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EUROPE: Turkish economy unstable as the lira comes under pressure in jittery markets

11 May, 2019

Turkey election authorities annulling the Istanbul municipal vote, after an opposition candidate was elected as mayor, has increased the risk of political instability while the Turkish Lira gave way against the Euro.


The country's Supreme Electoral Board (YSK) announced that the election would be re-run on June 23, state media reported.

The result was considered an embarrassing defeat for Turkey’s President Recep Tayyip Erdogan, after AKP had contested the results, claiming irregularities to the procedure.

AKP’s Deputy President Ali Ihsan Yavuz’s notoriously said: “Even if nothing (suspicious) had happened, we are certain that something (suspicious) has taken place.”

A spokesman for the main opposition Republican People's Party (CHP) called the decision an act of "plain dictatorship."

Onursal Adiguzel, a lawmaker from Istanbul for the leading opposition party CHP,”, wrote on Twitter “This is a downright dictatorship. It’s free to enter an election against the AKP but forbidden to win it”.

Ekrem İmamoglu was officially declared Istanbul's mayor by the city's election authorities in mid-April after weeks of wrangling over the result following a partial recount.

İmamoglu scored a narrow victory, beating his AKP rival, former prime minister Binali Yıldırım, by about 13,000 votes in a city of 10 million eligible voters.

Erdoğan and his ruling Justice and Development Party (AKP) repeatedly called for the March 31 Istanbul election to be cancelled, alleging widespread "irregularities" in the vote.

According to the Financial Times, the decision will give way to the increase of criticism towards Erdogan, while also increasing the possibility of political instability, leading to the deepening of a financial crisis already sweeping Turkey.

Analysts and investors had grown increasingly concerned about Turkey’s economy and finances over the past months.

Currency wobble

The country’s declining foreign-currency reserves, doubts about the central bank’s willingness to take further action to fight inflation and its high level of short-term debt have all weighed on sentiment.

“The ruling inflicts a dramatic blow to the rule of law and weakens democratic standards in Turkey,” said Cristian Maggio, head of emerging markets strategy at TD Securities in comments to the Financial Times.

“Investors have once again been reminded of the fragile and eroding state of Turkey’s democratic institutions,” Ilya Gofshteyn, a currency strategist at Standard Chartered in New York told Bloomberg.

The lira fell more than 3% after the court’s decision was announced, leading emerging-market losses and reaching the lowest level in seven months.

The currency was already under pressure, breaching the key 6-per-dollar mark earlier Monday and 6.78 EUR.


While the week had started off with the lira equaling 6.68 against the euro, on Thursday morning the TRY was being traded, at some point, at 7.02, dropping to 6.88 on Friday noon.

Meanwhile, the cost to ensure Turkey’s debt against default using five-year credit default swaps also jumped to the highest level since late March, Markit data show.

The benchmark Borsa Istanbul 100 stock market index dropped 2.1%, with the sub-index tracking Turkish banks down 3%.

In a joint announcement Federica Mogherini, the EU’s foreign affairs chief, and Johannes Hahn, its enlargement commissioner, said: “The justification for this far-reaching decision, taken in a highly politicised context, should be made available for public scrutiny without delay.

Ensuring a free, fair and transparent election process is essential to any democracy and is at the heart of the European Union’s relations with Turkey.”

They concluded the statement by calling on the Turkish government to allow international observers to monitor the rerun election.

Thousands took to the street in protest at the decision. In a speech to thousands of his supporters, Imamoglu “condemned” the electoral board’s decision, accusing it of “bowing its head to threats”, but urged followers to remain calm.

“The people chose me. We are the Turkish youth who are thirsting for justice and believe in democracy,” he said. “We won’t give up and we are determined to conduct this process in a sound fashion.”

In several Istanbul neighbourhoods, residents banged pots and pans from apartment windows to show their protest against the ruling.

Erdogan and his party were trying to fend off an underlying economic crisis caused by the continuous tumbling of the Turkish Lira until after the local elections which took place on 31 March.

He feared a weak showing of his party would be perceived as a symbolic blow to AKP’s power.

The outcome of the elections saw the AKP lost control of key cities such as Ankara, Istanbul and performed badly in Izmir.

Imamoglu’s win over Yildrim was considered a body blow to Erdogan in his home city. Istanbul is the city where Erdogan had essentially started his political career when he was elected as Mayor back in 1994.

He won the heated mayoral race in Istanbul, the country's largest city and economic centre, with 48.8% of the vote, while the AK Party candidate, Binali Yildirim got 48.5%.

In the capital, Ankara, unofficial results showed that CHP candidate Mansur Yavas garnering 50.9%, with the AK Party nominee Mehmet Ozhaseki trailing on 47.2%.

In the third-largest city, Izmir, the CHP candidate, Mustafa Tunc Soyer, was led with 58% while AK Party's Nihat Zeybekci stood at 38.5%.

Turkey’s economy over the last few years has been characterised by a high inflation rate which reached 25.2% in January.

Devaluation of the Turkish Lira and the high rates of unemployment have taken their toll on the living standards of the poor and middle class in society.

Unemployment in Turkey reached 12.3% at the end of 2018, with a 20% unemployment rate among young people aged 20-35.

Meanwhile, the opposition is pulling together ahead of the Istanbul election re-run, determined to repeat the victory over Erdogan.

Two candidates who pulled in a combined 2.6% of the vote have withdrawn in favour of Ekrem Imamoglu, while the candidates of the Turkish Communist Party and the Labour Movement Party have also withdrawn.