Foreign investors on edge over fate of Turkey's opposition leader

Foreign investors are closely watching a court case that could unseat the chairman of Turkey’s main opposition Republican People’s Party (CHP) and its executive board later this month.

Last year, a prosecutor in Ankara launched an inquiry into the party’s 2023 congress, where Ozgur Ozel and his team were elected, alleging that party officials bribed delegates to sway the results. A hearing is scheduled for 15 September.

On Tuesday, an Istanbul court temporarily removed the CHP Istanbul branch chairman, Ozgur Celik, and his board over similar bribery allegations.

Prosecutors are seeking prison sentences of one to three years for Celik and nine other officials.

“This case has been rushed, since the courts were in judicial recess until this week and normally nothing happens in the first week of September,” a source familiar with the proceedings told Middle East Eye.

Another source familiar with government thinking said Tuesday’s decision in Istanbul increased the likelihood that Ozel could be removed on 15 September, potentially paving the way for the return of former CHP chairman Kemal Kilicdaroglu - though polls suggest he no longer enjoys strong support amongst opposition voters.

The CHP leadership views these court cases as politically motivated. Turkish Justice Minister Yilmaz Tunc, however, maintains the government’s position that the judiciary is independent of political considerations. 

“It is a very unfortunate and inappropriate statement for the leader of a main opposition party to say that he does not recognise the court decision,” he said on Wednesday. “After all, there is a court decision and compliance with that decision is a requirement of a state governed by the rule of law.” 

Tunc, however, added that Istanbul’s CHP decision could also influence the Ankara court reviewing allegations of misconduct at the party’s 2023 congress.

Rattled markets

The Istanbul ruling unsettled financial markets, sending the Borsa Istanbul Stock Exchange down 3 percent on Tuesday and nearly 2 percent on Wednesday.

Turkish state banks were reportedly forced to sell about $5bn over two days to stabilise the lira after the removal of the CHP’s Istanbul leadership.

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On Tuesday alone, foreign investors sold 4.5 billion lira ($110m) in Turkish assets.  According to Central Bank data, foreigners hold a total of $127bn in Turkish markets.

Foreign investors with billions in Turkish assets told MEE they were worried about the possible dismissal of the CHP chairman. 

One investor with significant exposure to Turkish markets said the move would inevitably fuel debate on whether Turkey still functions as a competitive democracy, though his primary concern was the financial fallout.

Many firms are organising investor trips to Turkey this month to meet contacts, as well as government and opposition officials, in an effort to chart a path for the future of their investments. 

“As seen in the stock exchange, such a step could spook local investors and push them to dollarise - selling Turkish assets to buy foreign currencies in order to shield themselves from volatility,” the investor said.

Earlier this year, the Turkish Central Bank was forced to inject nearly $60bn into the market to stabilise the lira after a court jailed Istanbul mayor and presidential hopeful Ekrem Imamoglu on corruption charges.

Since then, the bank has worked to rebuild its reserves. By August, gross reserves reached a record $176bn, while net reserves climbed to $70bn.

Investor confidence at risk

Turkey’s economy has been trapped in a cycle of high inflation since 2021.

Finance Minister Mehmet Simsek and Central Bank governor Fatih Karahan have pursued orthodox monetary policy since 2023, using steep interest rate hikes to curb price surges. As the programme began to show results this year, the bank cut rates from a peak of 50 percent to 43 percent in July.

'Some investors are starting to ask whether it’s time to exit the Turkish market altogether. Everyone is worried'

- Financial analyst

However, with July inflation coming in stronger than expected at 2 percent month-on-month, the possible removal of the CHP chairman could further limit the central bank’s room to manoeuvre on interest rate cuts.

“Higher interest rates would spur complaints from companies that face rising borrowing costs,” an investment banker told MEE. “Many firms could postpone their medium to long-term investment plans.”

The political turmoil also weighs heavily on long-term investors, who place greater emphasis on judicial independence, political stability and democratic accountability to safeguard their investments.

A financial analyst who regularly prepares investment research for foreign clients said many projects have been on hold since the ruling against Imamoglu.

“There was some movement at the end of the summer, but now sentiment has turned completely negative,” the analyst said.

“Some investors are starting to ask whether it’s time to exit the Turkish market altogether. Everyone is worried.”