Erdogan's fight with Turkish business stirs economic concern

President Tayyip Erdogan has escalated Turkey's battle with its top business group, expanding a broad political crackdown on dissent and raising the stakes for his government's economic turnaround programme, analysts say.

On Thursday, an Istanbul court banned international travel by two executives of the association TUSIAD in an investigation of their remarks on democracy that Erdogan characterised as undermining the government.

At the group's general assembly last week, TUSIAD President Orhan Turan and Omer Aras, the chairman of QNB's Turkish banking unit, had criticised a government crackdown on opposition figures and journalists.

Aras said investigations into these people had shaken trust and damaged democracy. The opening of the investigation into his remarks triggered a fall in Istanbul stocks this week, though markets were steady on Thursday.

Upping the ante on Wednesday, Erdogan accused TUSIAD leaders of meddling in politics and profiting at the expense of the nation.

Auhtorities have carried out a wave of arrests, detentions and probes into opposition politicians, mayors and journalists in recent months that critics say aim to silence them and weaken Erdogan's rivals' electoral prospects. The government dismisses this accusation and says the judiciary is independent.

The latest probe into TUSIAD - a symbol of Turkey's wealthy business class whose influence has faded under Erdogan's watch - has prompted questions from some foreign investors who have cheered a U-turn toward more orthodox policies since mid-2023.

In footage broadcast by CNN Turk and other Turkish media, police officers led the executives Turan and Aras by their arms in front of the cameras through Istanbul's main courthouse late on Wednesday.

The court released both executives under judicial control measures after questioning and imposed the bans on international travel, state-run Anadolu Agency said.

TUSIAD has solidly backed the high interest rates and belt-tightening spearheaded by Finance Minister Mehmet Simsek in order to tackle inflation that soared as high as 85% in recent years, but that has begun to ease.

"The interrogation of TUSIAD's president means that the policy support line between TUSIAD and Simsek is broken," said Arda Tunca, an independent economist and financial sector consultant.

PERP WALK

The wave of legal action has targetted elected officials from various opposition parties, including a far-right leader and the CHP's centrist Istanbul Mayor Ekrem Imamoglu, who is under investigation and is seen as a probable future presidential challenger to Erdogan.

The European Parliament has condemned the "arbitrary dismissal and imprisonment of democratically elected mayors" across the country.

Ozgur Ozel, leader of the main opposition Republican People's Party (CHP), said Simsek should show international investors a picture of police walking TUSIAD's president into court to show the true "investment environment in Turkey".

"No one would invest in a country where there is no legal security, no property security, and no freedom of expression," Ozel told reporters in Istanbul.

Istanbul prosecutors have said the TUSIAD leaders were being investigated for "attempting to influence a fair trial" and "publicly spreading misleading information".

The executives' courthouse appearance came hours after Erdogan, in a speech to his ruling AK Party in Ankara, dismissed TUSIAD as a remnant of the past that had thrived on economic privilege and political influence.

The AK Party's response has been "swift and ruthless" and could prompt TUSIAD to "fight on" despite the risks, said Global Source Partners analyst Atilla Yesilada.

TUSIAD, whose members account for 85% of Turkey's foreign trade and contribute 80% of corporate tax revenue, said on Tuesday it was working for national interests.

After elections in May 2023, the victorious Erdogan appointed Simsek and new central bank leadership that abandoned the unorthodox low-rates policy that Erdogan himself had endorsed to spur growth, but that led to currency crashes and a lingering cost-of-living crisis.

Both the policy rate, at 45%, and annual inflation at 42% are now headed lower.