How does the inner experience of faith differ from popular perceptions of religion?

Alone, Yet Not Alone

JAN. 27, 2014

David Brooks

There is a strong vein of hostility against orthodox religious believers in America today, especially among the young. When secular or mostly secular people are asked by researchers to give their impression of the devoutly faithful, whether Jewish, Christian or other, the words that come up commonly include “judgmental,” “hypocritical,” “old-fashioned” and “out of touch.”

It’s not surprising. There is a yawning gap between the way many believers experience faith and the way that faith is presented to the world.

Rabbi Abraham Joshua Heschel described one experience of faith in his book “God in Search of Man”: “Our goal should be to live life in radical amazement…get up in the morning and look at the world in a way that takes nothing for granted. Everything is phenomenal. …To be spiritual is to be amazed.”

And yet Heschel understood that the faith expressed by many, even many who are inwardly conflicted, is often dull, oppressive and insipid — a religiosity in which “faith is completely replaced by creed, worship by discipline, love by habit; when the crisis of today is ignored because of the splendor of the past; when faith becomes an heirloom rather than a living fountain; when religion speaks only in the name of authority rather than with the voice of compassion.”

There must be something legalistic in the human makeup, because cold, rigid, unambiguous, unparadoxical belief is common, especially considering how fervently the Scriptures oppose it.

And yet there is a silent majority who experience a faith that is attractively marked by combinations of fervor and doubt, clarity and confusion, empathy and moral demand.

For example, Audrey Assad is a Catholic songwriter with a crystalline voice and a sober intensity to her stage presence. (You can see her perform her song “I Shall Not Want” on YouTube.) She writes the sort of emotionally drenched music that helps people who are in crisis. A surprising number of women tell her they listened to her music while in labor.

She had an idyllic childhood in a Protestant sect prone to black-or-white dichotomies. But when she was in her 20s, life’s tragedies and complexities inevitably mounted, and she experienced a gradual erosion of certainty.

She began reading her way through the books on the Barnes & Noble Great Books shelf, trying to cover the ones she missed by not going to college. She loved George Eliot’s “Daniel Deronda” and was taken by Tolstoy. “He didn’t have an easy time encountering himself,” she says, sympathetically. “I was reading my way from darkness into paradox.”

She also began reading theology. She’d never read anything written before 1835. She went back to Augustine (whose phrases show up in her lyrics) and the early church fathers. Denominationally, she went backward in time. She became Baptist, then Presbyterian, then Catholic: “I was ready to be an atheist. I was going to be a Catholic or an atheist. “

She came to feel the legacy of millions of people who had struggled with the same feelings for thousands of years. “I still have routine brushes with agnosticism,” she says. “I still brush against the feeling that I don’t believe any of this, but the church always brings me back. …I don’t think Jesus wants to brush away the paradoxes and mysteries.”

Her lyrics dwell in the parts of Christianity she doesn’t understand. “I don’t want people to think I’ve had an easy time.” She still fights the tendency to go to extremes. “If I’d have been an atheist I’d have been the most obnoxious, Dawkins-loving atheist. I wouldn’t have been like Christopher Hitchens.”

Her life, like all lives, is unexpected, complex and unique. Her music provides a clearer outward display of how many inwardly experience God.

If you are a secular person curious about how believers experience their faith, you might start with Augustine’s famous passage “What do I love when I love my God,” and especially the way his experience is in the world but then mysteriously surpasses the world:

“It is not physical beauty nor temporal glory nor the brightness of light dear to earthly eyes, nor the sweet melodies of all kinds of songs, nor the gentle odor of flowers, and ointments and perfumes, nor manna or honey, nor limbs welcoming the embraces of the flesh; it is not these I love when I love my God. Yet there is a light I love, and a food, and a kind of embrace when I love my God — a light, voice, odor, food, embrace of my innerness, where my soul is floodlit by light which space cannot contain, where there is sound that time cannot seize, where there is a perfume which no breeze disperses, where there is a taste for food no amount of eating can lessen, and where there is a bond of union that no satiety can part. That is what I love when I love my God.”

 

‘Purpose’ is the preachy new CEO buzzword

January 27, 2014 1:42 pm

‘Purpose’ is the preachy new CEO buzzword

By Andrew Hill

Leaders need a good explanation when reality clashes with values to which staff are committed

When Ellen Kullman, chief executive of DuPont, asked a contract worker on the production line making Kevlar, the fibre used in bulletproof vests, what he was doing, she got an unexpected response: “We’re saving lives.”

The comment underlined her conviction that a sense of purpose was far more effective at hiring, motivating and keeping staff than any corporate brand, vision or mission statement.

She was not the only chief executive at the World Economic Forum last week to use the term “purpose”, as business slowly battles to restore public trust. In making any company more resilient, “the most important thing is to focus on purpose,” said Brian Moynihan, who is wrestling Bank of America into post-crisis shape. “You have to be a purpose-driven organisation,” added Mark Weinberger, head of EY, one of the Big Four professional services groups.

But even chief executives differ on precisely what purpose is. If it cannot be expressed easily, I doubt they will make it stick. Yet if it can be boiled down to a general single sentence, to fit the many mundane tasks a company and its staff have to perform, I wonder how it differs from the much-derided, meaningless mission statement (Acme Widget: Meeting the Unmet Needs of Customers Everywhere).

One difference is that whereas chief executives (particularly new chief executives) can change missions and visions on a whim, purpose is far harder to shape. That is an advantage – if you can harness your company to your younger employees’ search for meaning at work, you will gain their loyalty – but also a pitfall. For one thing, as young employees grow up, their reasons for going to work will change. For another, as Asia experts at Davos reminded me, in some faster-growing markets such as China, the imperative for workers to make money easily trumps purpose. If the Kevlar worker had responded “I’m earning a decent wage to feed my family”, would it have meant he was any less motivated to do a good job?

Another reason that purpose is double-edged is that it gives off a whiff of the sacred. But a purpose that sanctifies work can also quickly become sanctimonious. Precisely because purpose is important to workers and customers, they will be quick to punish executives who appear to diverge from its path. When academics Sandra Cha and Amy Edmondson studied a maverick advertising agency with a charismatic leader a few years ago, they were surprised to discover that the same employees who had joined the company for its idealistic set of values were highly critical of its boss because they believed he was not living up to them. One reason was that the staff were interpreting the group’s purpose slightly differently – and more broadly – than the chief executive intended; the researchers called it “value expansion”.

One lesson is that even if purpose is more powerful than the old motivational methods, CEOs need a good explanation to hand when corporate reality clashes with the high-sounding values to which their staff are committed.

Facing such challenges, some chief executives must be tempted to return to simple pursuit of profit, or to assume that merely making good products well is sufficient. But such an attitude will not narrow the trust gap between business and the public. Unreliable products and services will undermine confidence in companies but customers and staff want companies to live up to higher standards of behaviour, too.

Dov Seidman, a consultant and advocate of “principled performance”, points toJohnson & Johnson

’s 70-year-old “credo” as a model. It states that the healthcare company’s first responsibility is to the doctors, nurses, patients, mothers and fathers who use its products and concludes: “When we operate according to these principles, the stockholders should earn a fair return.” He is suspicious of companies that use purpose for marketing or recruitment. “I want to know who is doing it to make money, and who is doing it because it is who they are,” he says.

As Ms Kullman points out: “We had a vision and a mission and nobody understood what they were.” But the appearance of purpose in Davos-speak is a warning to executives that it could suffer the same fate, hollowed of meaning by a combination of overuse, abuse, breach of corporate promise and general cynicism.

Acer founder open to son heading the company in future

Acer founder open to son heading the company in future

CNA
January 28, 2014, 12:10 am TWN

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Acer founder and chairman Stan Shih, right, and his eldest son Maverick Shih in Taipei, Jan. 27, 2007. (Photo/CNA)

TAIPEI — Acer Inc. (宏碁) founder Stan Shih (施振榮), who is trying to get the computer vendor back on track after three years of poor results, said on Monday that he is open to the possibility of having his eldest son, Maverick Shih (施宣輝), take over the company in the future.

Maverick Shih came to public attention on Jan. 23 when he was named president of Acer’s BYOC (Build Your Own Cloud) and Tablet Business Group as part of the company’s management reshuffle.

“I hope people will not put too much pressure on him. He needs to take more responsibility and learn as much as possible,” Stan Shih said at the Acer Digital Innovation awards ceremony when asked by reporters to comment on his eldest son’s promotion.

“It is a matter of corporate governance and something the future management team will need to decide. I’ll leave it as it is and expect him to contribute to the organization in his position,” said the 69-year-old founder, who returned to the struggling PC maker as chairman in November last year.

Maverick Shih, 40, joined Acer two years ago and gained sufficient experience in the cloud computing and software sectors relative to other Acer executives, making it natural to appoint him as the head of Acer’s cloud business group, Stan Shih said.

In a bid to revive the company’s waning fortunes, Acer announced organizational changes on Jan. 23 that included the establishment of a Notebook Business Group, a Stationary Computing and Display Business Group, and a Corporate Business Planning and Operations Group.

The Taipei-based manufacturer also renamed its cloud technology department the BYOC and Tablet Business Group and its e-enabling services as the e-Business Group.

The changes were triggered by Acer’s after-tax loss of NT$7.63 billion (US$252.6 million), or a loss of NT$2.8 per share, in the fourth quarter of 2013, including an unexpected NT$1.3 billion write-off of raw materials inventory.

That followed a loss of NT$13.12 billion, or NT$4.82 per share, in the third quarter, driven largely by the write-down in value of intangible assets. That loss resulted in the resignations of former CEO J.T. Wang and Corporate President Jim Wong on Nov. 21 last year.

Shares in Acer edged down 0.83 percent to NT$17.95 in trading in Taipei on Monday. The market’s benchmark index fell 1.58 percent on the last trading day before the Lunar New Year holiday.

 

Acer founder open to Maverick son taking over reins

CNA

2014-01-28

Acer founder Stan Shih, who is trying to get the Taiwanese computer vendor back on track after three years of poor results, said on Monday that he is open to the possibility of having his eldest son Maverick Shih take over the company in the future.

Maverick Shih came to public attention on Jan. 23 when he was named president of Acer’s BYOC (Build Your Own Cloud) and Tablet Business Group as part of the company’s management reshuffle.

“I hope people will not put too much pressure on him. He needs to take more responsibility and learn as much as possible,” Stan Shih said at the Acer Digital Innovation awards ceremony when asked by reporters to comment on his eldest son’s promotion.

“It is a matter of corporate governance and something the future management team will need to decide. I’ll leave it as it is and expect him to contribute to the organization in his position,” said the 69-year-old founder, who returned to the struggling PC maker as chairman in November last year.

Maverick Shih, 40, joined Acer two years ago and gained sufficient experience in the cloud computing and software sectors relative to other Acer executives, making it natural to appoint him as the head of Acer’s cloud business group, the elder Shih said.

In a bid to revive the company’s waning fortunes, Acer announced organizational changes on Jan. 23 that included the establishment of a Notebook Business Group, a Stationary Computing and Display Business Group, and a Corporate Business Planning and Operations Group.

The Taipei-based manufacturer also renamed its cloud technology department the BYOC and Tablet Business Group and its e-enabling services as the e-Business Group.

The changes were triggered by Acer’s after-tax loss of NT$7.6 billion (US$252.6 million), or a loss of NT$2.80 (US$0.09) per share, in the fourth quarter of 2013, including an unexpected NT$1.3 billion (US$42.8 million) write-off of raw materials inventory.

That followed a loss of NT$13.1 billion (US$431 million), or NT$4.82 (US$0.16) per share, in the third quarter, driven largely by the write-down in value of intangible assets. That loss resulted in the resignations of former CEO J T Wang and corporate president Jim Wong on Nov. 21 last year.

Shares in Acer edged down 0.83% to NT$17.95 (US$0.59) in trading in Taipei on Monday. The market’s benchmark index fell 1.58% on the last trading day before the Lunar New Year holiday.

 

Google Is Making A Land Grab For The Internet Of Things

Google Is Making A Land Grab For The Internet Of Things

Posted 12 hours ago by Pankaj Mishra (@pankajontech)

Before this past December, when Google acquired seven robotics companies back-to-back, the company’s ambitions in the “Internet of Things” space looked as detailed as a freshly started jigsaw puzzle.

But with its last three acquisitions — Boston Dynamics, Nest and DeepMind — it seems like Google is rapidly collecting the individual pieces to put together a “real life Internet,” a network of AI-driven robots and objects that could improve transportation, manufacturing and even day-to-day consumer life.

Google’s “real life Internet,” a business that reaches far beyond web search and online advertising, may look like a General Electric on the Internet of Things side, and an IBM on the software side — where artificial intelligence is at the core of products like Watson.

At least that’s what it looks like right now, as the search giant is gobbling up almost every company that could fit into the puzzle, combining hardware, software, analytics, robotics and artificial intelligence into, well, something.

Google X, the company’s skunkworks unit that’s been developing driverless cars among several other sci-fi-esque projects, now seems to be leading Google’s hefty meatspace ambitions.

One obvious extrapolation from all these acquisitions is that Google will be in the business of data for a long time. Covering computers, tablets and now phones with Android and building applications like Maps to harvest information about its hundreds of millions of users, Google is now looking far beyond traditional computing devices. Acquiring Nest, which builds smart home devices, was one swift lunge in that direction.

How many more of these diversity acquisitions will we see before 2014 closes out?

Since last Christmas, Google has dropped well over $4 billion on buying seven roboticscompanies and Big Dog maker Boston Dynamicsenlisting Android guru Andy Rubin to figure out what do with them.  Internet of Things darling Nest, and AI company DeepMind will operate outside of the robotics division, according to Liz Gannes.

Google is betting its future on the fact that one day our cars, refrigerators, mobile phones, computers and home devices will communicate with each other, generating insights that can be converted into data. And that these newer channels will result in a massive advertising opportunity.

But what can Google accomplish that IBM and GE cannot?

IBM has invested $1 billion in its AI-driven Watson project, which is expected to bring $10 billion in revenue over the next few years. Facebook too, has set up an artificial intelligence team to understand emotions, and according to The Information and a tipster, was even in the race to acquire DeepMind (our tipster held the Facebook bid at $450 million).

And good old GE is putting all its might behind building software platforms that bridge the physical world of industrial machines with the Internet — a strategy and aim similar to Google’s but for the machine world.

So far, IBM has depended heavily (perhaps doggedly) on Watson for making its artificial intelligence push work. Since its launch around three years ago, IBM has been pushing aggressively to turn its “Jeopardy”-winning computer into a business where healthcare and telecom companies pay to use Watson in real life. But as a WSJ piece earlier this month pointed out, IBM has been struggling to make it work.

On the enterprise side, both IBM and GE are still far away from making any big impact in terms of revenues, despite having the experience of working with Fortune 500 companies for decades.

Watson’s biggest challenge today is solving real-life problems and living up to the “intelligence” part of the artificial intelligence equation.

When asked by the New York Times what he wanted to build at Google, Andy Rubin brought up the example of a windshield wiper that turned itself on when it rains.

As humble as that sounds, Google ostensibly has a head start in terms of AI-practicality, with Google Now making strides in the proactive computing field. It also has a tremendous advantage in its treasure chest of user data, allowing it to predict and analyze patterns in behavior and needs more robustly than any competitor.

With one of the largest server architectures on the Internet, Google has the big computing power necessary for AI processing at its fingertips. It also has ancillary Google X efforts likeProject Loon

that could blanket areas in connectivity needed to power robotics.

A “real life Internet” may be closer than we think.

Thailand’s unanswered question: where is Thaksin?

January 28, 2014 6:17 am

Thailand’s unanswered question: where is Thaksin?

By Michael Peel in Bangkok

He hasn’t posted on his official Facebook or Twitter accounts for over a month and was last sighted on Webstagram posing with his daughters at the end of the trans-Siberian railway in December. Yet, nine years since Thaksin Shinawatra last won a contested election in Thailand and more than five years since he set foot in the country, his is still the name on many people’s lips in the run-up to fresh polls on Sunday – if they go ahead.

For his enemies, the self-exiled billionaire telecoms magnate is the dark corrupting hand behind all the administration of his younger sister, Yingluck, has done before and during a political crisis that erupted in November and led to violent clashes in Bangkok at the weekend.

To his core supporters – many of whom are due to rally nationwide on Wednesday – this scion of a political family in his north Thai heartland is a king across the water, still commanding fierce loyalty seven years after his ousting by the military.

“That coup of 2006 is the cause of all the problems in Thailand,” declared Attakorn Kantachai, a north Thailand radio presenter and pro-government activist, whose business card carries a picture of him with Mr Thaksin in Cambodia. “Thaksin’s policies benefited the people.”

The February 2 poll that Ms Yingluck’s ruling Puea Thai party has sworn to hold and the opposition to sabotageare in part about her absent brother and his legacy. Uprooting the “Thaksin regime” from southeast Asia’s second-largest economy is the main aim of the People’s Democratic Reform Committee activists who have been blockading roads in Bangkok since January 13.

Skirmishes are part of a battle that has raged since Mr Thaksin was removed from power, after notching landmark landslide election victories in 2001 and 2005 by wooing rural voters with subsidised healthcare and cheap loans.

Convicted of corruption in 2008 in a case he says is politically motivated, Mr Thaksin has since remained in a peripatetic exile centred on the Gulf emirate of Dubai, leaving both friends and foes to watch closely for signs of him shaping events at home before an eventual return.

Mr Thaksin has kept a pretty low profile by his standards since an abortive attempt by the Yingluck government to pass an amnesty law to whitewash politicians on both sides, including himself, accused of serious crimes.

He has said little about Thai politics other than a December Facebook post deploring its cruelty. Interviewed briefly by the Financial Times at a Dubai mall in November, he said he didn’t want to come home if he was “part of the problem”.

Yet, for all that apparent reticence, there is no secret about his influence on the government of his sister 18 years his junior, whom he once described as his “clone” and who campaigned for the 2011 election using the slogan “Thaksin thinks, Puea Thai does”. Mr Thaksin has traditionally set policies – such as the massive rice subsidy that is wildly popular with farmers but is unravelling amid cash shortages and allegations of corruption – and talked regularly to officials.

Noppadon Pattama, Mr Thaksin’s legal adviser, says it is natural the former premier speaks to Ms Yingluck: “they are brother and sister”. But he denies Mr Thaksin is orchestrating remotely the crisis strategy of a government that has often seemed a step slow in responding to events.

“Sometimes people do call him for advice, I won’t deny that,” Mr Noppadon said. “But the major part of the task has been carried out by those in Thailand.”

The latest reminder of how Mr Thaksin remains everywhere and nowhere in Thailand will come via the rallies planned this week of the “red shirts” who first sprang up to protest against his defenestration by the army in 2006.

It’s also a measure of his divisiveness that the red shirt leader, Thida Tawornseth, is still passionate about the ex-premier’s groundbreaking embrace of elections in Thailand’s coup-plagued politics – but more equivocal about the dynasty he has carved out for his Shinawatra clan in the process.

“For me, I don’t care about the family,” Ms Thida said. “But I care about the principle of democracy.”

 

Growth and globalisation cannot cure all the world’s ills; New forms of political conflict have emerged that are resistant to traditional prescriptions

January 27, 2014 7:33 pm

Growth and globalisation cannot cure all the world’s ills

By Gideon Rachman

New forms of political conflict have emerged that are resistant to traditional prescriptions

Faced with a dangerous political threat, governments the world over tend to place their faith in the same magic medicine – economic growth. When world leaders try to address the roots of terrorism, for example, they instinctively assume that prosperity and jobs must be the long-term answer. And when a regional conflict threatens to get out of control – in east Asia or the Middle East – the standard political response is to call for greater economic integration. From Europe to China, governments place their faith in economic growth as the key to political and social stability.

But just as doctors fear the emergence of superbugs that will not respond to existing drugs, so world leaders are beginning to witness the emergence of new forms of political conflict that are resistant to their traditional prescriptions – more trade and more investment, washed down with a good dose of structural reform.

Three political superbugs are causing special concern. The first is the spread of conflict in the Middle East. The second is the growing rivalry between China and Japan. The third is rising inequality in the western world – and the threat of social conflict that goes with it.

Delegates at the World Economic Forum in Davos, which ended last week, are the classic believers that capitalism and globalisation are the best antidotes to conflict. This belief is so deeply ingrained that it no longer even needs to be articulated. You can just see it in the way in which a Davos audience responds to political leaders.

This year it was President Hassan Rouhani of Iran who was received with great enthusiasm, largely because he seemed more interested in trade and investment than in nuclear weapons. Mr Rouhani did not shift Iran’s position on the difficult political issues – such as Syria, Israel or nuclear weapons – in any important way. But he sent a significant signal by beginning his speech with a statement of his ambition for Iran to become one of the 10 largest economies in the world. The Iranian leader also stressed the need to improve his nation’s relations with the rest of the world in order to achieve that goal. This emphasis on economics suggested to those in the audience that President Rouhani is literally a man you could do business with.

As a result, Mr Rouhani is in the novel position, for an Iranian leader, of being regarded as a voice of reason in the Middle East. But the president’s elevated status in the eyes of the Davos crowd is also a sign of how bleak things look elsewhere in the region.

No appeal to economic rationality is likely to end the war in Syria – where both sides are fighting for survival. It is also clear that the jihadists who are flourishing in Syria, Iraq and elsewhere are unmoved by the fruits of globalisation. Unless something goes seriously wrong, they will not be showing up in Davos any time soon.

Many still hope that an improvement in the economic situation of the Middle East will assuage the economic despair on which militant Islam is assumed to flourish. Yet not all jihadists hail from poor countries or impoverished backgrounds. Some of the militants showing up in Syria have travelled from Europe. Others have come from Saudi Arabia or the Gulf states. Jihadism is a disease that does not respond well to the traditional economic drugs.

The rise in tensions between China and Japan is an even more graphic illustration of the fact that economic self-interest is not a cure-all for political problems. China is now Japan’s largest trading partner and the biggest recipient of Japanese foreign investment – facts that many analysts still hope will make conflict between the two nations significantly less likely. Yet in some respects, China’s growing prosperity is actually driving the increase in international tensions in Asia. That is because the rise of China has altered the balance of power between Beijing and Tokyo and – combined with the bitter history between the two countries – that explains why relations are getting worse.

In Europe and North America it is the threat of political and social tensions within nations, rather than international rivalries, that are worrying the global plutocracy. A central element of the Davos creed is the faith that globalisation is good for both the western world and for emerging powers.

However, it is now almost conventional wisdom that the globalisation medicine has had an unpleasant side-effect. Even if it raises overall growth levels it has also powerfully contributed to wage stagnation and increasing inequality in the west. As a result, European politicians are worrying about a possible resurgence of the nationalist right and the radical left. And the Americans are increasingly worried about the gap between the richest 1 per cent and the rest – and the political consequences should the gulf keep widening.

It is easy to mock the global plutocracy – fretting about war and inequality – as they sip fine wines, behind a security perimeter high in the Swiss mountains. Yet global bankers and business people are, at least, largely immune to the viruses of xenophobia and nationalism. Their unofficial slogan is “make money, not war”. And they treat foreigners as potential customers rather than potential enemies.

In that sense, the idea that capitalism and globalisation are the best antidotes to political conflict – for all its flaws – retains a lot of attraction. Even if the old economic treatments for political conflict are losing some of their potency, they are still the best we have.

 

Finance: In search of a better bailout; Proposals to overhaul sovereign debt restructuring are raising fears of unintended consequences

Finance: In search of a better bailout

By Robin Wigglesworth

Proposals to overhaul sovereign debt restructuring are raising fears of unintended consequences

For two years Petros Christodoulou had one of the world’s toughest jobs. As head of Greece’s debt office his first task was convincing increasingly sceptical investors to lend to Athens. Then he had to orchestrate the biggest government debt restructuring in history amid a cacophony of protest from bankers, politicians, hedge funds and European leaders.

Mr Christodoulou, who had spent years as a trader at JPMorgan and Goldman Sachs, held his nerve but the pressure was too much for some of his staff, who quit. Once the restructuring was complete, he too left Greece’s debt management office. “It was a tremendously strenuous situation,” he admits. “When Armageddon hits you’re always less prepared than you think.”

Still, Mr Christodoulou feels there are valuable lessons to be learnt from Greece’s bruising experience with sovereign debt restructuring. “The system needs to be fixed,” he says. “We should have a predictable framework for restructurings that ensures that other countries do not have to go through what Greece did.”

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He is not alone in thinking that the bankruptcy process for countries should be overhauled. The eurozone crisis has triggered a boisterous discussion among policy makers, investors, economists and academics about the merits and pitfalls of the framework for sovereign restructurings, or rather, the lack of one.

Even the Canadian and UK central banks have weighed in with opinions on how to improve the system.

The debate has grown more heated since Elliott Management, a US hedge fund known for extracting money from defaulting countries, scored a legal victory in 2012 over Argentina in a protracted courtroom battle. Although Elliott has yet to extract a peso from Buenos Aires, many experts fear that its initial success has handed a potent weapon to creditors that will further complicate future sovereign restructurings.

This is not merely an arcane discussion over what went wrong with Greece but a politically fraught debate that could still have a seismic impact on the global financial system. The eurozone crisis has abated but many fear that the fundamental problem it highlighted – high levels of government debt across much of the world – remains a danger.

Philip Wood of Allen & Overy, the law firm that advised Greece’s creditors, says: “I hope Greece was a one-off but I am not sure it was. If you look at all the debt out there it is hard to conclude that there isn’t a problem. State bankruptcies have not gone away. In fact they are likely to get worse.”

Last year, the fund decided to throw its weight behind those who felt the current system was riddled with problems. In a far-ranging paper released in April, it floated a series of proposals that thrilled many proponents of an overhaul and horrified opponents.

The IMF’s primary argument was that countries tend to restructure too late, and when they do the debt relief they obtain is too modest. That means that any bailout loans provided by the fund, or other official sector lenders such as development banks or neighbouring countries, in effect go to pay off private creditors and merely add to a daunting debt burden.

The IMF therefore plans to explore ways to get creditors to “voluntarily” reschedule a distressed country’s debt repayments when it cannot say for certain whether the government is facing a temporary downturn or a full-blown solvency crisis. Only after that stage would the fund step in with a rescue programme.

The IMF is also seeking ways to address the threat posed by the Argentine litigation. Stripping away the euphemisms it means the fund would require countries to default on their debts and creditors to swallow a loss – albeit mild – if a country is forced into its arms. Yet Hugh Bredenkamp, deputy director of the IMF’s policy department, argues this is necessary to avoid a repeat of cases such as the Greek crisis.

“Recent experience shows that debt restructurings have often been too little, too late, thereby impeding economic recovery, deterring investment and creating opportunities for private creditors to cash out in a run up to the restructuring, leaving the official creditors – that is the taxpayers – to bear the burden,” he says.

I hope Greece was a one-off but I am not sure it was. If you look at all the debt out there it is hard to conclude that there isn’t a problem

– Philip Wood of law firm Allen & Overy

The IMF is now engaged in a protracted consultation with economists, academics, investors, bankers and officials over its proposals. It hopes to present refined proposals to the fund board for approval in June.

Even after that the IMF expects more discussions will be necessary. “We are proceeding carefully, and without any urgent deadlines or imminent needs in mind,” Mr Bredenkamp stresses.

Some experts think the IMF is not going far enough. They want a comprehensive framework for state bankruptcies akin to a proposal it floated a decade ago. The initiative, known as the Sovereign Debt Restructuring Mechanism, mimics aspects of corporate bankruptcies, with the fund playing the pivotal role as judge. But the initiative foundered after the US withdrew its support.

The IMF is at pains to stress that it is not seeking a “statutory” solution to the problems it identified. It is primarily exploring changes to its lending policies and modest improvements in the restructuring process through bond contract tweaks.

These could include beefing up “collective action clauses”. They rose from the ashes of the mechanism and allow a supermajority of bondholders to vote on a restructuring that binds everyone. They are now common in bond markets, and limit the chances that minority creditors such as hedge funds such as Elliott can undermine a deal. But they are far from universal, or a panacea, which is why the fund wants to sharpen them.

“The fund is looking for something that will make the system work a little bit better,” says Anne Krueger, who was the leading champion of the SDRM as first deputy managing director of the IMF in 2001-06. “Obviously it would help to have a statutory mechanism in place but the question is whether it is feasible within the political constraints.”

. . .

Yet the Committee on International Economic Policy and Reform, an influential think-tank, has backed the IMF and urged it to go even further in some areas. In a paper called “Revisiting Sovereign Bankruptcy” published in October, the think-tank advocated a statutory system for the eurozone, sweeping bond contract reform and the creation of a “sovereign debt adjustment facility” under the aegis of the IMF. This would combine fund lending with debt restructuring under clearly defined ex ante criteria.

Lee Buchheit, a partner at Cleary Gottlieb, legal counsel of choice for distressed countries and co-author of the CIEPR paper, concedes that resistance to the proposals is fierce. Yet he is confident that the debate will bear fruit. “It’s just so hard to come up with good policy arguments against it,” he says.

Nonetheless, there are plenty of officials, lawyers, academics and investors who have lined up to criticise even the IMF’s more modest proposals. They warn that if implemented, the plan would have severe unintended consequences that could in extremis have systemic implications.

Mr Wood argues that despite concerns over the impact of the Argentine litigation, the current system “seems to work quite well”. He points out even Greece’s mammoth, politically fraught restructuring only took months. “There is a legal vacuum in sovereign restructuring but that doesn’t mean there is anarchy.”

While the fund reckons restructurings are often late and inadequate, investors worry that it will now veer too forcefully in the opposite direction, with action triggered by facile debt thresholds, for example. IMF officials stress it is seeking only judicious, gentle “rescheduling” when it cannot say for certain that the debts are sustainable, but many money managers are sceptical.

Some fund managers predict that this would raise the borrowing costs of countries and make crises more frequent and more painful. As soon as investors get a whiff of a possible IMF programme the country involved would be frozen out of debt markets. Money could even start gushing out of the domestic banking sector, swiftly escalating mild concerns into a full-blown financial crisis.

It is not only self-interested investors who are worried. Moody’s, the rating agency, has warned that the proposed IMF “policies may improve the resolution of sovereign debt crises but they will probably increase the likelihood, move forward the timing and increase the severity of debt restructurings”.

. . .

Some experts argue that the fund needs to stiffen its political backbone, not its policies. After all, the IMF initially endorsed the restructuring-free bailout of Greece following intense pressure from its European shareholders. If the fund is sceptical that a country’s debts are sustainable, it can in theory use its position as a lender of last resort to force a country to restructure its debts.

“There’s nothing missing in the IMF toolkit except political will,” says Anna Gelpern, a law professor at Georgetown and co-author of the CIEPR paper.

Most crucially, some of the IMF’s own shareholders seem to be harbouring doubts. The US Treasury is concerned by the emboldening impact that Elliott’s victories over Argentina could have on other hedge funds. But the Treasury favours a pragmatic, case-by-case approach rather than adopting what it feels will be a policy of presumptive restructurings. Even European governments that supported the SDRM initiative are concerned that the proposals could scare investors away and reignite the eurozone crisis.

Despite the opposition, some of the IMF’s proposals are likely to survive. For example, less contentious measures, such as beefing up Collective Action Clauses to allow restructuring votes across a country’s debts rather than just bond-by-bond, could be implemented. These will, in time, ameliorate the danger of Argentine-style litigation.

The very fact that the IMF is re-examining its lending policies could also have an impact. It is clearly trying to signal that creditors should not expect to emerge from all future IMF programmes unscathed.

Irrespective of what the fund board and government shareholders eventually decide, Mr Buchheit argues its staff will get one thing they want: “A message to markets that the assumptions of full bailouts in all cases are unfounded, and to troubled debtors of the future that they should expect to have to restructure.”

Even some old foes of IMF over-reach support that view. John Taylor, an economics professor at Stanford, was a leading opponent of the SDRM as US Treasury undersecretary for international affairs in 2001-05, but agrees the sovereign restructuring process now needs fixing.

He still favours a contractual approach but argues the fund should have a restructuring policy as automatic, clear and credible as possible. “We have to get away from this bailout mentality,” he adds.

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An alternative fix for the faultlines

The International Monetary Fund is not the only powerful institution to support a reworking of the sovereign debt restructuring process.

In November the UK and Canadian central banks jointly presented their own solution to the “faultlines” in the present regime revealed by the eurozone crisis.

The jointly authored paper proposed that governments start issuing “contingent convertible” bonds, and bonds where the returns are linked to economic growth. So-called “sovereign cocos” would automatically extend repayment times when countries receive a bailout. Growth-linked bonds would pay out according to a country’s economic output, rather than a fixed amount, irrespective of the conditions of state finances.

These would help resolve future debt crises and reduce moral hazard and the demands on the public purse, the central banks argued.

There have been several similar proposals in the past but Mitu Gulati, a law professor at Duke University, points out that the two central banks enjoy some clout in policy making circles. “The Bank of England does not have a habit of wasting its time, and they’re really pushing this idea with the Bank of Canada,” he says.

The paper recognised that there could be resistance to its ideas and notes the dearth of sovereign cocos and gross domestic product-linked debt, despite the apparent economic logic. But the authors highlight how international backing ensured that “collective action clauses” – which allow a majority of creditors to vote on a restructuring that binds all – have become ubiquitous.

This experience suggests that it would be possible to implement the two types of state-contingent bonds proposed, the paper argues.

Crucially, the central banks’ proposals would be a “contractual” approach to tweaking the sovereign debt restructuring process, which the IMF now says it favours, as opposed to a more heavy-handed “statutory” fix.

However, that means that even if the ideas are championed by policy makers and countries begin issuing bonds with these provisions, it will take many years before most government bonds in circulation include the clauses.

 

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