said, you know, restructuring the most highest risk is you will have to do it again.
And look how governance indicators are strongly aligned with this. So we were able to amass data historically from governance, from restructuring that made the point that there is a very high, you know, correlation here which makes the case for why this can be quite important and useful to do. And so in a world where risk is cost, setting up a bond with an incentive Internal incentive to de-risk it.
Everybody wins. It’s like lending to a very poor person, or lending to an alcohol addict. And saying, “Look, I’ll reduce the interest rate if you stop consuming alcohol”—because I know that helps his ability to pay me back. And of course, then he feels like, okay, “I’m going to get some money.”
Or his family feels like he’s going to get some money. And they also sit on him and pay more attention to getting him off the alcohol. We failed to get the government to put it on the table after much negotiation, because when we showed the government what they had to do to reduce corruption, to be meaningful, they scratched their heads and thought, maybe we don’t want to do it.
Okay. At which point we did what we thought was impossible. We went to the bondholders persuaded one by one and said, “You should do it.” And they did, they put it on the table in Sri Lanka’s in April in Sri Lanka’s debt restructuring. And this is not just valuable for Sri Lanka. If we get this right, we can do this.
You know, the, the classic classic, excuse that bondholders have is “I must charge you more because you’re more risky.” We kind of invert it and say, “Okay, then we will present a path for de-risking it, and you agree to lend cheaper,” right? And so that’s the, and we can do this for Ghana, we can do this for many other countries in which corruption risks and governance risks are seen to be significant.
[00:09:46] Rick Barry: Okay, so that’s the economic theory behind how they work, but I want to talk about some of your personal motivation behind it. Tell me a little bit about the theologizing that went into it.
[00:09:57] Nishan de Mel: We live in a world in which evil is not just manifested in the way people behave— it’s manifested in our structures and systems and our institutions.
It’s manifested in the rules we set up for how you access schooling. It’s manifested in the way we have markets work. It’s manifested in the way production works. It’s manifested in the institutional structures, the political structures. So we can’t sort of sit complacently thinking that all we need to do is to act well.
Inside a structure that may very well be full of ways that are carrying evil. So the moment we participate in the world, I think we get our hands dirty. There is no pure way to live in the world because every time you act or do something within these structures, you become a vehicle for perpetuating the wrongdoings that are woven into the system.
So part of what we do as Christians is to engage with the structural aspects of the world. We have to rebuild it and reshape it, not just in terms of how people will act inside the institutions they live in, but how they will actually structure these institutions and make it work. So the governance linked bond is a small thing really in understanding that the solutions we must have must engage the structure.
And I think God is manifesting himself in the world in that way— the incarnation. God could have destroyed everything and could have said “Off with you…I’ll just make a new humanity.” And that’s how it starts. But God seems to say, “Look, I’m going to actually come in and start working with a few people.”
So what is Israel except an attempt to create a nation that could become an example for the world for how nations should be and society should be, how laws should be. And I think we have to model new kinds of structures and work to change the structures we are in, in a way, so it is a little bit like a flower blooming.
It’s not instantaneous, we can’t destroy everything, but we can begin to change things. So there is, for Verité, I think, a strong intentional choice that we will work at a structural level. Not to say in any way that the other stuff isn’t important and behavioral, but we are working in politics, and economics, and kind of that class of systems.
But structures are more than that. Structures are also the structures of imagination. What you think you can think. What seems right to you, so the novels that people write, the academic work that people do, are changing the structures of our thought and mind. And when you work on depolarization, you are engaging with a structural problem at some level.
Structures are woven into language, the way we speak, the words we have for things that give them value or devalue them. So understanding that I think helps us to start being more aware and intentional in recognizing the fallenness of the structures and our role in trying to be inspired by what we know of God, right? To kind of rework that in some way.
[00:13:33] Rick Barry: And our first audience Q & A question comes from a political scientist who wants to know more about the benchmarks you came up with for the bond. How did you and your team come up with goals that would actually be effective? How did you make sure that these weren’t just boxes that could be checked off without really getting to the root of the problem?
[00:13:54] Nishan de Mel: So it’s very good for us to understand there is no perfect system or measure. We do have a list and what we’ve done is we say you need to do three things on this list. One, it has to seem like it meaningfully does reduce the space for corruption or bad governance.
Two, it has to have legitimacy from bondholders and any international player who doesn’t know Sri Lanka is engaging with it. And three, it has to have public interest in Sri Lanka itself. People must think it’s good and like it and want to hold their government accountable to it. So of course there’s some fortuitous circumstances we manage to persuade the IMF to do for the, for the first time in Asia, a governance diagnostic for a country. And then we ran a civil society governance diagnostic in parallel, published it before and IMF took most of it and put it in theirs. So we basically then had a globally accepted list as it were, a set of criteria that had the stamp of, you know, research, IMF that also reflected keen interest of Sri Lankan society and you could pick from them.
Right? So, for instance: making things more transparent. What are the tax concessions the government is giving to whom? What are the major procurements they’re doing? And how much? And from whom? And how did that happen? These are things that have enormous public interest. And theologically, I say light is a very important notion for Christians.
It’s not only that we shine our light, but that we shine light on things that reveal things that are kept in the dark. In dark evil we have metaphorically we see evil thrives in darkness. Transparency is a great way that I think about light. In government when I think about transparency I think that light.
Shedding light. It makes it so much harder to give tax concessions to friends when you know it has to be published…to do corrupt procurement when everybody’s going to see and ask questions. So, we worked on things that we think shed a lot of light. And limit the power of power. There’s always a temptation, and through Christian history as well as national history, for the ruler to take the place of God.
And this is, of course, a highly unappealing way to think about what that is theologically, because you see from the very beginning in the Old Testament history that God intervenes to say that the rules apply to the king also. And so the second thing we worked on is limiting the abuse or discretion of political power.
You can’t do taxes without having a debate and discussed in parliament. We have given too much power to the executive . We want you to take it back. Through the structures we created, we are working on the understanding that actually God expects political power to have limits, to be subservient, to be under the law, not just make the law for others, but have the law apply to them as well.
So I think those two principles, right, that we must shed light. And we must limit the power of power. Our political power must be under law and, and limited and not have too much discretion. Our principles we use in structuring what we put together. So really the magic was in coming up with a list that people saw and felt like, “Wow, this makes sense.” And that we know will be popular in Sri Lanka as well, right? So that you get all the dynamics, right? So there’s a lot of devil in the detail stuff here. And that’s why it really helped that I’m not an international consultant coming to solve Sri Lanka’s problems, that I live inside. I believe that the incarnation has real message for us, that when we try, we, you know, in California, people want to solve the problems of the world, be rich and famous all at the same time.
But, but the incarnation says sometimes you have to come and die and suffer and embrace the suffering of the world, if you are to be also a solution to it. I mean, I don’t know why, but there is something, a mystery in God, in the majesty and meekness of the birth of Jesus that told me going back to Sri Lanka and kind of suffering the constraints of the system and being in it may be a path that God shines somehow or through which God works in ways that we don’t understand.
And I can see that getting manifested because you can’t, I couldn’t have done it, say with if I just lived outside and thought. But knowing Sri Lanka—seeing it from inside enables you to then see something that’s of global value, perhaps but because you’re trying to now solve a very specific problem.
[00:19:08] Rick Barry: 20 Minute Takes is a production of Christians for Social Action. This podcast is produced by Nikki Toyama-Szeto, and edited by David de Leon. Our music is by Andre Henry. If you liked this episode, spread the word by subscribing, reviewing, or sharing. I’m Rick Barry. Nikki will be back next week with a new episode. In the meantime, if you want to find out more about our work, visit ChristiansforSocialAction.org.
