Turkey Near the Rubicon on Istanbul Election Extends Lira's Funk

(Bloomberg) -- Turkey's top electoral body is under fierce pressure from President Recep Tayyip Erdogan as it nears a decision on whether to order a new contest for the mayor's seat in Istanbul, a ruling that could inflict more damage on the economy by prolonging political turmoil.

Dozens of judicial investigations into alleged fraud in the March 31 municipal vote have also turned up the heat on the High Election Board, which may decide on the ruling party's demand for a revote as early as Monday. Along with a setback in Turkey's commercial hub, Erdogan's AK Party also lost other key cities to the opposition, including the capital, Ankara.

“I have kept quiet until this day, but I have had enough,” Erdogan said over the weekend. “There is a clear case of fraud.”

Erdogan Knows Political Empires Can Decay One City at a Time

Compounded by a global market rout, the political uncertainty is increasingly taking a toll on Turkish assets and the economy. The lira depreciated for four consecutive weeks following the elections and briefly slid past the key psychological level of 6 per dollar Monday morning.

The Turkish currency touched the lowest level in seven months and was trading 0.6 percent weaker at 5.9973 against the dollar as of 12:03 p.m. in Istanbul. The dollar-lira pair formed a so-called golden cross, when a security's 50-day moving average rises above its 200-day reading. The greenback gained all three times the pattern was formed over the past five years.

The ruling party's loss of Istanbul would mark the biggest electoral defeat yet for Erdogan, who came to prominence as mayor of Turkey's biggest city in the 1990s. The president has refused to accept the vote's outcome because he says election laws were violated when private-sector employees instead of civil servants were enlisted as ballot box officials.

The looming decision will serve as a litmus test for “the maturity of Turkey's democracy,'' according to Sinan Ulgen, chairman of Edam, an Istanbul-based think tank.

“If the board rules to renew the elections in Istanbul, they need to have a clear and acceptable reason that is in line with the law and public conscience,” he said. “Should the board defy that, it would mean a step backward for democracy.''

Change of Tack

In the weeks after the election, Erdogan appeared at times to concede that Istanbul was lost. But his rhetoric turned more aggressive and his calls for a fresh vote became more vocal after Devlet Bahceli, the head of a nationalist party that formed an alliance with Erdogan's AKP, called new elections in Istanbul a matter of “survival.”

Istanbul's chief prosecutor bolstered the president's argument over the weekend, alleging that dozens of those officials were found to be linked to a group that Turkey accuses of staging a failed coup attempt against Erdogan almost three years ago. The opposition dismisses the allegations as being an excuse for the government's inability to acknowledge defeat.

Turkey's state-run media said Sunday that 43 suspects in a judicial probe of alleged Istanbul election irregularities were linked to that group, led by US.-based preacher Fethullah Gulen.

Two of the 43 had an encrypted messaging application called ByLock that's widely used by other Gulenists, Anadolu news agency reported, citing information from Istanbul's chief prosecutor. The rest of the suspects were found to have deposited savings in a now-defunct lender allegedly run by Gulenists in the past, Anadolu said.

Gulen is a former Turkish cleric who lives in Pennsylvania. The U.S. has so far rebuffed Turkish attempts to get him extradited.

--With assistance from Cagan Koc and Constantine Courcoulas.

To contact the reporter on this story: Onur Ant in Istanbul at oant@bloomberg.net

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Paul Abelsky, Amy Teibel

©2019 Bloomberg L.P.