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
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
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
The first time I heard the term clawback was during a graduate course on corporate finance. The lecturer was saying that shareholders have the right to clawback bonuses paid to company CEOs if the latter did not deliver, or mis-delivered. That was back in the 1980s. Although most of today’s definitions and use of the term clawback have to do with taking money back from someone who is deemed to have received it without merit, the interplay between information technology and social media has added new meaning and applications to this concept. Someone once said if your story is not on screen these days it does not exist. It is a bit of an exaggeration because books will always be there, and if you have any doubts about this take a look at Naisbitt’s High Tech High Touch. So yes, it is a bit of an exaggeration that is meant to emphasize a point: to give your story more reach, more power, more traction, more oomph, you do need to put it on screen. It may be the sliver screen, a television screen, the screen of a laptop, or the screen of any handheld device. Western history is constantly being told and retold on screen. In the East, China and Japan joined this trend. In the Middle East, Turkey started putting its Ottoman history on screen some years ago, with several television series produced in a manner similar to Game of Thrones. Arabs attempted something similar a couple of decades ago with movies about Muhammad and Omar al-Mukhtar, both high quality epics, with Anthony Quinn and Irene Papas in lead roles. The abundance of information technology and social media infrastructure creates its own demand for content - all kinds of content: the good, the bad, and the ugly. Content that can be accessed at low cost, from anywhere. And one use for content created for today’s media is to right an historic wrong. Putting an historic wrong on screen catalyzes action for an acknowledgment of the fact that it did take place, and for it not to happen again. This is familiar content but it has been limited to a few subjects. The increasing universality of a set of acknowledged human rights, advances in technology related to content production, ease of access to social media outlets to transmit content, and the increasing availability of funding for content production (crowdfunding is but one example) will enable the wronged to seek justice, gradually and in phases. Once an historic wrong is on screen, it acquires intrinsic power - it lays down moral markers and self propagates. History has been written by the victors but is also in the eyes of the beholders. Today’s information technology and social media enable the defeated, the crushed, and the wronged to tell their side of the story. The are increasingly doing so and in process are gathering adherents and supporters. The wronged will gradually translate this support into legal action to regain their moral and material rights. Laying the past to rest does not mean burying it in unmarked or misnamed graves. With the help of today’s information technology and social media, the wronged will be clawing back their moral and material rights, in the courts of public opinion and in courts of law.
Jun 21, 2022 · 3 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