(Bloomberg) -- Turkish authorities are expected to rule next week on the governing party’s claim of fraud in a local election, as the lira resumed its decline on concern about the state of the nation’s finances and the prospect of more political upheaval.
Ekrem Imamoglu of the CHP assumed the office of Istanbul mayor on Wednesday after being awarded a disputed victory, sending the lira surging. On Thursday, though, the currency tumbled as much as 1.9 percent against the dollar on reports that the central bank was using short-term borrowing to bolster its foreign reserves.
All eyes are now on Turkey’s High Election Board, which is considering the objection filed by the governing AK Party this week and has the power to overturn the result. State media reported on Thursday that the body may rule early next week.
In his first speech after taking up his mandate, Imamoglu called for a swift resolution to end the uncertainty. “There are processes going on as of now, we’re aware of this,” he said. “Naturally we await certain statements on these processes for the peace and happiness of our city and its residents.”
Losing Istanbul to the opposition would add to President Recep Tayyip Erdogan’s troubles after the March 31 elections brought to an end AKP’s control over Turkey’s two largest cities. Inflation and unemployment have been taking their toll on the country after a plunge in the value of the currency pushed the economy into its first recession in a decade.
A lack of transparency over how the central bank is accounting for official reserves is also weighing on the lira. As of April 5, the regulator’s net international reserves stood at $27.9 billion, but investors and analysts worry the figures are being magnified. Data complied by Bloomberg show the outstanding amount of short-term transactions was $12.7 billion as of April 12.
Away from home, Erdogan has been struggling to contain the fallout from a diplomatic spat with the U.S. over Turkey’s planned purchase of a Russian air-defense system and dispatched top aides to Washington this week.
The municipal elections delivered some stinging losses to Erdogan’s party. The AKP made several objections to authorities over void ballots across Istanbul, where Erdogan made his political career in the 1990s. The party said that a partial recount would more than close the gap between their candidate, Binali Yildirim, and Imamoglu.
AKP eventually asked for a nullification of the elections and a rerun as it became clear that the gap was unlikely to close. Party officials have claimed that there were wide spread irregularities that tainted the vote.
The High Election Board needs “four or five days” to study complaints before making a final verdict, state-run TRT television said, citing unidentified board officials. Deliberations will begin Thursday afternoon, the television said.
The final ballot count showed Imamoglu leading the race by 13,729 votes, according to the state-run Anadolu Agency. AKP has asked for another recount of some ballot boxes.
“If this turns out to be fake news and a rerun of the vote is subsequently announced, there’s a huge risk that the lira will fall out of bed,” Nigel Rendell, a London-based senior analyst at Medley Global Advisors, said by email.
The president’s refusal to concede and the apparent pressure on the High Election Board led to concern among investors and drew criticism from the political opposition, which said Turkey’s democracy was under attack.
Thousands gathered in front of the municipal building to celebrate Imamoglu’s victory. “His first task should be to uncover the corruption,” Ilhan Tan, one of the crowd, said. “I believe in him. Corruption must be uprooted,” said Husnu Kucuk, another supporter.
--With assistance from Asli Kandemir, Constantine Courcoulas and Ercan Ersoy.
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