Seoul – South Korean President Yoon Seok-yeol’s suspension of martial law is currently hammering South Korea’s economy, with local experts issuing dire warnings about markets in general and the Korean won’s sharp depreciation in particular.
Top financial officials are scrambling to reassure investors, but as long as the political stalemate over Yoon Eun-hye’s fate persists, it will increase uncertainty about rudderless political leadership and exacerbate an untimely response to economic turmoil, a prospect that is, if not entirely, bleak. Uneasy, it also seems bleak.
This concern was painfully demonstrated on Monday, when South Korea’s main stock index fell 2.78% and the Korean won fell 17.8 won to 1,437 won against the US dollar.
The South Korean won is at its lowest level since October 2022.
Financial markets recovered losses on Tuesday, with the Korean won recovering slightly against the U.S. dollar to close at 1,426.9 won. But its value could change again, depending on potential conflict developments in the National Assembly and clashes between rival parties.
The main opposition Democratic Party of Korea tried to pass an impeachment motion against Yoon on Saturday, but it failed to reach the necessary quorum as lawmakers from the ruling People’s Power Party decided to boycott the vote.
Hours before the motion was suspended, Mr Yoon gave a televised speech and apologized but, to the dismay of his critics, did not step down voluntarily. The fundamental problem is that Yoon Eun-hye’s approval rating has dropped to a dismal 11% according to the latest Gallup poll, but he is still the head of state. The South Korean government is now in a strange new world. Prime Minister Han Deok-soo is supposed to handle state affairs as a temporary caretaker alongside ruling party representative Han Dong-hun, but this temporary leadership structure has caused controversy since taking power. The plan.
Although Han Dongxun promised to promote Yin’s “early and orderly” resignation, there are deep differences within the ruling party on how to arrange Yin’s resignation. Democrats, meanwhile, pushed for special bills, including one to create a permanent independent counsel to investigate whether Mr. Yoon committed treason by declaring martial law.
The question facing policymakers is how to address growing market volatility caused by the political turmoil initiated by Yin. Of course, the impasse over Yoon Eun-hye’s fate should be resolved to stabilize financial markets and appease jittery domestic and foreign investors. But it is difficult to count on South Korean politicians to come up with quick and effective solutions, which could lead to long-term uncertainty and negative reactions from market participants.
On Tuesday, Finance Minister Choi Sang-mok said volatility in financial and foreign exchange markets appeared to be “excessive” given South Korea’s economy’s solid fundamentals and external stability.
Cui also encouraged individual investors to adopt a more “cautious perspective” when making investment decisions, adding that the country has sufficient market response capabilities in the foreign exchange market.
Cui Tiankai promptly made efforts to present the country’s economy in a positive light to minimize the impact of martial law on the economy. Unfortunately, what is needed to restore predictability to the Korean market is not positive commentary but a decisive political breakthrough to address growing questions about the country’s leadership vacuum and its impact on the economy.
