(July 2018)
What do Venezuela, Turkey and Britain have in common?
These are three countries hostage to demagogues and teetering on the edge.
Venezuela underwent a socialist revolution under
Hugo Chavez (who was elected president in 1998 and died in 2013) and
president Nicolas Maduro (who succeeded Chavez in 2013).
Chavez launched a program to redistribute wealth which greatly benefited the
poor. Government spending peaked at 40% in 2013.
Tens of thousands of Cuban advisers flocked to Venezuela to advise Chavez on
how to build a centralized economy.
But a program of expropriation and nationalization only increased
Venezuela's dependence on oil revenues (95% of its export earnings).
Those oil revenues were simply used to spend, not to modernize the economy,
and mismanagement even hurt the oil industry.
In 2016 Venezuela's GDP shrunk 15% and inflation soared to an all-time high of 800%. Now Venezuela owes some $150 billion to foreign creditors.
Venezuela's government controls and subsidizes more than 500 firms, most of
which are losing money.
Essential medicines have become a luxury, hospitals don't have antibiotics, and even soap and toilet paper are becoming rare.
In 2016 infant mortality was 30% higher than in 2014 and maternal mortality 65% higher.
In 2016 Venezuela experienced its all-time record of homicides (91.8 homicides per 100,000 people compared with 5 per 100,000 in the USA, which is considered a country with a high homicide rate).
About 500,000 Venezuelans are now refugees in neighboring Colombia and Brazil,
a stunning reversal of what happened in the 1990s.
To understand the tragedy of Venezuela, one has to remember that this country
used to be
Latin America’s most peaceful and democratic country, and always one of
the wealthiest.
At least one would hope that Chavez's original motivation, the fight of
corruption, has yielded some benefits. Instead,
Transparency International ranks Venezuela 166th out of 176 on its corruption index.
Out of desperation, Maduro's regime has resorted to
drug trafficking,
money laundering and other shady ways to bring in cash.
One leader who is truly admired by Venezuela's elite is Turkey's president Erdogan: Maduro congratulated Erdogan for his reelection calling him "the leader of new multi-polar world".
In July 2018 Erdogan (who has ruled Turkey for 15 years and presided over its longest economic boom) got reelected in what was supposed to be an uncertain election and instead turned out to be an easy contest against weak opponents. This was not just another election: it also came with a referendum on granting him additional authority and one of his first actions has been to appoint his son-in-law Berat Albayrak as economic chief.
Turkey's economy grew 7.4% in 2017, faster than China's and India's.
However, the value of the Turkish lira has plunged by almost 20% in the last year.
The dollar and euro have more than doubled in value since 2009.
It is difficult in Istanbul to pay for anything in Turkish liras: Turks
themselves demand to be paid in euros.
Consumer prices are rising quickly and yearly inflation is estimated at 15%.
Unfortunately for Turkey's younger generation, Erdogan has mortgaged the
Turkish economy and, sooner or later, someone will have to pay off the debt.
The government has subsidized expensive infrastructure projects like the
Istanbul airport and the canal linking the Black Sea to the Sea of Marmara.
The government also routinely "bribes" voters. Just one week before the elections, the government issued $1,000-lira cheques to more than 12 million Turkish retirees (15% of Turkey's population).
Under pressure from Erdogan's government, corporations have borrowed money from banks (mainly Akbank TAS, Turkiye Garanti Bankasi AS and Turkiye Is Bankasi AS), and often in in foreign currencies, typically euros and dollars. Turkey's corporations owe more than $328 billion in foreign debt, which is more than 30% of Turkey's GDP. Every time the lira falls, this debt goes up.
Ironically, the cheaper lira does not translate into competitive exports
Turkey's current-account deficit (the difference between imports and exports)
has risen above 5% of GDP.
Turkey's prosperity is largely predicated on debts that neither the government
nor the banks nor the corporations have the resources to meet.
At the same time, Erdogan has been "stabilizing" the country by firing a grand
total of about 130,000 people from government jobs: anybody even remotely
suspected of supporting the attempted coup against Erdogan is being purged
from the bureaucracy. The result is a bureaucracy that is increasingly dominated
by people loyal to his interests and to the interests of his friends.
At the same time, Erdogan is openly staging a military campaign in
neighboring Syria, officially to fight "terrorists" but in reality to fight
the Kurds who fought the terrorists.
Erdogan, a fanatic Muslim, was one of the original supporters of ISIS,
facilitating the flow of volunteers into Syria, the flow of oil out of ISIS-occupied areas and the flow of money from Arab donors into ISIS-occupied Syria
(see this article or this article or this article).
The Kurd militias of Syria and Iraq fought and defeated ISIS.
Erdogan perceived this not as positive news but as a threat to his personal
rule, as Turkey's main domestic problem has always been the large Kurdish
minority fighting for independence.
Therefore now Erdogan is fighting a war to exterminate the Kurds in Syria
the same way that his predecessors exterminated the Armenians in Turkey
(a massacre that, coincidentally, Erdogan still does not recognize).
Erdogan is lying about the state of the economy, the purpose of his purges,
and the nature of his military adventures in Syria.
Britain owes its situation not to an elected leader but to an ambitious
dishonest idiot, Boris Johnson.
Boris Johnson was the main proponent of Brexit, of Britain leaving the
European Union. His Brexit campaing was simply a long litany of lies.
He had a simple reason to lie and make ridiculous promises: he was convinced
that Leave (the Brexit movement) would lose the 2016 referendum,
all the polls leading into the referendum showed that it
would lose. Johnson didn't expect to win and didn't want to win. He never
had a plan to win. He knew well that his predictions were unfounded and that
his promises were impossible to fulfill:
But just like in Trump's case, his outrageous lies attracted more
media attention than the rational discussions of the experts, and media coverage
ended up giving him a lot of free publicity, which translated in more and more
people paying attention to what he was saying than paying attention to what
the experts were saying. What Johnson was saying was simple:
Brexit would make Britain great again (paraphrasing his friend Trump),
Brexit would generate money that would fund health-care reforms and many
other long-delayed projects, Brexit would allow Britain to control immigration
while maintaining the same kind of trade with the European Union.
It wasn't true, but it was simple. What the experts were saying was complicated:
how Britain would lose business and jobs while being forced to accept the
European Union's rules.
It was true, but it was complicated.
When Leave won, Boris Johnson and his allies (notably Nigel Farage) were in
disarray: none of them wanted to be the next prime minister, the job of
cleaning up their mess. Johnson has only one way out of this: he has to continue
claiming that he was right all along, no matter how many times he is proven
wrong, and keep blaming the disaster on the "moderates" who are willing
to negotiate with the European Union. Just like Erdogan has to keep blaming
the "terrorists" and Maduro has to keep blaming the USA.
Boris Johnson's career of deceit is not over yet, just like Erdogan's and Maduro's.
Today's Britain reminds me of Turkey when the nationalist Erdogan got elected,
and today's Turkey reminds me of Venezuela before the crash.
TM, ®, Copyright © 2018 Piero Scaruffi All rights reserved.
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