Political Instability and Municipal Investment Risks in Turkey

Political instability in Turkey has reached a critical juncture, with the 2025 Ankara Mayor probe and the arrest of Istanbul Mayor Ekrem İmamoğlu sparking widespread unrest and economic turbulence. These events underscore the deepening erosion of democratic norms and the ruling party's aggressive tactics to suppress opposition, raising urgent concerns for foreign investors and local governance structures.

The Ankara Mayor Probe and Governance Erosion

The corruption investigation into Ankara's Republican People's Party (CHP)-led municipality, focusing on alleged financial misconduct in 33 out of 130 concerts held between 2021 and 2024, has become a flashpoint in Turkey's political crisis. According to a Bianet report, the probe is widely perceived as politically motivated, relying on secret witness testimony rather than concrete evidence. This aligns with broader government efforts to dismantle opposition influence, exemplified by the suspension of prominent CHP mayors and the arrest of İmamoğlu, which triggered nationwide protests, according to a CNBC report.

Ankara Mayor Mansur Yavaş has responded by advocating for a return to a parliamentary system, arguing that such a structure would enhance transparency and judicial independence . His call reflects growing public frustration with the current governance model, where executive overreach and judicial politicization have become entrenched. However, the ruling party's resistance to institutional reforms suggests that local governance will remain a battleground for political power, further complicating efforts to stabilize Turkey's democratic framework.

Capital Flight and Investor Confidence

The economic fallout from political instability has been immediate and severe. Following İmamoğlu's arrest in March 2025, foreign investors withdrew $7 billion from Turkey's stock market within a week, while the Central Bank of the Republic of Turkey (CBRT) spent $28 billion in foreign reserves to stabilize the lira, according to the CNBC report. The Turkish lira hit record lows against the U.S. dollar, exacerbating inflation and eroding public trust in financial institutions. Analysts warn that such volatility undermines long-term foreign direct investment (FDI), as political uncertainty becomes a key risk factor, according to an Atlas Institute analysis.

The government's reliance on short-term interventions, such as banning short selling and relaxing buyback rules, has done little to restore confidence. As stated by CNBC, Finance Minister Mehmet Simsek's anti-inflation strategy is now under threat, with Turkey's economic credibility at stake, according to a ProfileNews overview. The combination of high inflation, currency devaluation, and political repression has created a toxic environment for investors, particularly in sectors reliant on stable governance, such as infrastructure and real estate.

Broader Implications for Turkey's Stability

The interplay between political and economic instability risks accelerating Turkey's descent into authoritarianism. International observers have warned that the ruling party's crackdown on journalists, opposition figures, and local officials is eroding democratic norms at an alarming rate in a Duvar English report. This trajectory not only threatens Turkey's domestic stability but also jeopardizes its role as a regional mediator in conflicts, as economic and political turmoil divert attention from diplomatic ambitions, the report adds.

For foreign investors, the implications are clear: Turkey's municipal investment risks have escalated beyond traditional economic indicators. Projects in Ankara and Istanbul, once seen as growth opportunities, now face heightened exposure to political interference and abrupt policy shifts. The lack of judicial independence and the weaponization of legal processes against opposition leaders further compound these risks, making long-term commitments in Turkey increasingly precarious.

Conclusion

The Ankara Mayor probe and its broader political context highlight a systemic crisis in Turkey's governance and economic stability. While the government's authoritarian agenda seeks to consolidate power, it simultaneously alienates both domestic and international stakeholders. Investors must now weigh not only macroeconomic factors but also the deepening political instability that threatens to destabilize Turkey's institutions. As the country teeters on the edge of democratic collapse, the priority for policymakers-and investors-should be to restore transparency, accountability, and the rule of law. Until then, Turkey's municipal investment landscape will remain fraught with uncertainty.