1. Home
2. Economy
3. Istanbul Mayor Arrested: An Economic Shock for Turkey

The recent arrest of the mayor of Istanbul, Ekrem Imamoglu, a leading opposition figure to President Recep Tayyip Erdogan, has shaken Turkey's political and economic landscape. This event, seen as a blow to democracy, has also unsettled financial markets, intensifying economic tensions in a country already grappling with a longstanding currency crisis. The repercussions on the Turkish lira, inflation and the stock market are significant, further worsening an already fragile situation.

Ekrem Imamoglu, mayor of Istanbul since 2019 and member of the Republican People's Party (Cumhuriyet Halk Partisi or CHP in Turkish), the main opposition party, was incarcerated after being convicted of “public insults” against government officials. This development comes at a particularly difficult time for the Turkish economy, already grappling with rampant inflation and a devaluation of its currency.

The tense political climate in Turkey, combined with this arrest, immediately sowed uncertainty among investors. Turkey, which is already suffering from budget deficits, inflation and unstable monetary management, now finds itself in a situation where political risks have compounded the economic crisis.

Following Imamoglu’s arrest, the Turkish lira suffered another historic drop against international currencies, falling 3.7% in five days. The lira thus recorded its largest weekly decline in nearly two years—the worst performance since June 2023—trading at around 38 liras to the dollar on Monday in Istanbul. The political uncertainty triggered a massive sell-off of lira, with lenders selling up to $9 billion. In response, the Turkish central bank unexpectedly raised interest rates to support the currency. According to experts, this new political uncertainty is an aggravating factor that further increases the volatility of the Turkish lira. It is worth noting that the lira, which has lost over 90% of its value against the US dollar since 2018, continues to depreciate. The Erdogan government's monetary policy, based on low interest rates despite high inflation, has failed to stabilize the currency. There are concerns that Imamoglu’s arrest and internal political tensions could further accelerate the flight of foreign capital, worsening the lira crisis.

Furthermore, inflation, already at historic levels, has taken a concerning turn following the arrest of the mayor of Istanbul. The immediate impact on the prices of goods and services has become more pronounced, particularly in sectors such as food, energy and everyday consumer products. Turkish citizens are now facing a double burden: a devalued currency and runaway inflation, eroding their purchasing power. It is worth noting that in November 2022, inflation in Turkey had reached nearly 85%, one of the highest rates in the world. Although inflation has slightly decreased since then, it remains well above 50% and continues to weigh heavily on Turkish households.

The Istanbul Stock Exchange (Borsa İstanbul) has also been affected by this event. The announcement of the arrest led to a 16.5% drop in the stock index, signaling a new wave of investor mistrust in the country’s political stability. The Istanbul Stock Exchange rebounded into positive territory on Monday. Publicly traded company shares were particularly impacted, and growing uncertainty may further deter foreign investment.

Meanwhile, Turkish Economy Minister Mehmet Simsek dismissed rumors of his resignation on Sunday evening, assuring the public that he is “working and continuing to take all necessary measures for the proper functioning of the markets.” Geopolitical and internal tensions, combined with uncertain economic management, have heightened market volatility and point to an increasingly unstable situation for investors and businesses operating in Turkey.