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Turkey, Nato, and Europe
Turkey's large military presence within Nato (second after the United States) served as a major deterrent during the Cold War. Can Turkey be relied upon today to support any contemplated Nato moves to counter Russia's in Ukraine? President Erdogan’s recent comments opposing Finland and Sweden joining Nato puts this in question. Europe, and specifically the European Union, lost a golden opportunity to bring Turkey in from the cold during the 1990s when Turgut Ozal was in power, when a customs union was put in place between the EU and Turkey, and when Turks of all strata were looking to Europe. By having Turkey join as an EU Member, Europe would have started a process of laying the past to rest - the shared history between Europe and the Ottoman Empire of conquest and counter conquest. Europe would also have contributed to and had an intellectual influence over Islamic reformation, drawing on its own Christian reformation experience. A Turkey in the EU would have had the benefit of European values, although much could be said of this influence on some East European EU Members today. A Turkey in the EU would have added economic strength to the Union and contributed a young, energetic labor force. A Turkey in the EU would have lessened the impact of populist forces worldwide by showing by live example that it is OK to accept different peoples with different religions and different ethnicities as long as there is a common frame of reference shared by all. How will Nato and Turkey deal with their differences on Finland and Sweden? And how will relations between Europe and Turkey be shaped by the moves of an aggressive Russia? The world has started realigning itself along different spheres of influence from those that we have come to know since 1945, and the times ahead will be full of new developments.
May 17, 2022 · 2 min read
Blind Man In The Rain
I had been working in doors all day and decided to go out for a walk around 6 PM. It was an odd decision, given that the weather service had all day been predicting heavy showers around that time. The sky was full of gray, low hanging clouds, yet I picked up my umbrella and strolled out. I took my usual route which typically leads me up Regents Park Road in Primrose Hill. I wasn't quite sure where I was going. Usually, I make my way to a restaurant, a coffee shop, or a newspaper agent, depending on the hour of day. This time, once I reached the park, I turned around and started going downhill in the direction I had come from. It had started raining and within seconds the sky managed to release a deluge. It seemed a good idea to seek the shelter of one of the pubs I frequented in the area but for some odd reason I decided to continue on back to the apartment I was staying at. Once I was close to Chalk Farm tube station, I saw a blind man trying to make his way under the heavy rain. He was wearing a navy blue suit with faint stripes, a tie, and a dark blue shirt. His hair was white and he gave the impression of being in his fifties. His blindness was of the kind that caused his eyes to stay shut all the time and he was banging the sidewalk nervously with his white cane, while his other hand clutched a charcoal laptop cloth bag. Water was pouring all over his face and clothes. I ran after him and, walking to the left of him, and asked if he could use some help as well as an umbrella over his head. He immediately grabbed my right elbow and thanked me and asked if I was the mailman. I said no but that I was staying with friends nearby and would be happy to walk him home. We walked slowly and he said that he worked in Holborn and takes this route every day. He said how grateful he was that I came along as he would have been drenched, which, indeed, he was a short way from being. What struck me about the blind man as I approached him with my offer of assistance was not that he was getting wet. Rather, the half frown, half confused look on his face which gave the impression of someone who was lost on familiar ground. The heavy rain and thunder seemed to have dulled the senses that a blind man would rely on for direction in drier circumstances. He was straining to hear the sound of his own footsteps and cane on the pavement, which, during a normal day, no doubt, had a familiar echo, depending on where he was in relation to his apartment building. He could no longer use his nose to identify routine smells along the way. Even reaching out with his hand to feel a certain brick wall would have been difficult and slippery. I was grateful for that blind man in the rain, probably more than he was for my presence. I had left the apartment I was staying at angry at some work and other developments in my life. The blind man reminded me that even when faced with such adversity as blindness, there is room for optimism; he could still find a job, work everyday and commute back and forth to his office. The blind man also reminded me that sometimes we do not understand the reasons for our actions at first, and all we have to go with is a gut feeling; an instinct of sorts. I certainly did not know why I was leaving the apartment at that time in that kind of weather. I had no specific place to be at. I could have sat on the couch and watched the evening news. But, I found myself helping a blind man walk from the tube station to his apartment building and realized afterwards that we do not need to understand everything fully from the start; sometimes the reasons for our actions become clear at the ends of our journeys. But most of all, the blind man reminded me that we all go blind once in a while in this life, even while walking on familiar ground, heading home. And we all need someone to reach out to us every now and then and ask if we need help or a shelter over our heads until the storm is over. I know that the blind man would never have stood in the rain asking for help; he would have tried and tried and tried until he made it to his apartment building. And he would have suffered needlessly in the process. He is too proud to do otherwise. So are you and me.
May 10, 2022 · 5 min read
The Ukraine War's Unintended Consequences
War is a tragedy. And it is truly tragic that at the cusp of the 21st Century we are unable to settle differences between states without going to war. That, at a time when humanity is faced with glaring challenges from new viruses to climate calamities to water shortages, to name a few. Covid 19 and its impact on the world’s state of health and economy is the first episode in a protracted scenario of future catastrophes we will face collectively unless and until we get our act together. For the outside observer, it is difficult to ascertain with any degree of certainty how long Russia and the United States have been gaming Mr. Putin’s move on the Ukraine. What may seem as unintended consequences for some may very well have been part of a long and complicated set of calculations undertaken over time. The validity of the assumptions underlying such calculations, as well as the efficacy of the methodologies utilized to undertake the calculations, are and will continue to be subjects of debate for a long time after this tragic war is over. The swiftness with which Ukraine’s refugees were welcomed by the United States and Europe is heartwarming. Perhaps we did learn hard lessons from the way refugees from other parts of the world were and are being treated. However, the cries of some Western politicians and media that Ukrainian refugees are white Christians and, as such, more deserving of salvation, created an unintended consequence. In the minds of many in the developing world who are not “white” (as if such a yardstick can be used with precision) and are not practitioners of the Christian faith, or are white but practice other religions, these cries were a reminder that racism and religious bigotry still reign supreme in many parts of the world. It is often said that in politics perception is reality. Did the West’s moral authority and standing suffer with audiences in developing countries as a result of these public pronouncements? Will peoples of developing countries continue to rely on Western institutions as anchors and influencers in the former’s journeys towards modernity, liberalism, democracy, and universal human rights? Or is the perception of hypocrisy currently too glaring for comfort? And if the latter, how will this impact reform movements in various parts of the developing world? Less borrowing of theory and practice from the West and more locally developed methodologies? Rejigging the balance between local and imported inputs in a reform process may not be a bad thing - it adds momentum to existing efforts, as well as increases ownership and traction. The economic impact of the Ukraine war is beginning to be felt globally. The added strain on supply chains and additional increases in commodity prices and inflationary pressures, already with us as a result of the Covid 19 pandemic, do not bode well for many countries. The war’s impact on the global financial system is yet to be seen. However, the swiftness of economic and financial sanctions imposed by the West on Russia and many of its global business leaders will have several unintended consequences. As analysts have noted already, it should come as no surprise that attempts will be made to create an alternative to the SWIFT banking system. The new system (or systems) may be joined by not only Russia and China but many other developing countries as well, as the latter seek to hedge their economic and financial fortunes, and bets. Also expected is the rise of alternative currencies to the US dollar to use in global trade. To what extent will these currencies also become repositories of wealth and not just mediums of exchange remains to be seen. The freezing of assets and bank accounts of oligarchs and business folk close to Mr. Putin has moved swiftly on a global scale, including in countries that were previously considered safe havens for such individuals. An unintended consequence to this action is that not only oligarchs but wealthy individuals worldwide, whether their monies are clean or the result of corrupt practices and sweetheart deals, will start thinking twice about storing wealth in the West, or in other countries than their own. The global political winds are shifting too rapidly for comfort these days. Wealthy individuals from developing countries will start bringing monies back home and attempts at legitimizing ill-gotten wealth will commence. Tax amnesties will be enacted and financial settlements of economic crimes concluded under such banners as economic crimes laws. The sharing of wealth on a national level will accelerate as many political regimes seek to augment legitimacy by allowing citizens to have stakes and vested interests in the economic development of their countries. IPOs and stock markets will flourish. The political positions of many developing countries vis-à-vis the Ukraine war was made clear a few weeks ago in the United Nations when 35 countries, including China and India, abstained from voting to condemn Russia’s actions in the Ukraine. Perhaps this reflects a lack of a global moral consensus as to who is right and who is wrong in this war. And perhaps this reflects geopolitical realities a la Metternich’s real politik. Or both. Regardless, an unintended consequence to this tragic war may be the formation of something akin to the The Non-Aligned Movement; a group of developing countries that teamed in 1961 and declared their lack of alignment with either West or East. The founders of the Non-Aligned Movement are now household names and have come to signify standing for and defending the rights of the dispossessed and the underprivileged: the Indian Prime Minister Nehru, Yugoslavia’s President Tito, Egypt’s President Nasser, Ghanaian President Nkrumah, and Indonesian President Sukarno. If such a new coalition of developing countries comes to be, then we will see a multipolar Cold War II, not World War III.
May 3, 2022 · 5 min read
Pirates, Sugar, and Insurance Scams
News of increased policing of ships in and around the Red Sea brought back memories of a story I read in the Financial Times many years ago that the Swedish police were investigating the disappearance of a ship somewhere off the coast of Western Europe. The crew had reported being attacked by pirates off Sweden’s Baltic islands before they vanished, along with their Maltese-flagged general cargo ship, which was heading from Finland to Algeria. This reminded me of another story I heard in Turkey years before. I had come to know a Turkish businessman whose family started a manufacturing facility in the 1960s on what later became prime land in Istanbul. After some years, Mr F, as we shall call him here, developed other business tastes. He operated the factory on an ad hoc basis, only running the machines if there was a sizable order. And he became a loan shark. As a result, Mr F had a lot of cash and was always looking for ways to make more. Others knew this and someone approached him with what seemed to be an amazing offer to buy sugar from a certain South American country at prices well below the international marketplace. I used to call on Mr F when I had some free time during my visits to Istanbul. I found him and the whole environment that surrounded him fascinating; a character out of Kafka or Dickens. On one of my visits for tea in his office, Mr F was eager to explain to me the details of the sugar offer he received. The price was well below the international market, which meant that he could make a handsome profit selling it. He had to purchase a whole ship full of sugar, around ten or twelve thousand tons. He was asked to open a letter of credit and was told that he would only have to pay for the sugar when it arrived at the designated port in Turkey by a certain date, verified as per international shipping procedures. The South American company Mr F was dealing with told him that should the sugar not arrive, they would compensate him for the cost of the letter of credit, which for a ship of that size at the prices he was being offered amounted to something like twenty thousand US dollars. And they provided Mr F with an irrevocable bank guarantee to cover this cost. Mr F consulted with his lawyers and bankers and realized that he had nothing to lose by opening the letter of credit. If the sugar arrived, he would pay for it and sell it at much higher prices. If the sugar did not arrive, the bank guarantee from the seller in South America would compensate him for the cost of the letter of credit. It was a win-win situation. Several months later, I met Mr F again and he was eager to follow up on the sugar story. A few days before the ship was scheduled to arrive at the designated Turkish port, Mr F sent a few of his nephews to be there to meet and greet it. The date came and passed and no ship arrived carrying sugar for him. Mr F instructed his bank to make good on the guarantee and he did receive every penny he spent in fees for opening the letter of credit. Now, being a man of this world, Mr F knew that he was had, he just did not know how. His nose told him that something stunk in Hamlet-land and he wanted to know what happened. Mr F sent a small entourage of his nephews and business associates to the South American country to find out. The story they came back with was nothing less than fiction-like. Mr F’s nephews and business associates carried the news to him that the whole thing was an insurance scam. According to them, the selling company in South America bought an old ship that was scrap material, loaded it mostly with sand, got some corrupt official to validate that the shipment was all sugar of certain specifications, and insured the shipment value at official, international prices. Once the ship was beyond the horizon, a few speedboats appeared, the crew were taken back to shore and the ship was dynamited and sank. When the ship did not arrive at the designated port in Turkey, the seller claimed the insurance. The seller needed a willing buyer who could open a legitimate letter of credit to start the whole process. Mr F was incensed. And pleased. He was taken for a ride but he did learn something new!
Apr 26, 2022 · 4 min read
Monetizing Debt Obligations
Two recent Financial Times articles by The Editorial Board and Martin Wolf capped media coverage since the start of the pandemic on the financial impact of Covid on global finances. The recently released World Development Report by The World Bank adds emphasis to the need for smart restructurings of debt for many frontier and emerging markets – debt to GDP ratios have increased considerably as have the types and numbers of sovereign creditors. The ability of many developing countries to meet debt obligations is under strain, and will continue to be so for years to come. Since the start of the pandemic, economic and financial media coverage pointed out the need to increase borrowings, by everyone - governments, companies, international organizations, and individuals. No more telling were the additional trillions of dollars that the US Government borrowed to address the needs of an economy going through a Covid recession. It is easier for the printer of a super currency to borrow - the US Treasury issues bonds and the US Fed prints money and buys those bonds. Other countries with super currencies are in similarly favored conditions. These are super borrowers and their sovereign bonds are backed by a healthy amount of good faith and credit - their political and economic systems, their infrastructure, their abilities to tax and spend, and the fact that these countries are not going to disappear. The story is markedly different for many less developed countries. For lesser mortals, there is a cap on how much debt can be issued and how much money can be borrowed (and printed). Traditionally, when an economy is in recession, governments reduce taxes and interest rates to spur demand. Governments also increase borrowings to spend, preferably on capital expenditures, which leads to increased capital investments on the part of companies, and to higher levels of growth and employment. For less developed countries with heavy debt to GDP ratios, one way of increasing demand for goods and services within a given economy is to think of new ways of increasing the "velocity of money" without printing more currency or increasing the money supply – a relevant consideration when faced with various types of borrowing limitations and an inflationary cycle. As defined by many, the velocity of money is the frequency at which one unit of currency is used to purchase domestically produced goods and services within a given time period. In other words, velocity measures the number of times one unit of currency is spent to buy goods and services per unit of time - the higher this number, the higher the demand is for goods and services within a given economy. For countries that do not have the luxury of printing more of their local currencies but need to increase demand within their economies, monetizing debt obligations (as opposed to securitizing debt obligations) might offer a way out, at least for the time being. Let us say, you are owed $1000 as a tax refund from your government. Instead of receiving those $1000 in currency, the government would issue you 1000 units of "payment credits". You can use these payment credits to pay for goods and services and make all sorts of purchases - to pay for your groceries, to pay your children's school tuition, to pay down your bank debt, etc. And those payment credits can be in digital form, utilizing new e-payment methods. The added benefit of increasing the banked portion of a population (increasing financial inclusion in developing countries) goes without saying. For debt stressed frontier and emerging markets, the issuance of payment credits would not constitute an increase in the money supply, leading to concerns of currency debasement and inflation. Monetizing debt obligations into payment credits would generate the desired effect of increasing the velocity of money within an economy without actually increasing the money supply. Traditional money issued by government has three main functions: it is a medium of exchange, a store of value and wealth, and a unit of account. Payment credits would only function as a medium of exchange and as such are not a currency in the traditional sense. The ability to monetize debt obligations and digitize these in the form of payment credits is something that we should consider, given that the borrowing environments for many frontier and emerging markets are becoming more challenging.
Apr 19, 2022 · 4 min read