Wednesday, August 6, 2008

WSJ on Turkey's Islamic Capitalism

Singaporean 2006 Collectible Coin

Today's WSJ ("Muslim Land Joins Ranks of Tigers") profiles how Islam has benefited Turkey's economy. Despite the tug-of-war between the secularists and the Muslims, there is no question that the pro-Islam party has brought better economic prosperity to Turkey. This adds more evidence to my overriding theme that economics is destiny. A country could believe in Wicca, and as long as it was also successful, we'd all be analyzing how Wicca makes people rich. Any religious or political system that allows people to work hard, feel appreciated, feel safe, and gain material prosperity will be considered successful and progressive.

Here are some interesting lines from the article, written by Andrew Higgins and Farnaz Fassihi:

Islam itself has nothing against business. The Islamic prophet Muhammad [peace be upon him] started out as a merchant, and his first wife was a successful businesswoman. Asked to fix prices in the bazaar by followers who wanted to buy goods more cheaply, Muhammad [peace be upon him] is said to have refused: "Only Allah governs the market."

Now there's one interpretation of the "invisible hand" in action. Of course, Dubai has been successful more consistently than Turkey, whose bonds were paying in excess of 20% until recently (still around 13% from my last memory--these numbers have not been cite-checked). 10 year U.S. bonds now sell for around 4.05%.

The lower the interest rate a country offers investors, the more stable it usually is, because the country has to increase rates to whatever point makes sense to investors after a risk-reward analysis. The higher an interest rate on government bonds, the more risky the country is perceived. Even with higher interest rates and potential inflation problems, Dubai and Turkey should be cited as economic and yes, Islamic, successes.

Malaysia, at least today, has done the best job in terms of creating both an Islamic and an economically successful state. With its increasing diversity, Malaysia must now find ways to integrate its entire population or risk losing its most successful workers to neighboring countries. It's a problem all rich countries, including America, have and it can be an opportunity to re-affirm nationalism in a peaceful way. Singapore, for example, had a great idea in making an independence day coin displaying different races. See links below:

Back to Turkey. I own Turkish bonds in my T. Rowe Price Emerging Markets Bond fund (PREMX) and am happy thus far. PREMX also has Iraqi bonds with a 5.8% interest rate. Apparently, the market thinks Iraqi bonds are only a moderately less safe than U.S. bonds. I wonder what the interest rates on proferred Iraqi bonds will be when American troops leave. It may not make much of a difference, as long as some troops remain to protect the oil pipelines, or if Iraqi security forces are strong enough to protect their own pipelines. Interesting note: the Iraqi bond held by PREMX matures, or ends, on December 28, 2025. Yup, the year 2025--over 17 years from now.

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