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tv   U.S. Investment in Developing Countries  CSPAN  December 18, 2017 8:30am-10:11am EST

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>> c-span, where history unfolded daily. in 1979 c-span was created as a public service by america's cable-television companies and is brought to you today either cable or satellite provider. >> later this morning the washington institute takes a look at developments in the middle east including reaction to president trump's recent decision to recognize jerusalem as the capital of israel. that's live at 10 a.m. eastern on c-span. also today the muslim public affairs council hosts a discussion what american muslims can do to help combat terrorism. the gets underway at 1130 and eastern europe c-span two. next a a look at u.s. investmet in developing countries through enterprise funds established by the u.s. agency for
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international development. from the center for strategic and international studies, this is two hours. >> okay. let's get started. i daniel runde. i hold the chariot csis people can have a conversation about whether not we need to revisit the concept of use enterprise funds. use enterprise funds were launched in the early 1990s by george h. w. bush. the countries focus were u.s. governmentnt dollars funded investment in developing countries. it was an idea that was ahead of its time, and there were several dozen of these enterprise funds that were launched. many of them were very successful pick some that had some hiccups but most were broadly very successful but you ask yourself why, there is the
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number different countries would you say we ought to be applying this. rightfully, in the obama administration there were a number of countries where there was political will to apply this think it's a very valid and useful tool for our toolkit in the united states. so we have examples from tunisia and egypt that we're going to talk about as well. the history oft what are these things, how they come about, what we learn from the past, howab are some more recent ones operating and then finally i think the important thing is about the future because i think in some ways it was ahead of its time and there's a lot of learnings from the past, but i think are plenty of countries what we ought to be applying this in new additional countries, but also maybe different ways given the fact that the world has changed from 25 years ago. the instrument needs to adapt with the times. we've got a very experienced
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group of panelists and i'm really pleased to have all the smart folks on the panel. i'm not going to go into bios, detailed files for each of them but i'm going to ask my friend paige alexander is executive director of european cooperative for rural development but is more important former usaid system administrator and was one of the point people on enterprise funds at several points in a crib of most weaselly during the obama administration. so thanks for flying in from brussels to be here. then i will introduce each of the panels before they speak. why don't you give us all a bit of context on enterprise funds. >> sure. thanks. i see so may t the audience who know more about enterprise funds that i do. having spent numerous years, working on them, so i will just give you a brief prospective that i have had income in 1993 and seen what it look like to the '90s, early 2000s and then have colleagues saying what
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they would like when they were start up again in 2012. i think enterprise funds were truly designed for solution to problem in a specific context and kim willun talk more about that because what weut had in te '90s and v early 2000s as we were looking at the dual mandate about a does u.s. government gs involved in these countries in a quick way so we can get quick results. polling poland and hungary the s going through shock therapy. president bush wanted to announce something. these were designed inui the vacuum of, okra, u.s. government does not have the technical expertise to look a private equity and venture capital. this is not what we do. we can hire private boards who can go in and set up these enterprise funds. i don't think, and are probably other congressional staffers here who can attest to the fact that no one thought it'd going to be p financially viable or sustainable. so there's not a lot of thought
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down to what happens after liquidation. then we spent most of 2010 onwards try to forget what to do with liquidation. legacy legacy funds, think thate could do to leave behind. backing up to the enterprise fund, the creation happen so quickly and the dual mandate you need to transition these countries to at market economy, yet at the same time need to make money, and then the mandate of development which is sort of left to each individual board as to how much other would be truly developmental for developmental purist peers sake, or was going to be we will set up an airport in albania, we'll set up a banking sector in bulgaria, we will work with mortgage lending in the baltics. these things were decided amongst the private sector board. so usaid oversight in the state department oversight became somewhat tenuous as congress continue to ask questions what is it you are doing, hypothetically to be able to
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react? and so we went to a growth time over 25 years and a believe a report will be coming out soon as to what these enterprise funds and legacies of left behind 25 years later. and as the other members from legacy fund. an actual member of the remaining american legacy fund. i see steve from the russian lines. number of people who are still part of this were involved. but the question is truly what can we do an enterprise fund version a 2.0. since context of the -- must have position to do with very effective and educated people who just didn't have financial institutions in place and banking sectors in place because with things thatna for julie kim at a number of on the board with the suns are able to jump start. usaid continued oversight of that has gone from just being involved in having 1000 question asked of you. when enterprise fund started in
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2011 and 112 after the arab spring, no one really knew what the relationship is going to be. i'll let2 jim and bow talk more about that but the unique challenges that we had an enterprise fund as new innovative tool have grown over time. we have usaid has the future, et cetera developing quite a authority. there's power in africa, a lot of innovative tools and i've moved overseas and working on public partnerships with the dutch government to look at other innovative ways to bring private a sector in so it's not just the public set of funding that has to go in to jumpstart some of these economies. i would say that on a whole they've been blissfully successful. there are a couple that were unfortunately had to minnis returned at the end of the day. but when you look at the actual fact at one point to . and financing going to ten enterprise funds covering 19, 14
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countries, 6.9 billion in private capital being leveraged from the 1.2, then 225 million being returned to treasury at the end of it, that's a successful development program. it's wonderful to able to do that at the time in the question is what we do to expand on that and dome something new in some f the newer countries? >> great, thank you, to skip over bow and jim and want to ask kim davis to make some remarks to choose the chair of the baltic-american freedom foundation. he's also managing director and culture of the capital partners but more importantly you chaired the baltic enterprise fun as well as you with the acting ceo of the czechoslovakian enterprise fund earlier in your career. how did you end up getting those jobs? those are not paid job spirit you had a day job but you doing
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this, how did you getting that phone call and why did you say yes? >> the first phone call was to join the baltic american enterprise fun and i thought it would be a really interesting way to observe the transition of post-soviet countries. that was an easy yes. a needy people that at privatey experience and i did that. the czechoslovak expense rose because whatever other directors was appointed by e the white hoe as acting board when the first board had ran into some trouble. that director asked me to step in as acting ceo for six months which it did in 1986 and essentially shut down and put everything down to slovakia which was the only business decision that d was available to us att that time. i hadec a funny meeting with ambassador in the czech republic who said i'm glad to meet you and hope i never see again after you leave the czech republic and the fund is out. that was not a particularly
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successful one. in general anybody who thinks that a enterprise funds will hae a different distribution curve of success than the private sector missing the point. it would be some good deals and bad deals in good funds and bad funds. we have to simply accept that as a matter of course. then, if i might, we had a challenge that was very, very different than the one that jim and bow does, and much more receptive apartment. i think the public about any price on was a successful enterprise fun. weo started with $50 million in three countries and b3 specific decisions. we're going to focus on the credit markets. we're not going to adopt a quota system will respond to market opportunities and we're going to invest in building our staff as real legacy what we're going to leave behind. we ended up with two businesses, a mortgage business and a mezzanine capital business. one of the mistakes people make is they think enterprise fund means being a private equity investor. i don't think that's true. private equity in emerging
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markets are fragile legal structures are really difficult whereas i think the credit markets are more open to innovation and to some development tools. turned intoion $820 million of invested capital. we originated 20,000 mortgages and accomplish the firstst securitization of a mortgage backed security in eastern europe. so for us, and we ended up with $60 million and you could say $60 million from 50/10 years is not a particularly great internal rate of return, but given three countries and given the 1990 russia crisis and our development objectives, our view was that if we focus on preservation of capital and modest returns, investing in the quality of our staff in leaving a legacy behind of a more developed capital market and we would have done our job. we are still at it now as a
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legacy foundation. while i don't think what we did is necessarily replicable in the same weight in tunisia and egypt becomes the political and phimosis of different, i do think, i would like to think the baltic american press on is at least an example of why the enterprise fund concept should have second life or perhaps with some different rules in some different environments but it is deathly a worthwhile endeavor. the abilityd to leverage private sector volunteers, which were all are as board members, with usaid and state department folks as well as the local governments and local citizens i think it's a wonderful model of public diplomacy. >> so kim, how important is it to have the right board? >> it is the number one and only thinker we were very lucky. we had six board members. we had never met each other we had the same six board members in 1994-2007. a great initial share who
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invent assistant secretary of state under president reagan. as an aside of the two most famous people in the baltics when we got the paul ii and ronald reagan. we came into a pretty receptive apartment. ross was a greatos leader to hae in that, but the board is everything because the boardrd s to exercise real oversight. with active committees. we didn't micromanagement management over as though he knew what doing all the time. i think that allowed us to change course whent we had to redirect resources when we had to come and innovate when we had to. >> so what about when you started making money and what happened, did the government say what do i do with this money? what was that conversation with? >> we sold all of our businesses in 2007. so in 2007 we liquidated and sold our mezzanine capital business to hedge fund and we sold our mortgage bank, which i that time was 140 person soup to
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nuts from origination to servicing platform to an irish bank. my friend paige and i have spirited conversations about what to do with all of our money. ultimately we sent 25 going back to the treasury and the kept 35 million for our legacy foundation which is hard at work as a speak. >> just spent a minute more on czechoslovakia. how did they find you and what did do they want you to do and what did you do? >> the acting board asked me to step in as a ceo. i happen to have some time. i was betweendo bruce and like r and that sixrd months availableo i i took the job and flew to prague. i think that's a story of a board the came in 1983 when the country were together, 1991, and decided that the job was to just investing anything and everything, in minority equity positions in a country with her is just no legal framework or
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cultural understanding of what a private equity investment was. it was just a mess. they lost about 75% of their capital in the first two years. and again, i've been in this business my entire75 life. i've made a lot of bad deals. you lose money if they lost it at a a rate that was beyond normal. >> kim, did it have a happy outcome? >> well, we close down the activity can put everything to slovakia and the did, they had a second go at it. i think they did some very good things. there's a legacy foundation there. it's unfortunate that we lost our ability to continue iner the czech republic but it there was just no additional funding available given the history. >> so it's fair to say it was somewhat turned around? >> yes, it was turned around without much smaller footprint. >> that's the point of what people to come away with. there were some hiccups, some interventions made and then it had a pretty good turnaround
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outcome, right? >> it was. once we accept the fact we loss 75% of her capital we did good things with a 25% remaining. again, people are going to lose money. you're going to makein bad deal. you are going to get your hiccups, and you just have to learn how to absorb them and move on. that's what we did. >> i want to spend one more man on the history then want to turn to the present, to jim, to train what a talk about the present and then talk about the future i want to dwell a minute on the past with my friend paige. paige, i think there's a historic memory of the enterprise fund. there's sort of a short list of complaints that some folks have. ifmo someone was here and said what about that fund or this fund that i was unhappy about what happened here, what is your response to that? what would you say to some member of congress on unhappy about this fund or this and so, therefore, we should not doing morgan what his response to
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that? >> david will take all those questions. that's my response. yes, there were hiccups and a lot of funds, theos way they wee liquidated at the end of the day somea. had de minimus returns, e central asia fund, the slovak fund, the hungarian fun and the just sort of morphed into either legacy funds to do something small but the majority of them ended up making unbelievable returns. bulgaria, for example, although there were some concerns about e it at the time the bulgaria fun ended up walking away with 200, $422 million at the end of the day for the legacy fun and they only had to return 27 made to the us government. because the deceit have been made at the time when congress thought these were just fun at the going to grant out that question was to return the liquid assets, half of the liquidated assetsun to treasury, or are you able to just return half of initial grant.
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regardless the us government that $225 million back from a a development grant program, and that's just unheard of. that's a probably successful development program when you returning money to the u.s. government. i would say each issue, some of the with the board structure. they just were not structured well and there were incentives setting each of the board that shouldn't have been there or were there for the wrong reason. or it just wasn't from inviolate. i think jim and come when you talk more about the different environments. they'ree t facing avs what ronad reagan and the pope, what they faced. >> a simpler time. >> in the u.s. was well loved and was helpful because you able to do everything in conjunction with the country government. >> let me ask another leading question. we have like three or four pickup funds but they were like 12rn or 14 funds that were grea.
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that's the bumper-stickering you should take away from this conversation. people say they're a couple hiccups. that was the small my door the funds most of these were smashing successes. the other thing i think it's say is the u.s. government and the fund boards themselves and investment professionals have a lot of learning as i said earlier. this was ahead of its time. there's been ana lot of learning and improvement all along the way in the last 25 years. that'st a statement, right? >> absolutely. congressional oversight, the branch oversight, these are things also have had a lot of learning and growing to do. because as weiv had talked to earlier, congress is coming at the some very different angles. senator lugar want one thing. part of the reason the baltic when had beenis held up. corker wanted something else. it difficult to react to
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congressional wants and interest at the same time a policy imperative to get things moving quickly, and look at a the markt in recognizing these things were not meant to move quickly and have lifelike attend the 15 years for investment and reinvestment. >> my one last point is, paige, when you are in the chair, when you ask the staff to put together all of the lessons, my view as must read document on where we are in the enterprise funds, just than one minute. >> i think there are probably too must read document. one is available now and then in 2013 with people from the europe and eurasia bureau and then another one that has been done recently i think hopefully will comehe out soon that is on the overall legacy of enterprise funds. both those documents stand asef lessons learned for this type of innovative private sector, rapid
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capital activity. >> thank you. that's enough about the past. lots of learning, lots of success, and learnings from the errors andoi improving upon the errors. that's a particularly from the past from enterprise funds. let's move to the present. let me start>> with my friend jm harmon first. jim, you got a phone call from tom and mike, two of the sports people in the obama administration, really, really phenomenal people, and they said we need your help stead of an enterprise fund in egypt. what was your reaction to that and why did you said yes? >> thank you, dan. first i want to congratulate you and csis for doing this. it's a? subject that war did a review and it's good to have the opportunity to discuss it with you. secondly, you have invited some people who are very good illustrations of talented people, and i might even think they may be the best of a lot of
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the people who have run enterprise funds. the audience walked away thinking this is breakout group of people. you should know not everybody i've met with taken on this assignment has been quite as effective as the group in front of you now. now, i got a call, i had served in the clinton administration from 97 to 2001. i wasas chair of the ex-im bank. i do admit i did know what an enterprise fund was. i i never talk to enterprise fus anyway. at the ex-im bank during those four years. maybe that was my fault but i certainly heard very little about it. so obviously i said to michael and tom, i didn't really know what it was, so it have to think about it. i actually took three or four months, and the government of the united states does not present you with the kind of background summary that helps you to make a decision. and so it was, i don't mean to
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be critical of anybody now, but it was three months later that i found that usaid did a very interesting and valuable study of moree than on they should of enterprise fund in egypt. how could i worked three month and talk to everybody and no one gave me that? that's an illustration. and i was part of the clinton administration so this is not a change of party. so can you imagine how our government treats some of from another party in the case? we did to the study ourselves. we did review. i did make decisions in april, may, four months later that it would go forward. so the call was just the usual call. as you probably all know once you leave your kids government if you've been confirmed, it's not uncommon to get a call from someone in government to ask you to take a summit. i had already had 45 assignments for limited areas to help the
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world bank on this or that. it didn't interfere toogn much with my day job. but my day job is running a fund that was investing in the frontier in the developing world, , some 30 countries. i've been following the frontier developing world very closely since i left the government. does that answer your question? >> yes. but jim, what prompted you to say yes to this? >> i don't know, my wife asked me that question often. [laughing] when i'm stuck in the middle of traffic in cairo during summit e demonstrations, i think to myself, what did prop me? [laughing]io but he want me to give a little background? >> yes, please. >> first of all, you should all know the egyptian enterprise fund was different than all the other enterprise funds in a few aspects, which prompted most former chairs to tell me they didn't think i should do it.
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first, the relationship between the united states and egyptian government was not very good. that may be an understatement at that particular time. so unlike the europeans where you are welcome when you into the country, on my first trip, the egyptian government said the 300 billion that's been authorized for the egyptian enterprise fund is ourur money. you are taking our money. it came out of the camp david accords and so forth and so on, back in 1970s. what is your explanation for that? of course that was way above my pay scale and i had no answer for that. the white house have not briefed on the fact this is going to come at me on a regular basis from certain people. the relationship between the two countries were strange. secondly, there was a sophisticated market in egypt. they were trading in equities. a lot of talent, a lot of experience. we been invested in ourco day jb in marketable shares in egypt for some time. that's quite a bit different
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than the european enterprise funds. the third, clearly, was there was violence allab around. didn't have that much violence in europe at the time, and i could go on and on the differences. on my first trip i realize this was the first decision i made, maybe the best, enterprise funds are like it visits. it depends on the quality of the people. you have to have, yes, jim is right, the board has to be important but your ceo is very significant because i was not going to sit in cairo and find investments without having devoted my life too. i know i g had to do two things. first, one was egyptian ice the enterprise fund. what does it mean? that means the management, the ceo had to be egyptian and the board had to be egyptian as much as we allowed to. legislation calls for three egyptians and six american citizen.
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we modified it to six egyptian americans who are three egyptian americans and three egyptians, and three americans. actually just two of us did not speak arabic. so we started with the board and then i went about trying to find who should be the o ceo. that's a long story which we don't have time to tell, but i i think we got fortunate we found a very capable man who would been trained in new york from morgan stanley years ago. he was running a boutique, and then we got lucky again because when i told him what i thought we could pay them to take on this assignment i find investments, he said i make more than that now. why would i do that? then a light went off in my head and i said, i have an idea. you should form a management company. we will be your first client. you will manage our money, or some off our money, and we will pay you a fee. so when theme enterprise fund liquidate out, you will have a
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very major asset manager that will be very successful, and he liked that idea if we helped them do it. and we did it. and today it is a very successful asset management company, and five years and it will be a very low risk factor. get the best talent. they have pulled and the best talent in my opinion that i've met in cairo who are running it now. that was the first business and it was an earlier decision to create employment because all those people went to work for that.. my most important decision i said already was hiring the ceo. i talked to him almost every sunday. as you all assigned is a workday there so for the first two years we talked over time. he is stillll a terrific busine. totally trustworthy. if i were allowed to invest in the egyptian enterprise that i would do. overy and over again i said undr the rules aregy not allowed to o it but i would've done that. directly and that would've
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demonstrated the commitment i have personally. of course i could not do that. my first surprise, no one wanted to have the use government owned a piece of their business. no one wanted to even sell ten or 20% to come i don't typically use a.i.d., to any any agency and the united states government. i had not realized the extent of the animosity or the fear of that. how do we overcome that? that was a trick. that's what we had to egyptianizee it. we would have beating after meetingho and will buy equity because this is this is a count needs equity more than that as you may know, interest rates are now at this time 18 or so% next equity was action important. we had to overcome that. the first mistake, we wanted to buy a bank. we knew that financial inclusiveness was absolutely critical. no small or middle sized enterprise with a can grow. our task was to grow the economy.
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economy. if you go the economy will jobs. that's very important. in most of the countries as you all know, certainlyco in egypt u have maybe a 30% unemployment factor in the youth. that's a dangerous factor going forward. you have to solve thatay proble. you had to find a way to create jobs so you have to grow that here and i felt by buying a bank we would be able to make loans to small and middle sized enterprise companies directly and i get my from agency the u.s. exum bank to enter into a joint venture to provide funding to be lent to business want to buy something in the united states. and i was so confident we'll be successful. we talkedo to germany and a number of other countries to join with the exum bank model. .. xm bank model. so we had a consortium of what could have been 400 or $500 million.
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then my big surprise, the governor of the central bank rejected the idea of a u.s. private equity, he used to call it, going forward. that is that was a lost year. that's the kind of problem kim refers to and others, takes long time. we spent a year trying to did that deal. couldn't get it done. we then acted quickly. if we are not going to get a bank we are going to get a consumer finance business. >> and provide number of loans to sme's and hire a lot of people, that's another long story. our first investment couldn't have been more successful in my judgment. we bought what is the leading electronic payment service company. most of you probably know or if you don't, less than 10% of the people in the country like egypt have banks. so if you want to pay your bills, you have to wait in a long line outside the utility to pay your bills. so, the paypal type business
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run by a very bright man, had been successful. so, today, 25 million egyptians, 25 million egyptians use the payment service and it's on its way to half of the country's population. so if you talk about making a difference and making a difference quickly and making a difference on the development side. if half of the country, in 40, 45 million people are using this pay service, that means their life, the quality of life is better, not to mention the fact that this company is growing like this and it's going to become a publicly traded company in a year or two or three and we'll get all of our money back, but that, that is making a very significant difference. i don't think there's time and i want to share time. so far my experience in egypt has been challenging, but i think, i'd say clearly get back very significant amount of
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money, and there will be profits that were shared. how we share it, we haven't yet decided upon, but it could be clearly indicates to me the future of enterprise funds. but i think in each country things are different. so you have to analyze it. you must be careful. you cannot put americans on the ground in most of these countries in my experience. you have to have it localized in at that sense. you have to buy-- you have to be an ambassador yourself, constantly making friends. and egypt is not coming to my office in new york. i have two talented egyptians and i would introduce them, they're in the audience now, and i don't have time for that, but they are very capable and without that capacity, we could never achieve what we do. and take it minute, why don't
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you recognize your two colleagues who are here in the audience. go ahead. >> first, where are you? stand up. a true story about, if i play. a talented egyptian-american in a firm in boston and he and i were talking about it, the school has three or four egyptians graduating every year, interview them. i did interview them, and he was obviously coming out of the business school and she was coming out of the government and she knew the u.s. coming out of harvard. a no-brainer, and for three years, more people will say, i couldn't have gotten anything-- i couldn't really not have gotten anything significantly done without her help. if she leaves me, i'm leaving,
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too. [laughter] >> and she just got married, she just got married to her egyptian fiancee and they were gone tore two or three weeks on a honeymoon and i had to go back and do everything all over again, which made it extremely-- and yasmine, she's come in thee or four months and she this is what i mean, the human talent in egypt, i could build an investment bank around it. and an intern with us also from egypt so we've had very good experience. i could go on, but others will want to talk. >> thanks a lot, jim. and thanks for being here, you're the chair of the nun mei-- tunisian enterprise fund and why did you take on the chj of
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the fund? >> i had known tommy forever and mike had worked for me in the earlier part of the clinton years, so that i knew and trusted both of them. and it wasn't a terribly hard decision. i had spent a fair part of my life dealing in a combination of both development and finance. the finance part in the private sector, the development part, wearing a variety of hats. so the possibility of combining these in the kind of environment-- in the kind of context that the-- that an enterprise fund meant was a very, very attractive challenge. so, it to me wasn't a-- it wasn't much of a struggle. >> okay. so, tell me about what your experience has been to date. did you have the same kind of challenges that jim had or
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different sets of challenges? what was it like standing up the fund and the board and what type of investments have you been making? >> starting it off, investments and deals or board investments and deals. all right. our context is completely different than egypt, and jim has had in an immediate sense, a much, much harder problem. tunisia as opposed to egypt at the time has been-- is predominantly fairbly inclined to the united states, with regards to the united states is important. so i've never faced any of the kinds of difficulties that jim faced and i admire what jim has had to do in the course of
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getting through that. mine is a little bit different, is that tunisia, this is right after a revolution in which the dictator had been a cleptocrat for a generation. so the structure of the tunisian economy, there was a vast crony capitalism, there was a report about the time i took on the role, about the amount of money that the departed dictator who had been run out of the country had taken from the tunisian economy. there was-- credit capitalism was kind of a-- was an expected event, but one of the things you find, it was a learning experience for me. one of the things you find is the tendcles of that extend everywhere. and they affect vastly the
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whole regulatory system and they affect the structure of the economy. so, tunisia was, while much more, much, much more friendly environment, was also at the same time a much less developed economy in the sense of egypt. the other kind of difficulty of tunisia, as a friend of mine said and i hope i won't offend anybody in the audience he said one of the things you're going to discover is the dead hand of french bureaucracy and it's a-- it functions under the code. so as opposed to the u.s. where the basic underlying rule is that if it doesn't say you can't do it then you can try to figure out how to do it, under french law and tunisian regulatory law, if it doesn't say you can do it, you can't do it. so we had real problems in the setup. we have set ourselves up as a non-bank financial business.
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we meet all of the tunisian regulatory requirements, but getting to that point, and if you really looked at the details of our structure you would find some fairly squirrely elements, with the quiet assistance of tunisian authorities and tunisian ministers of finance and enormous security of our board and phenomenal person that i found to be our chief operating officer, we found a way around the rules, but no one else in tunisia ever has. we're the on person-- we are the only institution that exists in tunisia that can invest the way we do, which is kind of across the gram gamut of equity. there's a point to underline. these are akin to startups in every conceivable respect, except that you don't have to
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raise the basic money. having been involved in lots of startsups-- startups in which i was the investor. actually the raise be money is not the hard part of the start-up, it's finding out what the business is and setting the up the structures which we do. two complications hit me constantly. one way in way the world is different now than it was way back, is that we have to meet every single one of the new u.s. financial regulations, so, we are -- we are hit by dodd-frank and we're hit hard by a legislation like that, and once-- when you begin to talk to those authorities, they've never heard of enterprise funds and never heard of a-i-d that we have to met these rules. in tunisia, we're not some
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favored entity. we have to meet all the regulatory structures of tunisia or we cannot function. so, the time-- it took an immense amount of time to figure out what it was that we could do and then learn that most of what we wanted to do we couldn't do and then figure out how you would do it despite that fact. and it took a year and a half to do that. there's an issue there and one of the things that i was going to talk to, and i'll just mention one of them now are what are some of the problems? doing these things require immense patience on the part of the u.s. government. i enormous function, and dealing-- the person with whom we did most of negotiating is in front of us, page was one of the others. and i have to say that in
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general, patience is not a recognized virtue of the united states government. and so the-- as soon as your two close friends who invited you to do that this leave, there's no one in the u.s. government who ever heard about you or ever cares about you for one second. so you are the one who is doing the integrating. you're the one who has to go and talk to the white house. oh, by the way, there's no one in the white house left who remembered setting this thing up. >> bow cutter, who is that? >> that's right, and enterprise fund, what's that? so, i would not use this mechanism, and i love this mechanism and being asked to do it is a gift, and i have found it to be, just a tremendously important to me in addition to what i hope we accomplish, but i would not do this if we did
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not-- as a wider purpose if you did not figure out a way to have the u.s. government see these as somehow something different than a one off beyond a-i-d. you say what do we do? we've set up as a nonfinancial bank business. there aren't the financial institutions to buy or to invest into in tunisia. i started with the same view, i was going to buy a bank. i discovered that the bank was bankrupt. that the tunisian government nevertheless wanted to be paid a substantial amount for this bank and that we were going to have a fire a large number of people. that struck me as a three-for. that three bad reasons to do a deal so we dependent do the deal. and eventually-- so what we've done is set up a nonfinancial bank business and invest across the whole small and medium enterprise spectrum.
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so our investments is-- each one is quite small. and they sum probably to the same amount that jim invested and we're expecting a decent right of return. we underwrite our deals to a 15% internal rate of return. after you take out costs and the fact that we'll have some deals that break, we're looking at somewhere between an 8 to 10% rate of run on our ongoing activities and i'm assuming we'll get lucky and that our rates of return will in the end be somewhat better than that. i think we'll make our real money and real development effect by backing into owning a financial institution. either because the institution that we've set up, and much the same way that jim did, is itself going to be a leading financial institution in tunisia or because, as is beginning to happen, a couple of the places that we've co-invested need more funds, are going to have our equity.
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so, that's kind of what we've done. the basic how wea've done it and our board. the board, we meet the u.s. rules that it's six american citizens and three tunisian, but there are a few crossovers in that. and if i could be a little more flexible on that, i would. every sickle one of my board members is a working professional in the financial field, four of them are chief executive officers and something. and i know how good jim's board is. i'll stack our board up against anybody. there's nobody in the financial world who has a board any better than ours. and we know that field. it's a little hard to get people who are ceo's in their fields to come and do something for nothing. but they've all-- it is a real working board. the point that jim made that in his case he had to egyptianize
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it and holds for me, too, with the exception of me and louise crawford who is right there and who has helped me-- who has been more than critical in doing all of the unbelievable amount of work that you actually have to do here in the united states to get one of these things, is to keep one of these things going, everybody else in the-- in the tunisian-american enterprise fund is tunisian. our chief operating officer is a woman, faradi who is phenomenal. the life spirit behind this work, and my-- i have a similar nightmare as jim did as every night i hope she doesn't hope she can cash in four times as much somewhere
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else. but at the moment she seems dedicated to the work. i'll make one or two more points and the-- jim made a point about equity and i want to make a point that our money, this goes for jim, but i know it goes for me, is actually considerably more than the amount. and i had in theory have 100 million. it comes in tranches. it's another aspect of a problem that i would solve is that the whole rest of the u.s. government, because of the fact that there is no kind of real level of patience, regards that money as moan-- money to be taken away. they've done it once and they're trying to do it again. no one can comfortably say they have x amount of money because that's in fact committed to it, you don't have to until you get it and it's a view that i would express strongly to the congress and i already have. but let's assume i have 100
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million. that's one third of 1% of the-- if i use rather than purchasing price parity, i use exchange value gdp of the tunisian gdp and you'd think that can't be-- how can you have much affect if your total value is one third of 1%. in the following way, first of all, these countries are critically, critically investment scarce. my basic numbers are that for a country like tunisia to have a decent growth rate it needs to invest 24, 25% of gdp. my guess is it's 12 to 14% right now so it's got about a 10 percentage point gap. there's the tunisian government is currently investing approximately zero because most of its money is spent on salaries and subsidies and funding the deficit. so there's virtually no--
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almost all of my investment comes from the big family companies. so that almost nothing goes into the sme sector. so, i represent with my paltry 100 million dollars basically all the equity capital there is in the country for the-- for the-- for what we want to invest in and i want to invest in the core of the small and medium enterprise sector because i fundamentally believe that there's not a country on earth that doesn't fundamentally depend on its growth rate on that sector. we're all the equity and that respect you can magnify a little bit. and the second is because no one really-- the second point about that is because no one really focuses on the sme sector, i'd say as a general rule that the small businessmen get royally screwed by every country on earth.
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there's no country that cares-- >> every country says how much it cares about the small and medium enterprise sector and no country does anything about it. almost all of the small and medium public banks in the world are bankrupt. so, if one of the things we can do is show that an sme sector matters to growth and development and at the same time showed that you can actually make money with sensible investments in it, we can by that alone have a substantial effect. >> great. so, i've got-- i want to start with kim and i want to go down, down the row here. i want you to each talk about, if you had a-- it you were going to create an enterprise fund 2.0. so, for example, the u.s. congress is talking about, legislation establishing one for jordan which i think is great. let's say there were a dozen countries or two dozen
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countries this could work in some way or form. what from the lessons that you learned, if you created an enterprise fund 2.0. >> i think i'm less qualified than jim and bow. their experiences are much more recent. for me, i think there has to be some better mechanism for usaid and i think it should still stay at usaid the relationship with the funds. when ours were originally in the c-dak. the white house appointed a board and it was self-perpetuated, the board had approval rights and never exercised them as people came up and i think there were times when there was a lot of frustration at usaid with relationship to the board. i would spend more time-- it's great when you have a board as jim has and bow has
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and i think our board was equally very strong, there has to be some more formal ongoing nn mechanism for the relationship between the enterprise fund and usaid. but to be clear, what you cannot do is high usaid micromanaging at any level with respect to deal approval and you have to keep a clear sense that although we're on the same team, essentially, the usg funds, we're different teams and doing different things with different time lines. so, that would be my one overriding comment is more formality with respect to the usaid board relationship, but nothing beyond that in terms of involveme involvement. >> maybe just a couple of reasons why we should be considering something like this. i always tell the story about,
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my last year at a bank, the chinese came to see me and wanted to succumb some people from the xm bank and i thought they'd want one or two people, and they said, no, 55 people. the xm bank is only 450 people. i didn't know then if china had its export credit-- xm bank was providing funding for something like 2 or 3 billion dollars a year, xm. united states was doing about 15, 18 billion at that time. today the chinese have three export credit agencies and provide more funding for their private sector exports than all the other 83 export crediting agents agencies in the world. they do 500 billion. it's a staggering amount. why i tell the story, china hasn't figured out that they are a sort of variation of an
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enterprise fund. they're encouraging their own private sector to do well and make investments. if there's anything to convince the members of congress, china is head today a giant enterprise fund for all the developing world and they might do it for one factor. and the other factor is something i give dan and credits to scis-- csis, the growth agencies in the last 10, 12 years, has been great. seven-fold in activity. they've far surpassed foreign assistance programs and that's where we're heading the next five years. very significant growth is supporting investment in the private sector. now, an enterprise fund, in my judgment, i haven't discussed this with others, but it's a variation of a development
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finance institution. both, both are transaction focused. both want to invest money, either small businesses or large. both support the private sector. and both, frankly, make the same impact on job creation ap economic growth. so, if any of us were looking at what could the united states come, what could the united states do to help economic developme development, let's face it. if you have unemployment at the rate that we have in some of these countries and we have the kind of violence we have all over, we've got to work on economic development and create jobs. if we focused on that we would conclude that enterprise funds in its current structures, there could be modifications made and improvements made, but the concept of supporting private sector growth, that is what's important. the imf is responsible for
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stability and this he came into egypt and created stability in egypt now. they cannot, in my judgment, i haven't seen any evidence, helped create economic growth in egypt. economic growth comes from private sector development. private sector development will come from something like enterprise funds. multiplied to a much larger extent. the other comment is that you don't need as much money. i wouldn't want to make this statement too many times publicly to my friends on the hill. but, once the u.s. puts in an amount of money with the private sector looking to make investments now in a country like egypt. it would be different in tunisia, clearly, and it was d different in kim's day, but today they're looking to make investments and we took in our first deal because we wanted to prove to egypt that we could bring in other investments. that was part of my mission. so when we bought that, it was a 100 million transaction, we
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took in two private equity firms for 80 million. they had never invested in egypt before. so we could be all enterprise funds could be-- when you get to an egypt size, could be a catalyst for a private sectorment if i were asked in the next x number of years, 300 million that we have now in the enterprise fund in egypt, will be a billion dollars. part of it will be coming from the profits we've enjoyed, but most of it will come from us bringing in other investments to join us on investments we made. so it will be a billion dollars that we will end up investment in egypt. maybe larger. the message in that is the u.s. doesn't have to put up that much money. if the u.s. puts its quote, name and support, people will want to be involved. so it can be done with u.s. support, so, i think it-- the argument to congress, you don't have to budget that much. and the u.s. is just like the
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development finance institutions will get all of its money back. all the money comes back and we achieve a goal of helping the private sector to grow, and help development. we have created-- we have counted as best we're able to, 500 jobs and say, it's going to be a much larger number because the expansion of the-- we have a little easier task because it's obviously a larger country and we have obviously a lot more private sectors to invest in, but i think that my conclusion is, clearly the enterprise fund is a very good concept. we have to figure a way to what we're doing today, tell the story so the u.s. government can think about it. i happy to be cautiously optimistic, but what i'm about to say because it has a comment about this administration. this administration, for whatever critical comment you have, and i have plenty, however, does respect the private sector and the private
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sector is a key. we have in the united states the greatest private sector ever created mankind by far and that's why we end up with the kind of economy we have right now. so to take the talent we have in our private sector and match them up with a limited amount of funds to go into various countries to help develop their private sector is doable. maybe it will take focus of a particular group in the government, but this administration might understand it. that would be my conclusion there. >> okay. bow? >> i'll talk briefly to three topics. the first is to agree emphatically with what jim just said and add a little piece to it. the second is it talk about the context that they should, that future efforts like this should be set in, and the third is to
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talk to what seemed to me to be the critical elements. first, the-- i can't improve on jim's thoughts about the way in which the world is turning and why these matter. but i had some hesitation about using these numbers because they do say a little about how old i am, but that's probably apparent anyway, so i won't-- i'll do it anyway. in-- i was-- i was leaving a confirmed role in the carter administration when jimmy carter asked me, this is toward the end of the presidency, to kind of take a look at international flows and to talk to him a little bit about the-- about development. and thinking back now, more than 40-- about 40 years later, the--
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at that time approximately 80% of the international flows to the developing world and this may be true for the whole world, were official flows. >> thes oda's and others were pure private sector. in other words, the entire international financial markets grew up in the '80s and '90s and those of us-- all of us, it's kind of like speaking prose all your life and not knowing it. we grew up in that era and now it's flipped and something like 90% of all the flows in the world are commercial and 10% are official flows, oda flows. and that says that the nature of the world in which you have to carry out development has fundamentally changed. and i'm not so certain that a
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kind of deep gut realization of that has sunk in and all of the development institutions around the world are in the u.s. but what it really means is, i think part of the solution, i think all of it is, but it's extremely healthy, which is that the way growth is going to happen, and the a world of chaos exists, happens if growth doesn't happen and if it's not an inclusive and equitiable form of growth, which is, by the way, the reason i want focus on small and medium enterprise. but it has to be through a healthy development of the private sectors. and that means that governments, and the only government i really care about is the one we're in, is this one, has to focus-- has to think about what are the tools that let us develop, let us foster development that way. this is not an ideological
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opposition to kind of old-fashioned development. i was a member of the care board for 19 years and i was the-- i was its chair for eight. so i think about and care about that kind of development, but to be absolutely honest, that kind of development is in the weight of things is diminishing and what we're doing here is increasing. so, we have to have institutions that deal with and know how to deal with private sectors all over the world and those are inherently going to be kind of financial. i could extend that to now just note the points and say that what that means is that often equity is incredibly important. one of the many groups-- i feel seems like a vietnamese peasant and i'm hoeing the
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field and there's a battle fought over me and another field and battle over me and this is true of the devices used to evaluate jim and me, but in one of them, a team that came were listen in rapt attention as i explained something new to him and there was a difference between debt and equity and difference mattered. this is a group that came to evaluate me. so if i have sometimes a chip on my shoulder about all of this, you'll understand it. what jim basically said was right and the way the world has turned makes what jim said essential. point two, it really does matter, just as i ran o and b a long, long time ago and you come out of that and no one else in the government cares as much about budget and no one certainly cares about management and it does matter that the m part of that really
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matters. and if you're going to expand this tool, you have to think in terms of where you get-- what's the setting for it. and i don't mean the place. i've-- i think disaster awaits if you don't keep it at aid. and part of that is because i've been quite happy with the nature of the relationship, but i think it's set up to do this, but just to underline some points. one, as i've already said, a level of patience is required by the entire government that's simply not natural to the u.s. government. the second is that these kinds of things are inherently outsiders. think about it. that it's-- that you create this pot of money and you provide it then to this outside person that some few people in the u.s. government know, but not everybody, and those people leave and then nobody knows them. it's not really a program that's owned by anybody and so
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in the end, it's kind of the redheaded stepchild, and the-- so you spend a great deal of your life trying to ent great the u.s. government, but more than that, trying to-- no, actually i am-- we are running something that's a program that you guys approved. and the something about the outsider status of it has to be altered and the final point i already made this, is the money. particularly, if you look at what's happened to budgets and you look into what's happened to discretionary budgets looking out over the next five years, any amount of money set out there that isn't hard committed is going to be ripped off by somebody else. so, if you want them to have the money, then you've got to figure out a way to let them have the money and so patience, the outsider status and the money. now, finally is the elements.
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they all are going to differ. jim's focus and mine have very similar-- have lots of parallels, but the specifics are quite different and they're different a little bit because jim and i are different, but they're also different because the contexts are really different. this has been true of all of them. and so you have to allow for that, and as you alter the circumstances of of where you put them. if you try to put them in really, really difficult places, by that i mean vastly more difficult than tunisia or egypt or jordan which would be a wonderful place to start. i know jordan pretty well and i think that one is authorized for jordan, it's the actual creation of one that's the issue. issue. but there are more difficult places than that and there are more difficult problems that you can set them to. here are the elements.
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there has a recognition that you're basically going to be using outsiders because if you're really going to focus on the real problems and issues, which is how do private sectors work, that's not what governments know. the second is that you're going to have to accord those outsiders a considerable amount of independence. i mean, really when you step-- i nt would have done this work if in the end we hadn't been given this independence, but if you step back and think about it. it's remarkable how much independence we actually have. so, but it's necessary-- it's absolutely essential. i mean, every single decision that i've made is one that could have legitimately been contested by 44 other people and taken me a year or years to get done, and i don't mean to personalize it, it's the-- it's my board and it's hala, but these are not easy decisions and i'm quite willing
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to bear the brunt-- we are willing to be accountable for what results, but if you're going to hold us accountable, you have to give us the responsibility and the right to make the decisions and finally to come back to a dull subject. the money has to be committed, every single time that doesn't happen for me, i'm the one who has to take the rounds and explain to all the people who work for me, all the businesses who all know, since there are no secrets on earth, know this instantly and everybody in the affected government, why this doesn't really mean that they're pulling out, the rug out from under us, that it's sort of unfortunate results. it's committed money, you have to deal with outsiders and you have to understand that you're going to provide them with a fair amount of independence. >> turn up your microphone. >> me? >> so what's your take on this in. >> first, old habits die-hard,
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just to correct what was said, and talk to him about and a difference between debt and equity was not from usaid. >> oh, i didn't imply that. >> we had a helpful congressional staffers who want to put things in order to make sure that enterprise things exist. they might have-- ments i really should have said not-- >> sorry, old habits die-hard. >> so i would say to on what said, the formality of the relationship, they have to understand where there's oversight, where there is hyper management, making sure there's appropriate lels levels of oversight without micromanagement. the outsider status, i think it's important to have a private board to actually make the decisions without having get things checked off by the u.s. government and the u.s. government has a handsoff
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relationship in that way, so an investment is made and it goes south, it's not on the u.s. government. i think both of those things are important. i would say the public-private nature of this and to the point about the private sector being such a large part of how assistance is done now, i think it's really important to look at the other development programs that have run with the gates foundation, and with the rockefeller foundation, where a-i-d and the state have partnered and a number of agencies in the u.s. government partnered to leverage each other' money to make them more development programs. and heineken does a lot of funding with the dutch government because it increases the ability to locally source raw materials and development goals of trying to get them to grow things they can sell not just sell what they're growing. these things truly leverage each other and can be done in private equity and private
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sector can happen in a way that enterprise fund 2.0 could be much more effective if it weren't just the u.s. government going it alone. so would i say that that would probably be the vast-- and lastly, post liquidation plans. it would be really nice if once this is legally determined how an enterprise fund would look, the liquidation plans for when that ends which is past all of our times, will not be leaving other people holding the bag. and especially 150 million still sitting in congress to liquidate the russia fund, for example, which is money that can be used and it's a political football since 2008le and 2011. >> for ten years? >> yes. >> yeah, so, it's $150 million which could be put to good use somewhere, somehow, some way. and that's to be determined. and those liquidation plans have to be determined in advance before you start something 'cause i think,
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again, this will be well past our time in 2027, but we are going to leave this bag with someone else to clean up and that should be legislated appropriately. >> i all have been really patient and there are a lot of smart people in the audience and see a show of hands and want to call on people who know a lot about this. and i see michael leavitt and here and-- okay, good. let's get david and maefl to start first and then get some other folks here and i'll get to you, too. we're getting a lot of folks. >> david coles with aid. i'd like to hear more from others on the board, bow cutter and jim harmon how you balance the impact versus financial returns, how you incentivize your staff to be looking. and when you bring on
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co-funders, is it difficult to explain you're not only maximizing returns, but-- ments we're going to do this world bank style and bunch them together. i want to hear from michael leavitt and then from jim holmes. >> hi, michael leavitt. some of this story actually comes from money from-- so, years ago, i was involved with supplying a large number of experts that do due diligence for a large number of enterprise funds. so, for me, it's what was the difference between them as part of the lessons learned. and the conflict between development and return was overwhelming in some of them, where it was just totally excused and i would point out. none of you gave a report on development. you all talked about return. and which is fine, but these are my tax dollars. i want development.
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i realize that jobs are important, but there's more to it. so, one of this is, if there's lessoned learned, one of them is it clear and if it's not development, if it's development. how are you going to measure that. that's one thing. second, staff. between the funds, the staff disparity in quality was unbelievable. unbelievable, and that isn't just where they were bad. third, the ceo's, some of them thought they were wal-mart investors and some thought main street investors. that would be great if they knew which countries they had to be assigned to. so, again, i'm a big a fan of the enterprise funds, but seems to me one of the ways of looking at lessons learned is look at those 17, not just the 4 that failed, and why were some of them really good and i'm sorry, just one more thing. the easiest-- shortest story, we were asked
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to supply an expert on, for a big investment. we took a ceo from that industry and state three weeks, came back to the big meeting and said they don't need your money, i-- we costed out the production line so we could save them $2, 3 million a month not a problem. we were never called back by that fund because we felt we were there for development, and they wanted the good deal. >> okay. jim holmes. >> yes. >> here you go. >> i'm not jim holmes, but my name is-- >> okay, great. >> my name is don and i was a former general counsel at opec, the overseas private investment corporation and i have one comment, one comment is debt and equity is in the eye of the
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beholder, often and so that comment on is it debt or is it equity, i know at opec we went off into legally defensible extremes to make a debt instrument into an equity-like instrument. i would-- the second point in terms of the development impact, i know that one of the big issues that was confronted at opec and at the international finance corporation, involves intermediary financial institutions and the esg standards, environmental, social governance standards and curious how in some ways, intermediateries here between the u.s. government and sme's. how you deal with that issue and a third point, i suppose is generally within the u.s. government i think of the enterprise funds as often times
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bespoke types of institutions that come up from time to time, spobs responsive to the foreign policy objectives of the united states combined with development and how there might be a more systemic approach with either enterprise funds or combining it with the whole, that sort of development finance strategy for the united states. >> okay, will the real jim holmes stand up, please. >> there you go. >> and if you want to handle those first three and then come back, that's fine. i apologize, i'd like to make a comment or two rather than a question. jim holmes. i was the deputy director for policy planning at the time that the enterprise funds were set up, had a very large role in the establishment of it and then i was three years as coordinator point one, enterprise funds were never set
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up as a political tool, but a policy tool. my memory the first submission to the white house with the establishment of a funding was for a proposal that was called thousand points of light fund. and usaid and state department pushed back on that and said this is not reflective of the policy approach, this was reflective of the political agenda of the white house and they yielded. they yielded at that time there was a cadre of people who were focused on the private sector as a value and a value which could be exported to eastern europe. and therefore, the enterprise funds were set up to train, to educate, and to develop. the first item on the box was not whole grain, the first yiitm on the box was not to make money. it was to train and develop. no one expect add return and if
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there was to be a return, we negotiated, we'll deal with that then, but it's not going to be very great. point two, i think both you, daniel and kim, understated the importance of the-- of the boards. the best example is the check fund i was totally dysfunctional. i had to go to board meetings know ared to -- in order to keep sides apart, in order to take a message from one of the part of the board to the chairman. it was a blessing when that thing was folded up and put to bed. so i commiserate with kim with respect to picking up the pieces, but there was nothing, there was no second do, no mulligan as far as check fund was concerned, it failed. end of point and thirdly, lastly, no blueprints.
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the enterprise funds were set up without any expectation, without any requirements, as far as boards are concerned, and usaid, state department, white house, said okay, these are the people who, in whom we have registered faith and confidence for you to do the job and there was minimum oversight and i tell you there was minimum oversight from the congress as well. sonny callaghan, i used to go up to the hill and talk to son why i callaghan just to make sure that he knew what was going on they didn't ride herd on the enterprise funds. when you got to the point where the polish enterprise fund was ready to do something more than make money, there was an organization that divided this thing up in roughly 50-50%.
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>> okay. [inaudible] first, i have to thank jim who was my interlockter when i had that job and david who is currently our liaison with the baltic fund. i want to go to the question development. i think there's a false premise which is that there is a difference between sort of profit and development. i'm often reminded of the comment that bill gates may have done more for the world by inventing microsoft system than he ever did or will do with the gates foundation. and so, i just completely reject the notion that there's this eternal conflict. i would argue, in fact, having clear discipline around profit was what allowed us to train 2 to 300 people in how capitalism works which is perhaps our greatest legacy and also provided a sense of discipline within the organization and moreover, that, you know,
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20,000 mortgages, 20,000 home owners leveraging 50 million into 800 million in financing has huge development impact and i think there is sort of this desperate desire to have boxes, development boxes and profit boxes. i don't think the world divides itself that clearly. i'm completely confident if a fund is run well, you can achieve both goals. as i said we focused on the credit markets because we had very, very i am immature credit markets and i can be accused of ambiguity, but that's the ambiguity we chose to live in and i'm comfortable with that decision and comfortable with the results. >> i'm actually going to jump in, the only question i want to address, the development, and i agree with what kim is saying and i also think you need to look at the fact 1.3 billion has been left behind to fund
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nine different legacy foundations in these countries and that is where, truly where we're seeing the development impact at this point. i appreciate as tim said this was initially set out to train and educate and development. i think that development was crucial at that time and remains crucial at the middle east funds and it's not all private sector for the purpose of private sector. if we mean private sector happens when fdi comes in and there's rule of law and democratic principles that exist. so i think that the language has been tweaked to allow for development impact, although it looks like a private sector one. [inaudible] . >> oh, well, i said-- >>ing i'll quarrel with that, too, and i started by saying, everyone determined the different development impact. >> well-- >> my first comment about our strategic objectives was
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training our staff. >> [inaudible] all right. i do want to start by agreeing with kim on what he said the confusion between development. if you have growing business businesses there's no better illustration than the first investment we made which is in the payment service business, the fact that 25 million egyptians now are able to pay their bills without waiting in line three or four hours, that they can borrow a little bit of money, communicate. this changed the quality of life of a lot of egyptians, so to me, that's development. now, it happens to make money on it, so it's both, but i don't think you exclude one from the other, having said that, i myself now have begun in the last year to focus a little bit more on development than i did at the beginning because i see the profits that we're going to have. so we are going to return very
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significant profits. so, what does that mean? if we can get a return of 2 or 3%, no other private equity investment would take that, we will do it if it's something good. now, my favorite subject is my staff, say it a hundred times, because i'm involved with a think tank environment, sustainability. i'm determined to find a way to help modify the traffic problem in cairo. [laughter] >> now, that would change the quality of life of everybody and the world bank did a study in 2010, they found that it cost egyptian economy eight billion dollars a year, about 4% of the men economy to have this problem. so, this morning, out of curiosity i tracked down the person who did some work on it at the world bank. i said what is it today? he said 20 billion. 20 billion dollars of the
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egyptian economy is impacted because of the traffic problem has got to be so great. so, we have a way to solve that because it happens that the institution called the world resources institute working with the bank, we work on this in a number of cities, some day we'll find a way and that's true development. that would improve the quality of life, reduce the number of accidents. people would get to work on time and it can be done. what have i done? i'm pushing my staff to find the right person who focuses on this, who is not interested in returns, not losing money, but doing well. i think it takes a push from the top, but we're going to get there, but you have to focus on it, you can't just say growing businesses are going to get you there. i think it's a very important questions and we talk about this subject all the time because most the times if
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you've-- an investment banker we don't necessarily think about developments that way, but we have a chance now, but the profits we're making to shift now a little bit and to focus on development, which could be very good. we-- our last acquisition was in the health care area and this is another very significant area th that, of course, in the developing world and make a difference. i don't want to spend too much time on the subject, but i'm glad the question was raised. >> any other comments or reactions to the questions put on the table? bow, do you want to say anything? >> i don't want to come off too much on what my wife and some of my staff accuse me as being too much of a confrontationalist, but i just fundamentally disagree with the way you asked the question and it is -- i kind of-- i relate myself totally to the
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points that have already been made and i'll come at it from the other questions you've asked. we have-- i don't know what the other-- what the earlier enterprise funds did. in the course of taking this on, i talked most of the chai chairs. i know what jim has done and i know that. ... quality of the board and how the board interacts and governance in the board has been an obsession. and the quality of our staff, how we choose them, how we evaluate them after they've been chosen, how we help them build their own lives, because these are not people who see themselves as aid workers. i mean, they are tunisian professionals who chose to do eothis. it's important for us to invest in their futures as well as the deals.
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for us it has been in the possession. it has been an obsession. i don't know to the degree which it is buried in other egplaces but they have all said to me that you live or die by the value of your board and the quality of your people. having managed staff's for somewhere in the neighborhood of 45 years, i learned a long time ago, you live or die by the quality of people you work with them by the quality of the board you choose. a a i don't know if that's a terribly good answer but it's a way i approach it. q much more importantly is the question of development. i'm not where jim is yet. we are going to do fine in turn of the quality of the deals. tunisia doesn't offer the opportunity for the big hit so
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we will have a large number of small hits. our returns over the long run will be very good. i'm not yet at the point where i can solve the problems. i don't really see a conflict. what i disagree with is that you thought people didn't talk about development. i thought the three or four of us, that was at the center of what we said. from my point of view, you do not haveenheth f a well-functiog small and medium enterprise sector that produces growth, you do not have development for anything close to development. i have lived with this problem for god knows how many years. as i said, i was on the board of care for close to 20 years
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in shared it for almost half that time. they play the stupid games between some set of metrics and then the whole world called the economy and no matter what happens in the economy, it can go to hell as long as you meet your metrics. i just believe that. if we make a significant success in the creation of equitable growth to a small or medium enterprise sector, we have done an enormous and amount for tunisia and other countries were involved in. it's. we manage the funds at the rate of return and we talked
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to our investee's. as we now talk to outsiders, to outside money, it's that that we offer. we are not saying to them make some sort of compromise between the rate of return you want and what we want and it will work out, it's here's the rate of return that is available. there at a different place, it's not a place where they'llat be oceans of. private equity begin to flow in,, but what we can do is provide an example and i think were beginning to do is beginning to be possible for private money to make
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sufficient return to come to the place. >> we just push a littlee bit on the future of tunisia. he said this is a country that's a democracy. you said what i would really hope they offer for a country to go the right way, i really hope it's tunisia and it will be so great if that country would continue to have a democracy. are you optimistic about the future? >> i tunisia is fragile and you can talk to anybody there who won't tell you that. every time i go, and i'm going tonight, i have held for me a dinner party including all the heads of all the political parties. it is a fragile place. the degrees, kinds of negotiations that go on are
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excruciatingly difficult. it is okay to sit outside the that.y like i would remind you about the consensus on theme policy problems and they have them there too. they are making it day by day by day. there are going to be any big kind of startling breakthroughs. it's better now than it was a year ago and it's a hell of a lot better than it was a year before or year after the revolution when there were two political assassinations within six months.wa one of which occurred when i was there. you ask tunisians today, as opposed to 18 months ago, and they will also set it's a lot
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better than it was before the revolution. they would've said that 18 months ago but the beginning to say it. my optimistic? otyes. you can't become part of the country and have the great good fortune to run an enterprise fund or chair one without becoming deeply attached to the country. i think the leaders that country have shown immense courage and what they tried to do any immense resoluteness in trying to do it. i like everything they've done? no, i don't, but it's a tough job. >> and cognizant of the time and i want to call on this gentleman. get this gentleman a microphone. >> thank you. i spent 32 years in the bank and i was on the board of the
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fund and the czechoslovak fund. i would like to go directly to the question of getting good qualities of the board and good-quality staff members. because i spent 32 years in the bank, i can assure you we had very fine training in the array of finance and because i was retired, i can assure you there are a number of other retirees who have pensions, who enjoy their pensions but also look for challenges. they are available to you not only as members of the board but also as staff members. in the case of egypt, the number of people who worked in chase national bank of egypt and they retired and lived in new jersey and they talk about what it was like working in egypt and they are available. the same thing with arabic
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speakers who worked for the middle east in the bank and are available for my friends at citibank, morgan stanley are available for i just ask you to think about them as potential members of the board as well as potential staff members. >> thank you very much for that but i want to make a comment about development finance. we've written a lot over the the past five years about the topic that i want to come back to a comment about the issue of development. i agree with your assertion that there is, that development is private-sector lead and we have to think about the economy and we need growth. i do think there are different kinds of investors with different kinds of needs. i do think the issue of what taxpayers want, i think there's expectations about how
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we tell those stories and the kind of impacts they have. if we have a growing economy we can reduce unemployment and make it attractive for investors, that is development but i do think there are other metrics. the cdc or fmo, i've spent a lot of time trying to tell a larger story. >> we leave this to take you live to the un security council in new york meeting on the situation in the middle east including the palestinian question. >> the agenda is adopted. in accordance with rule 39 of the council provisional rules of procedure, i invite the special coordinator for the middle east peace process and personal representative of the secretary-general to participate in th


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