The property complex

How a housing downturn could wreck China’s growth model

Evergrande’s woes expose the economy’s unhealthy dependence on property


Add “malicious price-cutting” to the growing lexicon of Xi Jinping’s China. 

The phrase has cropped up in the past but is being increasingly used by provincial authorities to decry property developers’ attempts to slash home prices. 

Some developers, desperate to bring in revenue, are offering discounts of as much as 30%. 

Officials, fearing that the price cuts might frustrate recent homebuyers and lead to protests and distortions in the property market, regard the discounts as undermining social stability and have banned them. 

In the central city of Yueyang the government has told developers to stop increasing prices but also to refrain from reducing them by more than 15%.

In such cases both regulators and developers are walking a tightrope, teetering between sky-high prices and a damaging downturn. 

The property market is probably the single largest driver of the country’s economy. Urban Chinese have flocked to it as a haven. 

House prices have soared over the past 15 years, often by more than 10% a year in large cities. 

Yet developers have borrowed huge amounts in the process. 

The industry’s total debt is about 18.4trn yuan ($2.8trn, equivalent to 18% of gdp), according to Morgan Stanley, a bank. 

Housing costs, relative to incomes, now make large Chinese cities some of the least affordable places in the world.

These trends have collided with officials’ goals of reducing corporate indebtedness and inequality, which lie at the heart of Mr Xi’s mission to bring “common prosperity” to China. 

The campaign has already brought down several large real-estate companies as regulators have tightened their access to credit. 

The latest is Evergrande, a developer with about $300bn in liabilities that has started to miss payments on dollar bonds. 

(As The Economist went to press Evergrande seemed to have missed another offshore-bond payment, due on September 29th.) 

The fear for officials is not just that the unwinding of the group will unleash systemic financial risks. 

If the property sector were to tip into a correction, everything from local-government and household finances to the country’s growth model would be imperilled.

China’s leaders have cheered on the property boom for the best part of 30 years. 

When the central government overhauled the tax system in 1994, local authorities lost a large chunk of revenue. 

At the same time, local governments were prevented from issuing debt. 

Yet they were tasked with hitting high economic-growth targets, sometimes exceeding 10% a year. 

Selling land became one of the few things municipal officials could do to generate revenues, which would in turn finance roads and other public works. 

They could also set up companies that could borrow from banks and raise debt from other sources. 

This arrangement meant economic growth was tightly bound to booming property.

Between 1999 and 2007 the quantity of rural land transferred to urban use increased by an average annual rate of almost 23%, and public-land sales soared by an average of 31% a year. 

Soon the property market became the prime lever for controlling economic growth. During the global financial crisis much of China’s $586bn stimulus package came in the form of loans and shadow-banking funds for developers. 

“The property market was a vehicle for delivering the stimulus,” says Kevin Lai of Daiwa Capital Markets, a broker. 

By 2010 land sales accounted for more than 70% of municipal incomes a year, although the rate varied between regions.

The failure to break away from this setup is one of China’s biggest economic blunders of recent decades. 

The relationship between the property market and overall growth remains as strong as ever. 

Residential investment alone makes up 15% of gdp; the economic importance of property rises to 29% once construction and other related industries are added in, according to an estimate by Kenneth Rogoff of Harvard University and Yuanchen Yang of Tsinghua University. 

As a result, homebuyers and developers alike have considered the housing market too important to fail, finds Hanming Fang of the University of Pennsylvania. 

They have treated their investments as one-way bets.

The Evergrande crisis and some property indicators are beginning to threaten that long-held belief. 

Malicious price-cutting may be in the headlines, but only especially cash-strapped developers have resorted to it. 

Yet demand is weakening from its high base. 

One gauge is growth in prices, which has slowed in recent months. 

Another is the secondary market, where speculative investors cash out. 

In Shenzhen, a southern boomtown, transactions fell for four consecutive months to 2,423 in August, compared with a monthly average of 8,376 in 2020, according to Rhodium Group, a consultancy.


The easy stream of credit that kept construction sites buzzing is drying up. 

Access to bank and shadow-bank loans, as well as demand for on- and offshore bonds, is weakening for the industry in general, says Cedric Lai of Moody’s, a rating agency. 

Net offshore dollar-bond issuance has turned negative for developers for the first time in at least a decade (see chart 1). 

Land sales for residential projects declined in the first half of the year, mainly because of government limits on bank exposures to developers. 

s&p, another rating agency, has downgraded many developers to junk. 

Moody’s says its outlook on China’s property sector is now negative.


Such news has grabbed the attention of local officials. 

Declining demand for homes and a shortage of funds will mean less demand for land. 

The development of a municipal-bond market over the past decade has helped some regions move away from land sales. 

But on the whole local officials have only become more addicted. 

Total government sales revenue has climbed since 2015 and reached about 8.3% of gdp in 2020 (see chart 2). 

Any decrease bodes ill for the economies of smaller cities.

Households, meanwhile, are on some measures more exposed to property than ever. 

In 2019 housing represented about 60% of their total assets (financial assets accounted for just 20%). 

This overreliance has driven up mortgage debt to about 76% of total household liabilities. 

As developers lost other forms of funding over the past five years they became heavily reliant on pre-sales income, where buyers pay for their homes, sometimes in full, months or years before completion. 

Between 2015 and July 2021 the share of pre-sale revenue as a source of funding for developers rose from 39% to 54%, according to Natixis, a French bank. 

Some of the people who paid in advance for Evergrande homes or bought one of the company’s wealth-management products have protested outside its offices.

Investors are now waiting for government action. 

Some expect that, as the economic outlook darkens, officials will ease monetary conditions. 

Most banks have used up government quotas for property-sector loans this year, says Zhang Zhiwei of Pinpoint Asset Management, a hedge fund based in Shanghai. 

The quotas will be renewed in January, leading to a burst in lending, he says. 

Raymond Yeung of anz, a bank, thinks that regulators are well enough informed of the risks that few other developers will encounter the same problems as Evergrande. 

A property slowdown might knock a half of a percentage point off gdp growth this year, he says. 

Mo Ji of Fidelity International, an asset manager, says she expects the turbulence to take a percentage point off growth.

The short-term outlook, however, might ignore a bigger secular shift. 

Mr Lai of Daiwa says the market is “very close to the end of the housing boom”, because the accumulation in debt cannot continue. 

Efforts to make China more equal could mean more moderate price rises in future, says Oxford Economics, a consultancy. 

Whether China’s unfavourable demographics can continue to support a market of this size over the next decade is an open question, reckons Mr Yeung.

Few options for decoupling economic growth from housing exist. 

China should have focused more of its construction on megacities, which tend to have diverse sources of funding and competent administrators, says Andy Xie, an economist. 

Instead local officials in small towns have squandered land revenues, often spending on vanity projects even as young workers leave for large cities. 

For the economy to end its unhealthy dependence on property development, it may be necessary for many local governments to cease to exist.

It is time to lop off the dead hand of the Treasury

Politicians should consider radical alternatives to managing an unpleasant normality

Martin Wolf

UK chancellor Rishi Sunak is a politically effective spokesman for the Treasury © Leon Neal/Getty


“Low-tax Conservatism has been dumped, but the Treasury’s fiscal conservatism is alive and well.” 

This, suggests the Resolution Foundation, is what is happening with UK fiscal policy. 

This is right. 

The Treasury is the most powerful government department. 

With Rishi Sunak as chancellor, it also has a politically effective spokesman. 

One cannot be surprised it is winning. 

But one must not be entirely pleased either.

The Treasury is competent, but it is also defensive and defeatist. 

Nicholas Macpherson, a former permanent secretary, captured this perfectly in a recent article: the Treasury is defensive, because controlling public finances is a “Sisyphean task”; and it is defeatist, because “No chancellor has managed to get tax receipts above 34.1 per cent of national income” over the past 50 years. 

Indeed, the Treasury’s defeatism is deeper even than this. It is institutionally sceptical about anything that comes from spending departments and is particularly sceptical about schemes for economic improvement.

It takes a strong and determined government or a colossal crisis, such as Covid-19, to over-rule these inclinations. 

The Treasury’s scepticism will probably make the “levelling up” ambition handed to Michael Gove infeasible. 

That would require substantial spending and delegation of fiscal and other powers to local governments. 

Such things will happen only over the Treasury’s dead body.

Levelling up is not the only source of fiscal pressure. 

The UK electorate wants a European welfare state, but it does not wish to pay the taxes that this needs. 

The decision to use national insurance, a levy on employees, to fund spending designed to fund the national health service (used predominantly by the old), as well as to protect bequests of houses, underlines the reluctance to redress the loopholes in the tax system or to raise new taxes in a just way. 

It also justifies the Treasury’s scepticism over the UK’s ability to raise taxes.


This also has big implications for public spending: health and social care will gobble up the extra money, leaving little over for other departments. 

Thus, says the Resolution Foundation, the share of “core” day-to-day spending on health and social care will jump from 28 per cent of all such spending in 2008-09 to 40 per cent by 2024-25. 

This squeeze will not be as harsh as that of the 2010s. 

But the impact of the latter will not be reversed. 

Many services will feel dreadfully underfunded. 

The spending plans to be announced soon will demonstrate this.

Another paper from the Resolution Foundation points to a “big squeeze” on the incomes of low-to-middle-income people via higher inflation, especially higher energy bills. 

For 4m families on universal credit, this will be compounded by a £20-a-week cut this month. In April next year comes the higher national insurance levies.

More broadly, according to the OECD, in 2022 real gross domestic product will only be 1 per cent higher than it was in 2019. 

Indeed, the economy may never return to the levels suggested by the pre-crisis trend.


Brexit allowed the country temporarily to transfer anger and disappointment to a nationalist cause. 

Then came the overwhelming shock of Covid-19, which transferred attention to something even more pressing and opened the fiscal floodgates. 

Now, we return to normal. 

The problem, as the Office for Budget Responsibility will make clear, is that it will be an unpleasant normal, despite an unexpectedly strong economic recovery. 

It will be made even more difficult by the substantial costs to individual households and businesses of lowering their carbon emissions.

The Treasury regards managing such an unpleasant normality as its job. 

But both people and politicians could consider alternatives. 

One would be to admit that a European-style welfare state requires European taxation.


This is possible. According to IMF data, Germany’s taxes averaged 45 per cent of GDP from 1991 to 2019, as against the UK’s 35 per cent. 

Yet, despite unification, Germany’s real GDP per head was 16 per cent higher than the UK’s in 2019. 

It is perfectly possible then for a country to be rich while having a bigger state. 

But if that is to be a persuasive argument, we would need a far better state.

This, in turn, requires politicians willing to embrace more radical policies, including more spending on research, education and training, regional development and the energy transition. 

They need to combat the negative presuppositions in the UK policy debate so deeply embedded in the country’s most politically powerful institution. 

Yes, macroeconomic stability matters. 

But there must also be confidence that governments are able to bring improvement.


The Economic Risks of Pandexit

Although everyone hopes that Pandexit, or the end of the COVID-19 pandemic, will come soon, the economic benefits will not be unalloyed. One plausible downside scenario is that current price pressures intensify and inflation rises further, eventually requiring a monetary response.

Howard Davies


EDINBURGH – People have been using “exit” as a suffix for a decade or so. 

Grexit, referring to a potential Greek departure from the eurozone, was the first to emerge. 

Italexit made a brief appearance, and has recently been revived on the Italian right. 

But neither has come to pass. 

Nor has Frexit, or France’s unilateral withdrawal from the European Union. 

The far-right politician Marine Le Pen previously flirted with the idea, but then let it drop. 

And the only candidate in the 2017 French presidential election who advocated it, François Asselineau, won just 0.9% of the vote.

In one policy area after another – from trade to taxation to labor markets – the decades-old consensus in the United States has been replaced with something very different. 

But policymakers elsewhere would be wise to consider their own countries’ circumstances carefully before following America’s lead.

Such exits seem to put off most continental Europeans. 

To date, only Brexit has actually happened, even though polls in the month before the United Kingdom’s June 2016 referendum showed that more French than British voters were unhappy with the EU, by a margin of 61% to 48%.

All these potential and actual exits were regarded by most economists as undesirable. 

Now another is under discussion that everyone hopes will happen: Pandexit. 

This unsightly portmanteau encapsulates the optimistic idea that we can soon hope to put the COVID-19 pandemic behind us, and go back to kissing casual acquaintances (on the cheek at least) and jamming ourselves like sardines into trams and trains in cities from New York to Tokyo.

There is little doubt that, in economic terms, the first-order consequences of a return to normal social interactions will be positive. 

Researchers at the Bank for International Settlements (BIS) estimate that the pandemic caused an 8% output loss in developed countries in 2020, and project a further decline of just over 2% this year. 

Relaxation of travel and other restrictions should deliver a powerful recovery in 2022, although its extent will vary greatly across countries depending on infection and vaccination rates. 

And, of course, a general upsurge in infections or reinfections could produce a third wave of economic pain if further restrictions on activity were required.

Moreover, not all of Pandexit’s economic benefits will be unalloyed. 

Central bankers, who are skilled at turning opportunities into problems, are already worrying. 

While their baseline economic scenario is positive, they see significant risks.

“Policymakers still face daunting challenges,” the general manager of the BIS, Agustín Carstens, said recently. 

“Public and private debt are very high, and the pandemic’s adverse legacies are large.”

Carstens’ key point is that the economic damage created by COVID-19 has been mitigated by “unprecedented macroeconomic policy accommodation”: very low interest rates and massive doses of quantitative easing, along with “ample” fiscal support. 

The degree of budgetary assistance has varied from country to country, and is much greater in the United States than in Europe, for example. 

But government debt has risen sharply everywhere, and is now at unprecedented levels in countries like Italy and Japan.

Against this background, the BIS has identified two dangerous downside scenarios. 

The first is essentially epidemiological: new coronavirus variants may emerge, necessitating further lockdowns and fiscal support, which might be infeasible for some governments. 

But in my view, further lockdowns will prove to be politically impossible. 

So, if new virus mutations spread rapidly, we will need to muddle through as best we can, and hope that vaccinations minimize additional deaths.

The second downside scenario, which I regard as much more plausible, is that current price pressures intensify and inflation rises further, eventually requiring a monetary response. 

US consumer price inflation was 5.4% in the year to July. 

The Baltic Dry Index, which tracks shipping rates for dry commodities, is up by about 170% this year. 

And supply constraints are emerging in many regions.

The official line from the US Federal Reserve and other central banks is that this inflationary surge is transitory. 

But as the French adage has it, “rien ne dure comme le provisoire” (nothing lasts like the temporary). If the current central bank consensus is wrong, as former US Treasury Secretary Larry Summers and others believe it to be, there could be trouble ahead.

Monetary tightening during Pandexit will have more than usually serious consequences. 

Because central banks have hoovered up so much government debt, the average maturity of government bonds has effectively shortened, so public-sector balance sheets are more sensitive than usual to changes in short-term interest rates.

Governments will not be happy with their countries’ central bankers for tightening policy, because this could have direct fiscal consequences.

In addition, monetary tightening in the developed world, especially the US, will be highly undesirable for emerging markets. 

Most are still struggling to control the pandemic and have much lower COVID-19 vaccination rates than Europe or North America, notwithstanding recent welcome signs that rich countries are now more willing to share their vaccine stocks.

In responding to the pandemic itself, we have all faced similar challenges, and the mix of policies governments have used has been broadly the same. 

In the Pandexit period, all that could change. 

Measures that might make sense for countries with low COVID-19 infection rates and manageable public debt could spell economic disaster for others.

Carstens thus calls for normalization of monetary policy “to be very gradual,” though he also, as one might expect, asserts the primacy of inflation control and central bank independence. 

He might have added that we will need more international policy coordination, something that has scarcely been in evidence in the last year and a half. 

The BIS itself has a job to do.


Howard Davies, the first chairman of the United Kingdom’s Financial Services Authority (1997-2003), is Chairman of NatWest Group. He was Director of the London School of Economics (2003-11) and served as Deputy Governor of the Bank of England and Director-General of the Confederation of British Industry. 

George Soros Is Making Changes at His Foundation While He Still Can

The result is a painful restructuring to focus on the fight against rising authoritarianism around the world.

By Nicholas Kulish

George Soros, in 2018.Credit...Damon Winter/The New York Times


The mass email that went out to Open Society Foundations’ grant recipients in the United States in March began with an upbeat note about “how resistance is translating into real progress.”

The bad news was buried farther down. 

The left-leaning foundation — started by the billionaire investor George Soros and today the second-largest private charitable foundation in the United States — was beginning a transformation, as officials there refer to their restructuring plan. 

So, the email said, “the nature of many partnerships will shift.”

What that actually meant in practice only became clear amid a flurry of phone calls between concerned nonprofit leaders and foundation staff in the days that followed. 

Many of the nonprofit groups that relied on support from Open Society were getting what were called “tie-off grants,” a final year or so of funding to ease the blow of getting cut off. 

The foundation set aside an enormous $400 million for what amounted to severance payments to organizations around the world, and more than 150 foundation employees took buyouts as part of the restructuring.

Grant recipients in public health said they were stunned to be told during a global pandemic that they would be losing funding. 

Others supporting refugees were similarly surprised given the worldwide needs of the refugee population and the fact that Mr. Soros himself was a refugee from communism.

For years, Mr. Soros watched the world march in fits and starts toward the vision of open, pluralistic democracy that he has embraced since he was a young Hungarian Holocaust survivor studying philosophy.

The changes at the Open Society Foundations are a painful but necessary adjustment, its leaders say, because that march has halted. 

Now, with its founder in his 90s, the foundation — and the world — confronts rising authoritarianism and deeply divided civil societies. 

In the United States, that means that Mr. Soros’s work on progressive causes has made him a target of right-wing conspiracy theories.

And in 2018, in his native Hungary, Open Society was forced to close its office under intense pressure from the government of Prime Minister Viktor Orban, a onetime recipient of a grant from the group.

“From a high-water mark in the early 2000s, we’ve really seen a recession of democracy and human rights,” Mark Malloch-Brown, the president of the foundation, said in an interview. 

“We’ve been a little bit peacetime generals at a time where, actually, we’re in a war again.”

The announced funding changes set off months of recrimination and criticism within the sprawling Open Society Foundations, a patchwork of separately constituted national organizations, regional offices around the world and thematic programs based chiefly in New York. 

Those tensions erupted at an all-staff meeting in early May, when some Open Society employees demanded to know why staff members had not been more closely consulted and accused the foundation’s leadership of “gaslighting” them. 

Several argued that the changes did not address internal problems with racism and sexism that the organization needed to deal with.

Lurking in the background of every discussion is the fact that Mr. Soros just celebrated his 91st birthday. 

He is a year older than Warren Buffett, who recently stepped down as a trustee of the Bill and Melinda Gates Foundation. 

The sprawling foundation Mr. Soros has funded for decades wants to refocus while he can still weigh in on the question that many large philanthropies face, which is how to keep the vision of the founder alive after he or she is gone?

Mr. Soros declined through a spokesman to be interviewed for this article. 

Mr. Malloch-Brown, 67, the group’s new president and a veteran of the United Nations, the World Bank and the United Kingdom’s foreign office, is steering the organization through the transition period.

“In its early days, the foundation was much better at adding things than closing things. 

That was the luxury of what, then and now, remains a very generously funded foundation,” Mr. Malloch-Brown said. 

“We’d lost that more strategic purpose and sharp edge of ‘Hey, the stuff we really care about is under assault all around the world and we just need to get a lot more strategic about addressing it and confronting it.’”

Some staff members, including many associated with the employees’ union in the United States, have come to view the changes as not just about Mr. Soros’s priorities, but also those of outside consultants with a more homogeneous vision for what has always been a uniquely complex institution. 

They described a corporate-style streamlining recommended by the Bridgespan Group, the Bain & Company nonprofit spinoff. 

The revamping included little input from people working directly with grantees, employees said.

On Thursday, more than 150 employees, nearly one in 10 at the foundation worldwide, saw their buyouts go into effect and some were already cleaning out their desks.

“Why not consult those closest to the work on the front line about what the transformation should look like?” said Ramzi Babouder-Matta, a program administrative specialist at Open Society Foundations who is among those leaving. 

“It feels like a small group of leaders making top-down decisions without meaningfully engaging staff.”

The Legal Action Center, which works on criminal justice and drug policy reform and received $350,000 a year from the foundation, about 5 percent of the center’s overall budget, got its tie-off in July. 

“It’s very hard to find that funding in the areas that we work in because there’s so few philanthropies that support it,” said Paul N. Samuels, the center’s president.

Like many groups funded by the foundation, the center, and Mr. Samuels, remain in limbo, hoping that when the restructuring is over, they will begin to receive grants again. 

“Losing one of the pillars of the philanthropic world’s support would really be a major loss, which we’re very hopeful would not happen,” he said in an interview.

Those hopes may not be in vain. Some grantees will be picked up again by other parts of the organization when the restructuring is completed. 

Indeed, the foundation said it expected to spend more on public health and on refugees this year than last. 

A spokeswoman added that it was able to evacuate 270 of the group’s Afghan employees and their families in recent weeks.

But Mr. Samuels and others acknowledged that the very nature of relying on funding from foundations is uncertain and the advanced notice and tie-off grants eased the process significantly.

Rank and file staff members and leadership agree that some kind of reform was almost certainly necessary for a fragmented and even duplicative operation that sprang up over decades in somewhat unplanned, ad hoc fashion. 

Mr. Malloch-Brown says the transformation will put the philanthropy, which spends over $1 billion on causes annually, on a stable footing moving forward.

“This is a task which the board, George Soros, myself, none of us felt could wait,” Mr. Malloch-Brown said. 

“Time is lives when you’re in the business we’re in of human rights and democracy.”

The plan is to concentrate bigger philanthropic bets at the global level. 

The restructuring will give more power to the regional offices, in places like Africa and Latin America, including $75 million in additional funding.

Alex Soros, George Soros’s son and heir apparent, at an event in New York in 2016. Credit...Noa Griffel/BFA.com

In comments to staff on a call earlier this month Mr. Soros’s son Alex, 35, the deputy chairman of the global board and his father’s heir apparent, acknowledged the difficulty of the transition but said the foundation would be stronger for it.

The younger Mr. Soros was asked on the call whether the board would become more diverse and representative of the communities where the foundation worked. 

He said that diversity on the board was “very important” to him but he needed “to acknowledge that my father has chosen his direction for the board, and I just need to say off the bat, I work for him, he’s my boss,” Mr. Soros said, according to a transcript of his remarks. 

“And this organization is founded and maintained on the money he made, and his vision and the ideas he holds true.”

None of this was quite what people expected when the news emerged in 2017 that Mr. Soros had transferred $18 billion of his fortune to the Open Society Foundations, making it the second-largest private charitable foundation by resources in the United States after the Bill and Melinda Gates Foundation.

In addition to the more than 150 staff members who have accepted buyouts, others, like Mr. Babouder-Matta who works on the discontinued scholarship program, are being laid off.

The tensions boiled over at the all-staff meeting in early May. 

On the eve of the voluntary buyouts, executives took part in a video call, in which staff members shared their misgivings and grievances.

After looking at a series of slides prepared by Bridgespan, which painted the organization as less streamlined than Gates or the Ford Foundation, with large numbers of staff approving lots of small grants, employees called out executives for their handling of the restructuring, according to several staff members who participated in the call and transcripts of both the video call and the simultaneous chat, where things got even rougher.

One commenter in the group chat called the process “unaccountable, and unscientific.” 

Another referred to the “frustration with respect to racism and sexism and other forms of oppression that are alive and well within the institution.” 

Yet another wrote, “disorganized processes do not just make people angry, they can ruin people’s lives.”

Invoking the deep opposition from populist, authoritarian leaders who have worked to stop the group, another employee wrote, “I believe this transformation has already done more to incapacitate OSF’s ability to support open societies, than all its enemies across the world, during an historic and pivotal moment.”


Mark Malloch-Brown, the president of the Open Society Foundations, in his office in New York.Credit...Gili Benita for The New York Times


Mr. Malloch-Brown appealed for civility on the call, asking employees to “take some of the real aggression out of some of the commentary which is going on in the organization at the moment,” according to the transcript. 

He reminded them that they are “comrades as well as colleagues.”

L. Muthoni Wanyeki, the group’s regional director for Africa, said that she was surprised by the degree of anger that had built up. 

“When I got off the call, so many of my African colleagues were sending me messages and my team messages, saying, ‘What was that?’ 

It was the first time I’d fully seen the emotions of the hub staff, in New York, London, Berlin. 

It was quite shocking.”

Yet public, difficult debates are in keeping with the culture of the foundation and something Mr. Soros has himself encouraged as an essential facet of an open society.

After leaving Hungary, Mr. Soros studied at the London School of Economics. 

He became an arbitrage trader and moved to the United States in 1956, where he started what became Soros Fund Management. 

He made a fortune as an investor and first began his philanthropic work in 1979 with scholarships for Black students in South Africa and for Eastern European dissidents to study abroad.

He started the Hungarian Soros Foundation in his native country in 1984, while it was still under one-party, Communist rule. 

One simple means of promoting a more open society was distributing photocopiers in places like universities and libraries so that civil society groups could print pamphlets and leaflets. 

He paid for scholarships so that Hungarians could study abroad, including a young Viktor Orban, who is now one of Mr. Soros’s most vocal critics.

Mr. Soros began Open Society’s work in the United States with a focus on drug policy reform and palliative care in 1994, and established a formal program in the United States in 1996. 

The foundation focused on issues including mass incarceration, immigration policy and reproductive rights.

In 2018, the same year the foundation closed its office in Budapest, the group left Turkey after President Recep Tayyip Erdogan denounced Mr. Soros in a speech. 

Amid the growing threats and intimidation, former executives say, the foundation needs to focus its attention and resources.

Open Society had spread its spending out over 47 different grant-making units, a lot of them with small budgets. 

Its median grant size was $86,000 — small compared with peers like the Ford Foundation, where the median grant is roughly $200,000, and the Gates Foundation, where it is about $700,000, according to a Bridgespan presentation shared with employees. 

Half of the grants in 2019 were awarded for one year or less. 

In a single country, there might be half a dozen different foundation entities making grants, sometimes in concert but also sometimes in competition with or unaware of each other.

“In the past, if you asked O.S.F., ‘What’s your strategy?’ you would have to staple 40 different strategies together,” said Binaifer Nowrojee, a vice president at the foundation who is leading the transformation process. 

“Now you have these intertwined global problems, like climate change or the pandemic, or the rise of authoritarianism across the globe and suddenly the national foundation model or this kind of country-level work alone is not sufficient,” Ms. Nowrojee said.

The foundation’s previous president, Patrick Gaspard, said that the process began three years ago at a meeting in London. 

In attendance were the global board, senior staff and George and Alex Soros. 

Mr. Gaspard said that he asked them whether the foundation would look the same if it were being founded right then rather than a quarter-century earlier. 

The answer was no.

“I was very clear that it was all on the table,” Mr. Gaspard said in an interview. 

“People should not say this came in the dead of night.”

Patrick Gaspard, the president of Open Society Foundations until late last year. Credit...Johnny Nunez/Getty Images


Mr. Gaspard left last year and is now the president of the Center for American Progress in Washington. 

He was replaced by Mr. Malloch-Brown, who was already on the board and had a close relationship with Mr. Soros dating back more than three decades.

“He is deeply familiar with our work and shares my vision of political philanthropy,” Mr. Soros wrote of Mr. Malloch-Brown in a message to employees. 

He also noted that Mr. Malloch-Brown had worked alongside his son on the foundation’s board and at the International Crisis Group.

The transformation comes at a delicate moment for large philanthropies. 

Debates over diversity and inclusion have grown louder and more pointed, as have discussions about how much deference should be shown to billionaire donors over the disposition of donated money. 

After all, they receive what amounts to a public subsidy for that money in the form of tax breaks.

Many left-leaning, progressive staff members have questioned privately why Mr. Soros’s son, who is just 35, should be his successor as chairman. 

At the same time, the replacement of Mr. Gaspard, who is Black, with an older white man who is a member of Britain’s House of Lords, struck some employees as out of touch with the times. (According to the foundation, Mr. Malloch-Brown is currently on leave from the House of Lords.)

Leaders on the regional level say the changes will give more independence and authority to the staff members where the work is being performed.

For example, in Africa, the foundation will have one regional office with an integrated strategy, said Ms. Wanyeki, the Africa regional director. 

Previously, it had four separate foundations, the regional team as well as grant making from the many thematic groups based elsewhere.

“Originally, George Soros hadn’t intended for any of this to last beyond his lifetime so things grew up organically without any rhyme or reason,” Ms. Wanyeki said. 

“We’re trying to put rhyme and reason to it now.”


Nicholas Kulish is an enterprise correspondent for the Times writing about philanthropy, wealth and nonprofits. Before that, he served as the Berlin bureau chief and an East Africa correspondent based in Nairobi. He joined The Times as a member of the Editorial Board in 2005. 

This SDR Allocation Must Be Different

When the International Monetary Fund announced last month a new $650 billion allocation of special drawing rights, the hope was that high-income countries would transfer their SDRs to developing countries in need. With the Fund’s annual meetings coming in October, it’s time for all parties to step up.

Barry Eichengreen



BERKELEY – In August, the International Monetary Fund announced, to much fanfare, that its members had reached a historic agreement to issue $650 billion of special drawing rights (SDRs, the Fund’s unit of account) to meet the COVID-19 emergency. 

SDRs are bookkeeping claims that governments, through the IMF’s good offices, can convert into dollars and other hard currencies to pay for essential imports, such as vaccines. 

And $650 billion isn’t peanuts: it’s nearly 1% of global GDP. 

This could make a big difference for poor countries impacted by the virus.

The problem is that SDRs are allocated according to countries’ quotas, or automatic borrowing rights, within the IMF, and the quota formula depends heavily on countries’ aggregate GDP. 

As a result, barely 3% of the $650 billion total went to low-income countries, and only 30% went to middle-income emerging markets. 

Nearly 60% was allocated to high-income countries with no shortage of foreign-currency reserves and no difficulty borrowing to finance budget deficits. 

More than 17% went to the United States, which can print dollars at will.

The hope was that governments and the IMF would find a way for high-income countries to transfer their SDRs to developing countries in need. 

So far, there’s little sign of progress in this direction. 

With the Fund’s annual meetings coming in October, it’s time for the institution – and its members – to step up.

The precedents are not encouraging. 

In 1965, when serious discussions of creating the SDR first got underway, a group of experts working on behalf of the United Nations Conference on Trade and Development argued that SDRs should be allocated with a view to meeting the development needs of newly independent countries. 

But when SDRs were issued in 1970, they were allocated instead in proportion to IMF members’ quotas.

Then in 1972-73, spokesmen for developing countries proposed what came to be known as “the link.” 

They envisaged a bargain whereby advanced economies obtained a reformed international monetary system, in which the SDR performed the function executed by the dollar in the now-defunct Bretton Woods system, and developing countries, in exchange for their support, received the bulk of the next SDR allocation. 

In the end, developing countries were placated with a promise that the link might be considered in the future, and a second SDR allocation went ahead. 

As for the link, nothing was done.

And, more recently, when $250 billion of SDRs were issued in 2009 in response to the global financial crisis, the IMF again allocated them according to members’ quotas.

Why might this time be different? 

Earlier allocations were made to enhance the stability of the international monetary system and the liquidity of international financial markets. 

These are, in the main, rich-country problems. 

Today, by contrast, the raison d’être for the allocation is to relax financial constraints on fighting the pandemic. 

And it is in poor countries where those constraints bite. 

Rich-country governments know this – or they should.

So how might the resource transfer be accomplished? 

The IMF already has a Poverty Reduction and Growth Facility, which provides concessional loans, currently at zero interest rates, to low-income countries. 

High-income countries, which already lend to the PRGT, could use it to recycle their SDRs. 

But borrowing countries have to negotiate programs with the IMF, which is contentious and time-consuming, and its loans are subject to elaborate conditions. 

Given that the PRGT lends less than $2 billion in a typical year ($9 billion in 2020), recycling $400 billion of rich-country SDRs, or even a portion of them, appears to be beyond its capacity.

There are two better alternatives. 

First, the IMF’s shareholders could agree to create a dedicated COVID-19 trust. 

Conditionality attached to its loans would be limited to verifying that governments are using their concessional borrowing to obtain vaccines and other health-service inputs and are administering them fairly and efficiently. 

Effective monitoring would not be difficult. 

Money could be pushed out the door.

Second, members could recycle their SDRs, with intermediation by the IMF, to the regional development banks, which are already authorized to hold SDRs and to convert them into dollars and other hard currencies. 

This would avoid centralizing the lending process in Washington, DC. 

The regional development banks have boots on the ground and are attuned to local conditions, and they don’t share the IMF’s reputation as an outside interloper that imposes onerous conditions.

IMF management evidently has its own ideas. 

Managing Director Kristalina Georgieva has proposed a Resilience and Sustainability Trust, to be funded by recycled SDRs, that would help poor countries finance investments in climate-change mitigation and abatement in coming decades.

That is all well and good. But COVID-19 is the preeminent challenge of 2021. 

If the IMF and its members fail to meet it, none of their proposals for how to address the challenges of coming decades, climate-changed-related and otherwise, will be regarded as credible.


Barry Eichengreen is Professor of Economics at the University of California, Berkeley, and a former senior policy adviser at the International Monetary Fund. He is the author of many books, including the forthcoming In Defense of Public Debt.