Political and financial turmoil set to dominate Turkey, risking economic stabilization plans

More than 1,100 people have been arrested in Turkey’s nationwide protests since demonstrations began on March 19, Turkish authorities said Monday, as political and economic instability grips the nation of 85 million following last week’s arrest of Istanbul Mayor Ekrem Imamoglu.

What lies ahead for Turkey is highly uncertain, but analysts expect a prolonged period of volatility for the Turkish lira and the foreign reserves that the country will need to burn through in order to keep it afloat.

Central bank officials spent $12 billion in foreign reserves last week to prop up the lira, the Financial Times reported as of March 21, after the currency hit a record low of more than 40 to the dollar. Markets initially plunged on news of the arrest, and Turkey on Sunday banned short selling and relaxed buyback rules in an effort to bolster stocks.

“The protests mark the most significant and widespread public reaction in over a decade, making the trajectory of events difficult to predict,” Wolfango Piccoli, co-president at advisory firm Teneo, wrote in a note out Monday.

“What is evident, even at this early stage, is that political uncertainty is far from over,” he said. “Once again, President Erdogan’s political agenda has inflicted serious damage on Turkey’s economic outlook.”

Widely considered the strongest political rival of Turkish President Recep Tayyip Erdogan, Imamoglu was arrested on counts of corruption just days before he was expected to be nominated as his party’s candidate for the presidency. He and his supporters reject the charges, saying they are politically motivated.

Meanwhile, Erdogan’s broader crackdown on opposition activity is intensifying. Since Imamoglu’s detainment, Turkey has imposed travel restrictions on Istanbul to curb protests, closing bridges and throttling internet access, and Turkish state media outlets are not acknowledging the protests in their coverage.

Arda Tunca, an independent economist and consultant based in Istanbul, told CNBC that the country is approaching a point of no return.

“Turkey is on the verge of becoming a dictatorship. People’s reaction to what has been going on since March 18 will determine the fate of the country’s future,” Tunca said. “No leader, democratic or not, can silence the will of people sooner or later.”

Erdogan for his part has maligned the protesters, saying over the weekend that his government would not “surrender” to “vandalism” or “street terror” ahead of more planned demonstrations, according to Reuters.