The arrest of Istanbul Mayor Ekrem İmamoğlu has sparked significant economic instability in Turkey, with the country’s stock market and currency experiencing sharp declines. Following the news, the Turkish stock market saw its worst week since the 2008 global financial crisis, with the ISE 100 index dropping over 16%. In response, Turkey’s capital markets authority banned short selling and eased stock buyback regulations in an attempt to stabilize the situation. Despite these measures, the index rebounded briefly before falling again, reaching its lowest point since November.
The political unrest triggered by Imamoglu’s arrest has eroded investor confidence, particularly among Turkish nationals who have increasingly turned to the stock market as a hedge against inflation, which remains high at 39%. While Finance Minister Mehmet Şimşek reassured the markets by pledging to take “whatever is necessary” to stabilize financial conditions, the Turkish lira depreciated by 3% against the dollar, with analysts noting that most of the outflows were from foreign investors.
Short-term Crisis, Long-term Concerns
Economist Erdal Yalcin of HTWG University in Germany explained that the recent political crisis, driven by Imamoglu’s arrest, caused a swift withdrawal of international capital, leading to pressure on the Turkish lira and requiring the central bank to intervene with substantial reserves. However, Yalcin also noted that Turkey had recently been on a path to recovery, with high interest rates and currency support helping attract foreign investment, especially in government bonds and stocks.
Despite the economic volatility, experts believe the tourism sector in Turkey will remain largely unaffected. Dirk Schmücker, a tourism expert at the NIT Institute in Germany, stated that political instability has rarely deterred tourists, particularly from Germany, who are more driven by affordability than by political concerns.
Broader Economic Risks
While tourism may not face significant challenges, Turkey’s banking, real estate, and export sectors could be more vulnerable. Yalcin warned that rising refinancing costs and capital outflows could strain Turkish banks, while the real estate sector’s reliance on foreign investment makes it susceptible to political instability. Additionally, export businesses could face increased risks due to more cautious international partners and higher hedging costs.
In conclusion, the full economic and political ramifications of Imamoglu’s arrest may take time to fully unfold. While short-term instability is evident, Yalcin suggests that the Turkish government’s swift action to stabilize the economy could reassure investors and mitigate longer-term consequences. Turkey’s strategic role within NATO and its importance as a migration buffer to Europe further explain the cautious response from international allies.
