The arrest of İstanbul Mayor Ekrem İmamoğlu, President Recep Tayyip Erdoğan’s top political rival, has rattled markets and raised fears that political turmoil could derail Turkey’s fragile economic recovery, according to Turkish media reports.
İmamoğlu, who is widely seen as the strongest opposition figure in a potential presidential run, was detained on March 19 on corruption and terrorism-related charges and formally arrested four days later. The detention sparked five days of mass protests across the country, with hundreds of thousands gathering Sunday in İstanbul’s Saraçhane district.
Markets quickly responded. The Turkish lira dropped sharply, and the İstanbul stock exchange dropped nearly 9 percent on March 19 — its worst single-day decline in years. By week’s end, the index had lost more than 16 percent of its value, wiping out billions of dollars in market capitalization.
Bank stocks were hit especially hard amid concerns about capital flight and rising political risk.
Analysts say the crackdown on İmamoğlu has spooked both local and international investors, leading to a sell-off that reflects deepening fears about the rule of law and long-term policy stability in Turkey.
“The economic repercussions of this political crisis will be quite severe. This time, the source of the crisis is not economic but political,” Koç University economist Selva Demiralp told BBC’s Turkish service.
The Central Bank of the Republic of Turkey (CBRT) reportedly intervened significantly in foreign exchange markets, selling up to $25 billion in reserves in three days to halt the lira’s slide — nearly 40 percent of net reserves accumulated since mid-2023, when Turkey abandoned years of an unorthodox growth-at-all-costs policy to stabilize its economy. Despite the central bank intervention, the lira remains down more than 3.5 percent compared to pre-crisis levels.
Credit default swaps — a key measure of sovereign risk — surged above 300 basis points, and government bond yields climbed, reflecting higher perceived default risk and investor unease.
Former CBRT deputy governor Fatih Özatay warned in a column that if the crisis worsens, it could trigger a new wave of inflation and stall growth.
“The balance sheets of companies with high foreign currency debt will deteriorate. Growth will stall, and unemployment will rise,” he said.
To stabilize markets, CBRT officials held a technical meeting Sunday with members of the Banks Association of Turkey.
CBRT Governor Fatih Karahan said all necessary measures would be taken “within market rules.”
Treasury and Finance Minister Mehmet Şimşek, facing resignation rumors, confirmed on social media that “we are at our posts” and have pledged to take “all necessary steps for the healthy functioning of the markets.” He then received Erdoğan’s total support on Monday.
Vice President Cevdet Yılmaz and other government officials emphasized strong fundamentals and said Turkey’s economic program would continue uninterrupted.
However, Demiralp and others said the current crisis has already undermined the fragile trust built over the past year.
“A substantial part of the heavy price we, as Turkish society, have paid by enduring high interest rates and low growth over the past two years — along with the limited gains achieved — has been lost,” Demiralp was quoted by the BBC as saying. She added that political uncertainty is pushing inflation expectations higher and could force a return to rate hikes.
Speaking to BBC, economist Aykut Lenger said foreign investors were already uneasy and that İmamoğlu’s arrest has made recovery even harder. “This distrust, which could have been reversed with a release order, is likely to deepen,” he said. “The unrest the economic management must address in the markets will continue.”
The main opposition Republican People’s Party (CHP), which elected İmamoğlu as its presidential candidate in a primary that turned into a vote of confidence with 15 million people showing up in solidarity with the jailed mayor, has accused the Erdoğan government of orchestrating a political coup.
CHP leader Özgür Özel told supporters in Saraçhane that Şimşek was “digging with a needle, only to have it covered with a shovel,” criticizing the government for spending reserves out of “fear of İmamoğlu.”
Credit ratings agency S&P Global said the political fallout “could pose a risk to confidence in Turkey’s economy and the stability of the exchange rate,” warning that second-round effects on consumer spending, capital inflows and inflation could be “material.”
Even if the political crisis does not escalate, Özatay cautioned that the outlook is grim. “The challenges will be greater than those experienced over the last nine to ten years,” he wrote. “Then a few years of 3–5 percent growth. Then likely an economic contraction. Then another 3–5 percent growth. An inflation rate between 25–35 percent that would be cause for celebration.”
As of Monday, the lira was trading near 38 to the dollar, and while stocks posted modest gains, volatility remained high. With more protests expected and no sign of a political resolution, investors are bracing for further shocks.
“The backbone of the economy is trust and stability,” said Demiralp. “The current political risks have severely damaged this trust environment.”