The Turkish lira recorded a new decline Tuesday after the elections board ruled to re-run Istanbul municipal elections at the request of the ruling Justice and Development Party (AKP).
The market immediately responded after AKP representative on the electoral board, Recep Ozel, announced the decision on his Twitter account.
The lira fell more than 3 percent after the court’s decision was announced to reach 6.15 against the dollar amid increased investor concerns about political instability.
President Recep Tayyip Erdogan’s opponents criticized his refusal to concede defeat in Istanbul where he built his political career, saying it is a sign of his increasingly authoritarian rule during more than a decade and a half in power.
Currency strategist at Standard Chartered in New York Ilya Gofshteyn said investors have once again been reminded of the fragile and eroding state of Turkey’s democratic institutions, reported Bloomberg.
The currency was already under pressure, breaching the key 6-per-dollar mark earlier Monday amid a selloff in developing nation assets on trade war woes.
A senior portfolio manager at Emso Asset Management in New York, Jens Nystedt, indicated that from a market perspective, more than 4 years of no new elections and structural reform measures including tighter fiscal policy “was a welcome trajectory”.
“Now election uncertainty will return and a lot of the necessary policy corrections will be at best delayed until July, which is unfortunate,” he was quoted as saying by Bloomberg.
Turkey’s main opposition Republican People’s Party (CHP), which won the mayor’s office in the country’s largest city in March 31, called the ruling a “plain dictatorship.”
Istanbul’s loss came as a shock for Erdogan, who in the 1990s served as the city’s mayor and had campaigned hard ahead of the nationwide local vote, his first electoral test since last year’s sharp currency crisis tipped the Turkish economy into recession for the first time in a decade.
Once again, Erdogan said a conspiracy carried out by foreign parties are trying to sabotage the country’s economy, blaming them for the currency crisis.
The president told his AKP lawmakers on Tuesday that Turkey faces economic sabotage and vowed to fend off what he called attacks on Turkey's economy.
"We may have deficiencies but the scene we are facing today is a complete state of sabotage," he said. "So, what are we going to do? From now on, we will do what we did to terrorists."
Turkey has announced a package of reforms in April to address its economic problems, but investors say the re-election in Istanbul on June 23 will divert attention and resources from the needed policies.
Erdogan considered that external parties are trying to destroy the Turkish economy through interest, inflation and manipulation of foreign exchange rates.
He asserted that despite all rumors, Turkey’s economy is in good shape, exports are increasing and there are signs of improvement in industrial and agricultural production.
He called on all citizens and businessmen to join hands to confront “economic attacks” targeting Turkey.
