Blog Post

AEIdeas

Turkey has become Venezuela. Whereas that South American country was once the wealthiest on the continent, almost two decades of highly ideological rule by Hugo Chávez and his successor Nicolás Maduro has run Venezuela into the ground. At its core, the problem with Venezuela was Chávez and Maduro’s subordination of the economy to politics. When warning signs emerged that their policies were faltering, the Venezuelan leaders preferred to lash out at enemies real or imagined rather than accept accountability for their own actions.

In Turkey, it’s take two. Consider the following story from Reuters:

Turkish authorities seized or appointed an administrator to a total of 879 companies worth 40.3 billion lira ($11.32 billion) in assets in the eight months since the failed coup last July, the state fund that runs the firms said on Wednesday. According to a quarterly report by Turkey’s Savings and Deposits Insurance Fund (TMSF), nearly 45,000 people were working in the seized companies. It added that a total of 147 media companies were shut down within the same period….

That’s a pretty amazing figure, and one that should give Western investors in Turkey pause. True, many of the companies may have belonged to Erdogan ally-turned-rival Fethullah Gülen but political seizures of companies predate that feud. Throw into the mix his tendency to approach interest rates as a political tool distinct from the laws of economics, and the situation is volatile. While Turkish economic indicators may look decent at face value, few outside of Turkey believe the numbers published by Turkey have any bearing on reality.

This, and Erdogan’s general mismanagement is one of the reasons independent analysts have increasingly downgraded Turkey to junk status. Here’s Moody’s, Fitch, and Standard & Poor’s, for example. Simply put, to invest in Turkey today may finance the extravagant lifestyle of Erdogan, his family, and his close friends, but otherwise just flushes money down the drain.

Venezuela shows how poor leadership, opacity, disrespect for rule of law, and disdain for individual liberty can transform a rich society and state into abject poverty. Turkey, unfortunately, now heads down that same path.