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Economics and Finance

Trump’s reflexive impulse to reach for superlatives will doom his Iran sanctions regime

Trump’s reflexive impulse to reach for superlatives will doom his Iran sanctions regime

Trump’s inclination to invoke superlatives to demean persons he does not like and to praise himself or persons he likes is well documented. Almost all his short and long statements would include some superlatives.
His tweet announcing the start of the Iran sanctions is no exception.

The Iran sanctions have officially been cast. These are the most biting sanctions ever imposed, and in November they ratchet up to yet another level. Anyone doing business with Iran will NOT be doing business with the United States. I am asking for WORLD PEACE, nothing less!

Logically, if these are “the most biting sanctions ever imposed”, how can they be even more so in November? Logical consistency aside, let’s assume that this round of sanctions is “very biting” and the next round will make them “the most biting” sanctions ever. The stated goal of the administration is to reduce Iran’s energy export (oil and gas) to zero. Of course, reducing the sales of something the Iranian government depends on to zero will be unprecedented, and will deserve the superlative descriptor should it be achieved. However, we already know that that will not happen because three of the top energy buyers, China, India, and Turkey have stated publicly that the sanctions are outside the UNSC and as such they are unilateral, they were imposed in contravention to a deal endorsed by the UNSC and signed by the P5+1, and they encroach on national sovereignty of other nations, and as such these states will not abide by the new and re-instated US sanctions. In other words, they will continue to purchase Iranian oil and natural gas, not to do Iran a favor, but to protect their own national interests.

As to sanctions related to other services and products (auto parts, banking, and gold, etc…), that, too, may not achieve the sated goals. In fact, it may backfire.


On the day the first round of sanctions took effect, EU Foreign Policy chief Federica Mogherini, after having spoken to Iranian officials, said the following: 


“We are encouraging small and medium enterprises in particular to increase business with and in Iran as part of something that for us is a security priority.”

This is very important. Aware that US secondary sanctions (sanctioning companies that deal with Iran) would discourage large companies with complex and large operations in the US from doing business with Iran, EU leaders are willing to offer added incentives to small and midsize companies to do business with and in Iran. This means that smaller companies that do not have no economic ties to the US or have no significant operations and investments in the US would be encouraged (through economic, financial, and legal incentives) to do business in and with Iran. Moreover, the EU leaders also threatened EU companies with sanctions if they abandon deals with Iran.

Should these sanctions last longer than the current term of the US president, the EU measure could offer larger companies the loophole they need to evade US sanctions. They could sell their interests and investments in Iran to these companies, or they could spinoff some operational divisions to avoid EU sanctions. 

Iran does not seem to have any interest in the US market or in US companies. Their priorities is to remain connected to the global market. The EU legal and economic measures such as increasing small companies (and privately held ones) to do business with Iran will allow the latter to remain connected to the global market, which would allow them to focus on their more reliable partners like China, Russia, India, and the Koreas. 


As Harley-Davidson, Inc. reminded us when it announced it was moving some production out of the US and into the EU to sidestep paying high tariff, large business companies have a responsibility to their shareholders not to politicians. They are, by nature, multi-national. In other words, they will seek profit wherever they can find it and move all or some of their operations to any country that would maximize their profit. 


In this particular dispute, it would seem that the world community’s interest in global security (limiting nuclear proliferation) favors upholding the Iranian deal. Given its track record thus far, this administration is motivated, in part, by undoing the legacy of its predecessor. That is not a basis for building and preserving international alliances and credibility. None of the signatories to the deal said that the Iran Deal was perfect, as are all other negotiated multilateral deals. Some Iranian leaders, too, were not happy with some of the terms of the deal. But this US administration is victim of its own quest for superlative goals. That may be a good business strategy. But it is not a practical political strategy. 


In the end, the all-or-nothing approach to Iran may lead to the only logical result: nothing. Because in politics, the domain of compromise, the quest for superlatives is a liability, not an asset.

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Ref. Iran Deal

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What qualifies financial services or products to be sharia-compliant?

What qualifies financial services or products to be sharia-compliant?

Economists specializing in the study of Islamic finance and economics have reduced Islamic laws governing financial and economic transactions to two: proscription on receiving or paying “interest” and mandating that investors and developers (lenders and borrowers) share the gains and losses of the enterprise in which they are more or less partners. This theory is widespread but it is based on a very basic, and perhaps outdated, understanding of the primary sources of classical Islamic law. Moreover, most of the works and publications advancing this perspective are built on secondary sources and rarely engage primary materials. This essay challenges the ideas and approaches behind this perspective and proposes a model that takes into consideration the need to protect the poor and the desire to make profit, which is the motivating force behind a thriving economy.
While Islamic scriptures clearly prohibit profiting from the poor, supposedly sharī’ah-compliant Islamic financial and exchange laws circumvent prohibitions and limitations on ribā, monopolism, debt, and risk while failing to address the fundamental purpose behind the prohibitions—mitigating poverty. This study provides a historical survey of the principles that shape Islamic finance and exchange laws, reviews classical and modern interpretations and practices in the banking and exchange sectors, and suggests a normative model rooted in the interpretation of Islamic sources of law reconstructed from paradigmatic cases. Financial systems that overlook the nexus between poverty and usury harm both the economy and poor and middle class consumers and investors rather than addressing the causal relationship between interest-charging models and poverty. This study shows how Islamic Financial Institutions (IFIs) have failed to meet the social requirements they were intended to address and also presents a theoretical framework for Islamic finance and exchange laws that proscribes usurious transactions involving people caught in the cycle of poverty and need.
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Review of the 2016 G20 summit in China

Review of the 2016 G20 summit in China

Leaders of counties that are said to be the top 20 economies in the world met this weekend in China. We would like to summarize what happened and where each country stands–literally–relative to key global issues. It is said that a picture is more eloquent than a thousand words. In this particular case, the photo does in fact say it all. So here is our review in one thousand words:


Need help with context, consider Christopher Miller’s interpretation of the same photo:

Turkish and Russian leaders can no longer compartmentalize their relations

Turkish and Russian leaders can no longer compartmentalize their relations

by Ahmed E. Souaiaia*
Turkey’s president may have pushed the reset button of his country’s relations with Russia, but it will be a while before he can reap economic benefits.
 

Reason for Putin wanting gradual restoration of economic ties with Turkey: Russia cannot help rejuvenate the Turkish economy to enable the Turkish government to kill Russian soldiers (and abuse their corpses) in Syria by proxies

In 2011, the sudden protest movement popularly known as the Arab Spring triggered fundamental changes in the political and social landscapes of the Middle East—not just the Arab world as the name suggests. Turkey’s government, like many others around the world, did not know how to react at first. Erdoğan, as his country’s prime minister and then president, supported the Tunisian revolution, wavered in his support for the Egyptian president before committing to supporting the Muslim Brotherhood, and opposed NATO’s war on Libya’s Muammar Qaddafi. When peaceful protesters took the streets in some Syrian cities, Erdoğan, relying on a sectarian instinct and a nationalist impulse, offered Assad fifteen days to meet the protesters’ demands before he would cut all relations and put all his weight behind the Syrian opposition forces. A few weeks later, Turkey played a pivotal role in using Qatari and Saudi money and weapons to transition the protest movement into an armed rebellion committed to a single objective: overthrowing Bashar al-Assad. This role, to which Erdoğan committed himself, necessarily created a conflict for him with two other powerful neighbors and economic partners: Russia and Iran.
For the first four years of the Syrian crisis, the leaders of Turkey, Iran, and Russia thought that they could compartmentalize their relations. They could continue to strengthen their economic ties, while agreeing to disagree on Syria. That approach failed when it became clear that the differences between Turkey on one hand, and Russia and Iran on the other, in relation to Syria were more than disagreements. Iran and Russia have had long-standing strategic alliances with Syria for many years. In fact, two years earlier, Iran had signed a security deal with Syria that required each of them to come to the aid of the other should one be attacked. Russia has had a naval base in Syria since the days of the Soviet Union. With that being the case, it was not possible to compartmentalize, especially when all three countries were committed to preserving their interests in Syria and in the region.
So it was no surprise that all three countries were actively involved in Syria beyond what they publicly revealed. Russia and Iran first provided the Syrian government with weapons and economic assistance to help it weather the crisis, but Turkey took a direct role from the start of the conflict and allowed the free flow of weapons and fighters into Syria. By 2015, all three countries increased their involvement. Turkey provided training, control and command centers, and free flow of weapons and fighters to the opposition groups. Russia and Iran sent more military hardware and eventually fighter jets and military personnel to Syria. That escalation led to the crucial mistake on the part of the Turkish leaders.
Hoping to draw NATO deeper in the Syrian conflict, Erdoğan ordered a Russian bomber shot down. The crew ejected, but one member was killed by an armed group supported by Turkish security forces and partially staffed by Turkish citizens. This incident prompted President Putin to impose harsh economic sanctions that further stressed the slumping Turkish economy. Russia’s economic, rather than military, response to what they saw as an act of war rendered NATO useless in terms of assisting Turkey. Putin then insisted that economic sanctions would stay in place and might even be tightened unless Erdoğan formally apologized and took responsibility for downing the Russian fighter jet and killing the pilot. Erdoğan insisted that it was Putin who should apologize for violating Turkish airspace. Seven months later, with the Turkish economy in decline, Erdoğan sent a letter to Putin expressing sorrow and taking responsibility for the incident. Russian leaders welcomed the gestures and promised to ease some of the sanctions. But Erdoğan wanted more than easing the sanctions—he needed economic relations between the two countries to be restored to the pre-incident period or better. So he requested an earlier meeting with Putin than the one scheduled to happen on the sidelines of the G-20 in China in September of this year. Putin obliged and offered to meet him in Saint Petersburg on August 9.
Erdoğan’s eagerness to meet with his Russian counterpart was motivated by economic considerations, with all other interests being secondary. Russian leaders are also interested in boosting economic ties, but not in a way that will undercut their broader interests in the region. Consequently, the two sides went into the meeting with different priorities. However, it is clear that the Turkish side lacks the strategic thinking that would allow them to see the connection between the Syrian crisis and their national economic conditions. The Turkish economy’s growth was cut by almost 50% immediately after the Syrian crisis, and that correlation alone should be enough to convince Turkish leaders to address both their economic concerns and the Syrian crisis at the same time, not in isolation from one another. Failure to do so soon will undo the possible benefits of the apology.
There is a reason Erdoğan is widely popular in Turkey: since he and his party, AKP, won the first elections that allowed them to govern without the need for a coalition for nearly a decade and a half, he turned a slumping economy with a negative GDP growth rate—-5.7 in 2001—into a formidable global force. He attracted investors, rebuilt the infrastructure, and turned Turkey into a magnet for businesspersons and tourists. The results were impressive: Between 2002 and 2011, Turkey’s average GDP growth rate was 5.45.
The average GDP  in the last four years, since the start of the so-called Arab Spring (2012-2015), barely reached 3.33. The numbers for 2016 are worrisome. Turkey’s problem became tied to the Syrian crisis when Erdoğan took it upon himself to be the defender of the Syrian people against their own president: he threw his support behind violent groups allowing the flow of weapons and fighters into that country with the aim of overthrowing Assad’s government. Given the long-standing relationship between Russia and Syria, Turkish-Russian relations suffered, especially when Turkey shot down a Russian Su-24 near its border with Syria . The connections between the Syrian crisis, Turkey’s relations with Russia, and the health of the Turkish economy are compelling . Although Russia would benefit from economic ties with Turkey, Russian leaders have made the connection between long-term economic development and strategic alliances with other countries. With Russia soldiers now dying in Syria on the hands of fighters enabled, trained, and supported by Turkey, it would be reckless for Russia to fully separate economic interests and military and security matters involving Turkey. That is one of the main reasons Erdoğan returned from Russia practically empty handed, with only promises.
Russia will not shore up a Turkish economy that supports terrorists in Syria who killed Russian soldiers, abused their corpses, and threaten to kill more. For that reason, Putin insisted that the lifting of sanctions must be gradual. Russian thinking is long term: if Putin waited for seven months to receive Erdoğan’s apology, he is prepared to wait another seven months to see Turkey implement its commitments to fighting terrorism by sealing the border and stopping the flow of weapons, fighters, and stolen Syrian oil and goods.
Russians are prepared to fast-track the economic projects that are long term and delay the ones with immediate payoff for the Turkish economy until Turkey meets its obligations. Russia’s thinking was reflected in their plan to restart work on Turkish Stream pipeline, without shelving alternative projects involving other countries. The principle that Russian leaders are using to reset their relations with Turkey also favors restarting economic exchange that benefits the Russian economy and while delaying exchange that benefits the Turkish economy until Turkey changes its calculus on Syria. Russia is not conditioning its economic relations with Turkey on Syria because it cares about Assad, but because Turkey is indirectly killing Russians in Syria.
The other principle guiding Russia’s foreign policy in relation to the Syrian crisis was made clear during the press conference that Erdoğan and Putin held after their first meeting. Responding to the first question, Putin looked at his guest and declared:
“Our position is based on this enduring principle: It is impossible to achieve democratic change except through democratic means.”
Not only are these principles guiding Russia’s approach to the Syrian crisis making it difficult for Erdoğan to capitalize on his pragmatism, the consequences of his involvement in Syria are making it almost impossible to start from zero. Indeed, making amends for one jet and one pilot may cost him some political capital and about $25 million. Should Syria pursue legal action to force countries that supported military aggression and profited from looted goods and natural resources to pay reparations, Turkey could be on the hook for billions. Erdoğan was willing to apologize and normalize relations with Putin but not with not Assad because of the cost that might be associated with admission of responsibility in the destruction of Syria.
This is not to say that Turkey has no way out of its problem with Syria. Erdoğan could use Russia as intermediate partner to spend the next five years rebuilding what he helped destroy in Syria over the past five years. This indirect action could be the compromise that might actually work for all parties. The “coup” that Erdoğan wanted to launch against the Syrian government using genocidal fighters did not work, will not work, and may have inspired the failed coup against his government. He has this one opportunity that he had created when he apologized and took responsibility for downing the Russian plane; if unused, all will be for naught.
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* Prof. SOUAIAIA teaches at the University of Iowa. His most recent book, Anatomy of Dissent in Islamic Societies, provides a historical and theoretical treatment of rebellious movements and ideas since the rise of Islam. Opinions are the author’s, speaking on matters of public interest; not speaking for the university or any other organization with which he is affiliated.

#IslamicSocietiesReview : Turkish-Russian relations in the context of the war in Syria and Turkish economy

#IslamicSocietiesReview : Turkish-Russian relations in the context of the war in Syria and Turkish economy


by Ahmed E. Souaiaia*
At one point last year, when the Turkish and Russian leaders had their last meeting, they had hoped that economic trade between their two countries would reach $100 billion. Turkish leaders also wanted to triple trade with Iran to $30 billion. Erdogan, the co-founder of the AKP that has governed Turkey for a decade and a half, knows the importance of economic growth for him to remain in power and shape the country’s future to his liking.

 The problem for Erdogan is that his economic agenda was in direct conflict with those two countries’ political and economic interests. Erdogan’s interests in Syria are mainly rooted in sectarianism and nationalism. So when Russia and Iran increased their military presence in Syria last September to protect their economic interests and defend religious minorities and sites, Erdogan lost his cool. He ordered his pilots to shoot down a Russian bomber claiming that it violated Turkish airspace–a claim denied by Russian military. Erdogan’s reasoning for taking aim at a Russian military asset–a first by any NATO member in more than 50 years–was difficult to decode. Perhaps he hoped that the downing of the Russian jet would force Putin to respond militarily, drawing NATO, in which Turkey is a member, deeper into the Syrian conflict. That did not happen. Instead, Putin relied on economics’ lever to punish Erdogan. Based on the final outcome, it would seem that Putin’s strategy worked.  After refusing to apologize and accept responsibility for shooting down the plane for seven months, Erdogan blinked. He did exactly what the Russian leaders wanted him to do.

The important fact is this: Russian-Turkish relations suffered because of the conflict in Syria and it can’t be amended without finding some common ground on that issue. Russia has nothing to offer since Putin’s position has been consistent all along: only Syrians can decide if Assad stays or leaves and priority should be given to combating terrorism . Erdogan, on the other hand, has insisted, as did the Saudi rulers (and Qatari rulers before them) on overthrowing Assad and his regime. The Russian position is politically and normatively correct. The Turkish and Saudi position is absurd. They argued that Assad lost legitimacy because Syrians are dying under his watch. If that is the standard for legitimacy, then how can the Turkish government that has killed more than 50,000 of its Kurdish citizens and the Saudi rulers who are killing children in Yemen (according to UN and NGO’s reports) and Syrian citizens (by arming opposition groups) dictate the fate of the leader of a sovereign nation?

Erdogan may have learned something from the Qatari ruler, Hamad: when you make an ultimatum and fail to achieve it, step aside. Erdogan will not step aside, of course. He thinks that he is exceptional. Instead, he forced out his prime minister, Ahmet Davutoğlu–the architect of zero-problem with neighbors’ doctrine. In doing so, he gave the public the illusion that any change in foreign policy will be due to the change of government. That way, he continues to take credit for positive outcomes and blame the negative outcomes on the government.

AKP’s formula for Turkey’s economic prosperity was based on the principle of “zero problem with neighbors.” Erdogan proved the efficacy of that formula when he violated it. Since he involved his country in the project of overthrowing the Syrian regime, Turkey lost all the significant neighbors: Syria, Iraq, Iran, and Russia, and that destroyed the Turkish economy. Consequently, amending ties with these neighbors requires a change in Turkey’s position on Syria. That much is clear.

Given the numbers of foreign fighters, militant groups, and weapons inserted in that country, Syria’s civil war might last for another ten years. By then, Assad will not be able to remain president as per new constitutional term limits. Can the Saudi or Qatari ruling clan promise that they will transfer power to elected governments in ten years? Erdogan, too, has risen to power thanks to his party’s reformed practices which imposed term limits on its leading members. After two terms as prime minister, he should have quit to honor that policy. Instead, he circumvented those limitations by assuming the role of an executive president without constitutional authority. He is now working backward, pushing to amend the constitution to retroactively bestow upon himself some legitimacy. While in power, he jailed critics, seized media outlets, prosecuted those who “insult” him, and killed peaceful protesters. These are not the practices of a legitimate democratic leader–they are the practices of a cruel megalomaniac. Would he appreciate a foreign leader calling for his overthrow?
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* Prof. SOUAIAIA teaches at the University of Iowa. His most recent book, Anatomy of Dissent in Islamic Societies, provides a historical and theoretical treatment of rebellious movements and ideas since the rise of Islam. Opinions are the author’s, speaking on matters of public interest; not speaking for the university or any other organization with which he is affiliated.
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