Jul

25

 The events in Turkey bring to mind the Revolution in the Park. The wikipedia article has the politics all wrong (Celman was no more "conservative" than Erdogan is), but it will have to do as a point of reference.

The comparison between Argentina in 1890 and Turkey in 2016 - like all historical analogies - is only useful for finding what I think Vic and others mean by "the drift" - the compass direction in which Time's arrow is pointing. What makes the comparison interesting for me is the history of foreign exchange dealings and the subsequent Baring crisis. That crisis in Europe is what brought on the Panic of 1893 here in the United States.

There are real parallels between what has happened in the Middle East over the past 25 years and what happened in the region surrounding the Rio de la Plata in the 3rd quarter of the 19th century. There was a succession of nasty and utterly stupid territorial wars over mineral wealth - the worst of which had the same coalition of the self-righteous that glorified Bush I's war.

There are also real differences. Argentina in the decade of the 1880s enjoyed large immigration and, with that, persistent transfers of money by the immigrants to their families back home. For Turkey the money flows have been in the opposite direction.

What has been the same is the rise and fall of belief in a supposedly new "modern" nation. Just as Turkey has, until recently, enjoyed enthusiastic support from the moneyed interests for its joining the EU, Argentina was the darling of the City of London during the 1880s. Under Roca the country had adopted yet another currency reform, this one to put the peso on the international gold standard. (This meant you could ask for gold coin in exchange for paper money at a fixed rate - something the world has not seen now for 84 years.) Even as the country suspended convertibility in 1884, people continued to believe in the investment prospects for the river Plate. By 1885 the paper peso had risen to 134% of par, and Roca's government had been replaced by Celman; but the flow of funds into the country actually accelerated. (The argument was, then as now, that currency depreciation made the country more competitive and its businesses more profitable.) Even as the Turkish lira has declined from .45 to .3 Euros since the end of 2012, "belief" in Turkey as the next member of the EU has continued to rise. The suggestion by Brexit supporters that adding a poor Muslim country might not be such a great idea was taken as proof of the fundamental economic and political ignorance of the backward English. Those in the City who had questions about the profitability of buying Argentine railway bonds in 1887 faced similar scorn.

If the lira now goes to .24 to the Euro, it will only be matching the performance of the peso under Celman. By 1889 it has fallen to 191% of par.

When the full crisis hit the following year, it crashed to 387%; and Barings failed.

You can read the full story here.


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