Ankara went into maximum alert on Monday, in a desperate attempt to stop the collapse of the lira and capital market, after the country was thrown into a new political crisis, with the arrest of a formidable opponent of President Recep Tayyip Erdoğan, the mayor of Istanbul, Ekrem İmamoğlu, as reported by the international press.
The Turkish lira fell by nearly 2% against the dollar, and the bond market was hit by a massive wave of sales as soon as the markets opened. However, by noon, the emergency measures taken by the Central Bank of Turkey (TCMB) and the regulatory authorities (SPK) were able to tame the panic – at least in the short term.
The exchange rate reached a new historic low last week, after the mayor of Istanbul, Ekrem İmamoğlu – considered to be Erdoğan’s main opponent in the presidential elections, if there are early elections – was arrested on charges of corruption. The decision sparked massive protests across the country, which continued on Sunday when a court ordered İmamoğlu’s pre-trial detention.
Protests and market panic, but the situation could have been even worse
According to analysts, the reaction of the markets and protesters could have been much harsher. Jim Reid, a strategist at Deutsche Bank, noted in a note to clients that “the fact that İmamoğlu was not charged with terrorism limited the escalation of the crisis.” If this accusation had been made, the authorities could have installed an interim mayor in Istanbul, risking to amplify the discontent.
By Monday, over 1,100 protesters had already been arrested, according to the Interior Minister.
Turkey, on the edge once again
The crisis has reignited investor concerns that the country is heading towards an autocratic regime, and that Erdoğan will once again trample on any obstacle to consolidate his power.
Foreign investors and local companies are still struggling to recover from Erdoğan’s extravagant 2023 election campaign, which led to an inflation rate of over 80% last year. The political crackdowns since the 2016 attempted coup have had a similar effect, causing a sudden devaluation of the lira and massive losses in the local markets.
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