The news of Ekrem Imamoglu’s arrest last week led to significant losses in Turkey’s capital markets, as investors started to lose confidence in President Recep Tayyip Erdogan. Turkish stocks had their worst week since the 2008 global financial crisis, with the blue-chip ISE 100 stock index losing over 16% at its peak. In response, Turkey’s capital markets authority banned short selling and betting on further price declines, and eased stock buybacks to support plummeting shares. However, the index soon turned negative again and reached its lowest level since November. According to analysts, this development could become a major problem for Erdogan, as Turkish investors have turned to the stock market to protect their wealth from high inflation, which is currently hovering around 39%.
Turkey’s bond and stock markets stabilized somewhat at the beginning of the week after Finance Minister Mehmet Simsek pledged to do “whatever is necessary” to support financial markets. He stated that Turkey continued to offer good long-term investment opportunities and that President Erdogan is committed to maintaining investor-friendly policies. The Turkish lira depreciated against the dollar, but the fact that it fell by only 3% reassured investors. Analysts believe that Turkey had been on a path to stabilization after a period of political uncertainty, high inflation, and economic crisis. However, the political crisis is affecting the markets because uncertainty has risen abruptly.
Tourism is one of Turkey’s most important industries, and renewed political uncertainty could have the most visible impact there, according to experts. However, the effects may be noticeable on Turkish beaches but should not be overestimated. Most tourists are determined to follow through on their vacation plans, especially if the destination is affordable. Other sectors of the Turkish economy, such as banks and real estate, are also under pressure. Turkish banks could be facing higher refinancing costs, and international investors might cut their funding, increasing the risk of capital outflows. Export-dependent industries could also suffer because of tougher conditions imposed by business partners.
The full economic and political impact of Imamoglu’s incarceration will only become clear over the course of the year. Erdogan’s controversial move may not have long-term consequences as the Turkish finance minister’s announcement of decisive action to protect the economy could be well received. Turkey’s allies, especially the European Union and the United States, have a vested interest in stable politics due to Turkey’s strategic significance as a NATO partner and a buffer to control migration flows to Europe.
Source: https://www.dw.com/en/turkey-economy-faces-confidence-crisis-after-imamoglu-arrest/a-72049395?maca=en-rss-en-all-1573-rdf
