CNBC/Natasha Turac:  Political freefall begets fears of economic calamity

Turkey’s embattled economy is set to endure more turbulence and investor flight as protests erupted against a slew of highly controversial arrests carried out by the government of President Recep Tayyip Erdogan.  Critics of the arrests say it is the clearest violation of democracy yet by Erdogan’s government. Concern over stability and economic security in Turkey could damage financial inflows at a time when investor confidence in the country is already shaky.   CNBC’e Natasha Turac wrote that “Critics of the arrests say it is the clearest violation of democracy yet by Erdogan’s government. “Turkey has already been in decline, but this is a political freefall,” Arda Tunca, an independent economist and consultant based in Istanbul, told CNBC. “Today is history and a new dimension in Turkey’s breakaway from democracy.”  

Risk to markets and investment flows

According to Natasha Turac of CNBC.com, “ Worries over stability and economic security in Turkey could damage financial inflows at a time when investor confidence in the country is already shaky – and after the nation’s monetary policymakers have spent nearly two years working to turn Turkey’s inflation situation around, economists warn”.   “Rule of law concerns will though persist and this will likely damage longer term foreign direct investment flows – which are already low – unless the AKP administration is able to produce a compelling case against Imamoglu,” Timothy Ash, emerging markets strategist at BlueBay Asset Management, wrote in a note Wednesday.   [embed]https://www.paturkey.com/news/2025/economic-costs-of-the-imamoglu-take-down-escalate-by-the-day-19315/[/embed] Inflation in Turkey remains high – most recently hitting 39.05% in February – and is a key sticking point that the CHP planned to run on in its campaign against Erdogan. Continued investor selling of the lira could trigger deeper inflation, forcing the Turkish central bank to raise interest rates, which are currently at an eye-watering 42.5%.   “The development will knock investor confidence and the lira, and this will drive inflation back up,” George Dyson, a senior analyst and Turkey specialist at Control Risks, told CNBC. Still, Dyson and other analysts don’t foresee the central bank abandoning economic orthodoxy and cutting rates. Rather, they hold there may be new rate hikes, if the lira’s weakness worsens, as the bank’s laser focus has been on combating inflation.  

Turkey ‘feels secure geopolitically’

Turkey’s next presidential election is set to take place in 2028, but parliament has been expected to call for an early vote, when timing would favor Imamoglu — who according to recent opinion polls would handily defeat Erdogan.   “Polls presented to Erdogan were likely showing that, even with his incumbency advantages and complete control of institutions & media, Imamoglu was — still — defeating him — by wide margins — in a presidential vote,” Soner Cagaptay, a Turkish historian and senior fellow at the Washington Institute, wrote in a post on the X social media platform.  “Which is why Erdogan has opted for the nuclear option [against] Imamoglu.”   Recent geopolitical developments, however, have strengthened Erdogan’s hand when it comes to facing international consequences. The return of U.S. President Donald Trump to the White House has emboldened leaders in other countries to flaunt democratic norms, some political analysts argue.   “One plausible explanation for why they’re doing this now so far out from the elections is that the Turkish government feels secure geopolitically,” Dyson said. “The U.S. is signaling it won’t mind these kinds of actions and the EU needs Turkey on Ukraine and on Syria, and so the Turkish government takes advantage of the moment when they expect minimal international backlash.”   Excerpt   IMPORTANT DİSCLOSURE:  PA Turkey intends to inform Turkey watchers with diverse views and opinions.  Articles in our website may not necessarily represent the view of our editorial board or count as endorsement.     Follow our  English language YouTube videos  @ REAL TURKEY:   https://www.youtube.com/channel/UCKpFJB4GFiNkhmpVZQ_d9Rg And content at Twitter: @AtillaEng Facebook:  Real Turkey Channel:   https://www.facebook.com/realturkeychannel/