Show trials are bad for the investment climate

Looking for an area to really impact the G-20? Look no further than the IMF. The Multilateral Assessment Process (MAP) framework among the G-20 countries is definitely an improvement over the old Article 4 consultation process. It allows us to follow both foreign direct investments (FDI) and outward direct investments (ODI) more easily for every country. The first is about foreigners coming to take advantage of the long-term prospects of your country, while the latter is about your citizens investing in the future of other countries. 

When I look at Turkey’s ODI-to-FDI ratio these days, I see a trend taking shape. ODI to FDI is about the share of ODI per unit of FDI. It used to be around less than 20 in Turkey. Now that is changing. In 2014, the ratio increased to more than 50 percent. The new pattern persisted in the first quarter of 2015. That is not good. 



It shows two things: Foreign investors are afraid to come in and domestic investors are elbowing each other to leave the country. Need more proof? Just look at how domestic private investments are faring. In every quarter between 2003 and 2007, the annual growth of domestic private investments was around 19.2 percent. That declined to minus 2 percent for every quarter between 2012 and 2014. Turks don’t want to invest in the future of their own country. They are parking their money abroad, hence the rise in ODI. Why?
It is the rule of law, or the lack thereof. Consider the result of the “Balyoz (Sledgehammer) case, for example. The verdict for the retrial was announced just this week. It was one of the show trials that was staged in Ankara as part of the campaign against the military between 2007 and 2010. After a retrial ordered by the Constitutional Court in Ankara, all defendants were acquitted. Just about two years ago, these same people got life imprisonment from the same court. In a bizarre twist, some former officers of the Turkish Army got it not once, but twice. 

Then the Constitutional Court intervened to correct the course, yet those people, accused using openly falsified evidence, stayed in prison for more than four years. Looking for a rule of law indicator? Have a look at how the Turkish court system is failing everyone. The Sledgehammer case only shows how Turkey’s judicial system is used as a tool to discredit people and institutions. Just plant the smear and have faith in the excruciatingly slow world of Turkish justice to do the rest. Child’s play for any political operative. 

So Turkey’s ODI is on the rise now. Why? Show trials damaged the investment climate, stupid. Ends do not justify the means.