A court decision to dismiss the leadership of the local branch of the Republican People's Party (CHP) in Istanbul, canceling its latest congress over irregularities and allegations of vote-buying, is causing political turmoil and intense nervousness in Turkish markets. The case threatens to become a turning point for the main opposition, while concerns about the rule of law in Turkey are growing.
The case is part of a growing crackdown on the opposition. More than 15 CHP mayors, including Istanbul Mayor Ekrem Imamoglu – a leading opponent of Recep Tayyip Erdogan – are in custody.
The deposed chairman of the local organization Ozgur Celik denounced political targeting, claiming that the CHP and any voice that does not align with the government is under attack.
A criminal trial is pending against Celik and nine other party officials, with the prosecutor seeking prison sentences of up to three years in the same case. Turkish Justice Minister Yilmaz Tunc described the decision as a precautionary measure and assured that the path to appeal remains open.
Stock market plunges and mass liquidations
The news caused a major stir on the Istanbul Stock Exchange, with the BIST 100 index down as much as 5.9% intraday and down 4.7% by 17:00 Greek time. The banking index plunged 7.5%, while the panic led to a massive sell-off in the government bond market: the two-year yield jumped 85 basis points to 39.78%, while five-year CDS rose 9 basis points. The Turkish currency slipped to 41.16 lira per dollar, hitting a new record low.
Shock decision from the Istanbul Court of First Instance
The 45th Chamber of the Istanbul Court of First Instance annulled the 38th congress of the CHP local organization held on October 8, 2023, citing financial influence of congressmen. The same decision dismissed all members elected at that time, while former party vice-chairman Gürsel Tekin, a politician with close ties to former President Kemal Kılıçdaroğlu, was appointed interim president.
The decision freezes the proceedings for the 39th regular congress of the local organization in Istanbul and may also affect the trial underway in Ankara over the legality of the same congress at the national level, where Ozgur Özel was elected. If that congress is also canceled, Özel risks losing the party leadership. The crucial meeting is set for September 15.
Markets in a political risk environment
The CHP upset has brought political tensions back to the fore in Turkey, reigniting investor concerns about political stability and the rule of law. The cancellation reminded the market of political noise and tensions that had been forgotten over the summer but were simmering in September, Tufan Cömert, emerging markets strategist at BBVA in London, told Bloomberg.
