Ideology can prove fatal for an economy
Some countries continue to make the mistake of running economies based on ideology, which only ends up with these states mixing in an ideological approach to their economic policies. This has only led to major deterioration not only to their economic situation but also to whatever they had achieved prior to letting ideology get in the way.
Apparently, the monetary sector is the first victim of such an ideology-oriented state of affairs, along with key financial institutions and the collapse of the national currencies of these countries. Currently, there are four main examples of countries which ideologise their economies. The first is Iran, where the rial has hit rock bottom, declining by 50 per cent in a short period of time, with $1 now equalling 120,000 rials.
The rial is also expected to continue its devaluation ride against the dollar, whereby $1 is likely to buy 150,000 rials and perhaps even 200,000 rials against the backdrop of tightening US sanctions. The first phase of these sanctions went into effect on August 6 and is to be followed by a second phase from November 4, which will be more severe and include Iran’s oil sector. The second example is that of Turkey, whose lira collapsed by 16 per cent in one day and by 40 per cent since the beginning of this year. Last week alone, one dollar bought six lira, for the first time ever. It used to buy two liras five years ago.
Several sources, including America, are expecting the dollar’s value to rise to seven liras due to shortsighted monetary policies and irrational political and ideological interventions. To make things even worse, the Turkish administration is opposing raising interest rates, despite the need for it so as to maintain current investment and attract new ones instead of expelling them.However, professional opinions are not heard for ideological reasons.
The third and most tragic example is of Venezuela, an rich-oil country with the world’s largest oil reserves. Surprisingly, its people are poor and suffer from repeated economic crises. They emigrate to work in neighbouring countries, which don’t have Venezuela’s natural wealth.
Yet, Venezuela’s currency has collapsed and its shops are empty of consumer goods due to an ideologised economic and financial policy, which has damaged the economy. Oil production has deteriorated, capital has fled, investments have fallen and living standards have declined. The fourth example is that of North Korea, which lives in a state of isolation from the entire world. As for its national currency, the North Korean won has no actual value as most of the retail transactions are controlled by the dictator’s regime, which tells them what to buy and what to consume in an unmatched and “fatherly” way.
There are other ideologised nations still resisting the collapse of their currencies thanks to their huge financial reserves, nations such as Qatar, which managed to protect its currency from collapse more than once during the Gulf and Arab boycott for over a year. The fact is that there are factors shared by all these ideology obsessed countries, which contribute to deteriorating their financial and monetary conditions. The first of which is abstaining from professionalism in dealing with situations and, second, trying to harness their capacities to support affiliated partisan organisations. A third reason is intervening in others’ affairs, which causes a souring of economic relations with countries that is followed by a dire capital flight.
■ Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.