An early and predictable casualty of Wednesday’s shock arrest of Istanbul Mayor Ekrem Imamoglu on specious corruption and terror charges is Turkey’s long-struggling economy, with the Turkish lira weakening by as much as 14% against the US dollar at one point following the arrest, and the Istanbul stock market plunging so low that circuit breakers were activated. Lenders sold around $8 billion on Wednesday in a bid to prop up the sagging lira, Bloomberg reported. Unnamed banking sources said that the Turkish Central Bank had ridden to the rescue.

Anecdotally, there are continued reports of large numbers of spooked Turkish citizens converting their lira assets into foreign currency and gold. The bottom line is that investor confidence has taken a significant hit just as the economy was beginning to stabilize, following the government's return to fiscal orthodoxy under Treasury and Finance Minister Mehmet Simsek, who assumed the post in 2023.

The UK-trained economist, who spent many years at Merrill Lynch, reversed Turkish President Recep Tayyip Erdogan’s disastrous policy of keeping interest rates low in the name of combating inflation, when the reverse is required, according to most economists. Many believe Erdogan’s aversion to interest is rooted in his Islamist background. 

Simsek sought to calm market jitters on Wednesday. “Everything necessary is being done for the healthy functioning of the markets. The economic program we are implementing continues with determination,” Simsek posted on X.