Aftershock of March 19 Operations: Turkish Capital Flees as Foreign Investors Stay Away

Ankara  (Cumhuriyet Daily)– Treasury and Finance Minister Mehmet Şimşek, speaking at the Qatar Economic Forum, stated that foreign capital is beginning to return to Turkey. However, he made no mention of why foreign investors fled in the first place. Recent data from the Central Bank of Turkey (CBRT) suggests that the real blow came not from foreign investors, but from domestic capital, which exited the country en masse following the controversial March 19 operations against Istanbul Metropolitan Municipality (İBB) and opposition leader Ekrem İmamoğlu.

Domestic Capital Flight Surpasses Foreign Outflows

The CBRT’s March 2025 balance of payments data reveals that the most significant capital outflow did not come from foreign funds, but from Turkish investors. The aftermath of the March 19 judicial operations, which included asset seizures, trustee appointments, and investigations targeting business leaders and TÜSİAD executives, triggered fear among local capital holders.

These politically charged measures led to a sharp exodus of domestic financial resources — even greater than the foreign outflows, echoing the capital flight seen during the 2018 Brunson crisis.

March Data Reveals Historic Capital Flight

Between January and March, foreign portfolio outflows reached $4.91 billion. Yet, over the same period, domestic capital flight tripled this amount. In March alone, Turkish residents transferred $8.76 billion abroad via bonds, equities, and foreign currency deposits. When direct investment outflows of $688 million are added, total domestic capital outflows reached $9.45 billion.

Additionally, the CBRT recorded $3.94 billion in untraceable outflows under the “net errors and omissions” category — widely interpreted as undocumented capital flight. When another $1.33 billion in foreign currency loans from domestic banks is factored in, the total capital taken out of Turkey by local entities in March soars to $14.72 billion.

Foreign Capital Hesitant, Locals Losing Confidence

Despite Minister Şimşek’s overseas charm offensive — visiting Hong Kong, Washington, New York, London, Dubai, and Qatar — CBRT data shows these efforts have yet to stem capital flight. The politically motivated operations and ongoing legal uncertainties appear to be driving Turkish investors to move their assets abroad at a faster rate than foreigners.

While Şimşek claims “foreigners are returning,” local business sentiment suggests otherwise. Domestic investors seem deeply alarmed by the frequency and unpredictability of judicial interventions and political pressure on the private sector.

The BYD Example: A Signal to Foreign Capital

A recent move by Chinese automaker BYD underscores the credibility gap. Despite generous incentives, including free land and tax exemptions for its planned factory in Manisa, BYD opted to establish its European headquarters in Hungary, signaling continued reluctance among foreign investors to commit to Turkey.

At the same time, industrial zones are witnessing a wave of plant sales and relocations. Even with government support — in energy, tax, and financing — investment certificates are sharply declining. Manufacturers in textiles, electronics, and consumer durables are increasingly shifting production to North African nations (Egypt, Morocco, Tunisia) and Eastern Europe (Bulgaria, Romania, Hungary, Poland).

Structural Exit from the Real Economy

The capital outflows aren’t just monetary. The data points to a structural exit from Turkey’s real economy. Not only are financial assets leaving the country, but production facilities and industrial operations are relocating as well. This dual loss — in both financial capital and productive capacity — is an alarming trend for the country’s economic outlook.

Echoes of the Brunson Crisis, But Deeper

The current episode mirrors the 2018 Brunson crisis, when U.S. sanctions over the jailed pastor triggered a sharp spike in capital flight. Then, $10.17 billion in domestic capital fled Turkey in just one month. But today’s numbers are worse: March 2025 alone saw $14.72 billion in combined local and unidentified outflows, signaling a broader crisis of confidence and political risk.

Mounting Political Risk Amplifies Economic Damage

The CBRT’s data paints a picture that can no longer be obscured: politically motivated actions are inflicting widespread damage on local investment sentiment. The situation has evolved beyond temporary volatility — it reflects deepening structural uncertainty. Unless this erosion of trust is reversed, the damage to Turkey’s economic fabric is likely to expand.

While foreign capital inflows have stalled, the outflow of domestic capital, real investments, and productive capacity poses a far more serious threat to Turkey’s long-term growth prospects.

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