When South Korean President Yoon Suk-yeol abruptly declared martial law late on Dec. 3, claiming that it was necessary to enable him to eliminate “anti-state” forces, street protests erupted almost immediately. By the time dawn broke, the South Korean National Assembly had unanimously passed a resolution to rescind Yoon’s declaration.
Yoon has since been impeached and the constitutional court has initiated trial proceedings, but many still do not understand why Yoon declared martial law in the first place.
That is certainly true of the economists and financial policymakers I met during my long-planned visit to Seoul last week. Some guessed that Yoon was frustrated by his inability to pass legislation since the general election in April, in which his People Power Party (PPP) lost its parliamentary majority by a large margin.
A former prosecutor, Yoon is not particularly politically savvy, and the give-and-take of democratic politics was apparently too much for him to bear.
Whatever the impetus, Yoon’s declaration turned out to be political suicide. To be sure, the opposition’s first impeachment attempt failed, because the PPP’s representatives — at least eight of whom would have needed to vote in favor of impeaching Yoon — walked out of the assembly.
However, public protests continued to rage and opinion surveys confirmed the public’s overwhelmingly negative view of Yoon’s behavior. So, when a second impeachment vote was held, on Dec. 14, the PPP stayed put. Ultimately, the motion passed, 204-85.
Many people inside and outside South Korea, including friends with whom I have spoken, think that Yoon’s impeachment is a sign that the country’s democracy is working, despite the president’s attempt to upend it. Walking through the streets of Seoul, business as usual seems to be the order of the day.
Even financial markets have remained rather calm, including during the 10 days of political uncertainty that followed Yoon’s attempt to impose martial law. On the day after the short-lived declaration, the KOSPI, a representative stock-price index, fell 2 percent, from 2,500 to 2,464, and continued to decline, reaching 2,361 on Dec. 9.
However, the index has since recovered most of its losses, rising to 2,495 on Dec. 13.
Similarly, while the 10-year bond yield fell slightly, it has remained stable overall.
Likewise, the won depreciated from 1,413 per US dollar on Dec. 4 to 1,435 on Dec. 13, but it was depreciating well before Yoon’s declaration of martial law: On Nov. 27, the dollar exchange rate was 1,391.
Weak fundamentals, not political uncertainty, appear to be driving the trend.
South Korea owes the stability of its financial markets largely to a competent, bipartisan economic team, led by Bank of Korea Governor Rhee Chang-yong and South Korean Minister of Economic Affairs and Finance Choi Sang-mok. Rhee and Choi have sent the right messages and introduced effective policy measures, such as providing liquidity to the market.
However, that does not mean South Korea is in the clear. The Constitutional Court now has six months to decide whether to uphold the impeachment and remove Yoon from office permanently, or overturn it and reinstate him. There is precedent for both outcomes. The court overturned former South Korean president Roh Moo-hyun’s 2004 impeachment, but sustained that of former South Korean president Park Geun-hye in 2016.
Notably, the court took just three months to reach its decision on Park, suggesting that Yoon’s fate might be decided as early as March (and as late as June). If the court sustains the impeachment, a presidential election must be held within 60 days, implying a date sometime between May and August. In the meantime, South Korean Prime Minister Han Duck-soo will carry out the president’s duties.
However, the prime minister, even in his capacity as acting president, does not have the same authority as an elected president, at home or abroad. As a result, the impeachment process will create something of a political vacuum, which will undermine South Korea’s ability to respond to the changes in US policies expected after US president-elect Donald Trump’s inauguration next month. South Korea could face new tariffs, for example, or demands that it cover a much larger share of the cost of supporting US military presence in the country. Trump’s apparent affinity for Russian President Vladimir Putin, who has arranged for North Korean troops to fight alongside Russia in Ukraine, is also cause for concern.
So, while Yoon’s declaration of martial law was short-lived, its political impact will be long-lasting. By the time the impeachment drama is over, South Korea will be facing a different world — and the world could be facing a new reality on the Korean Peninsula.
Takatoshi Ito, a former Japanese deputy vice minister of finance, is a professor at the School of International and Public Affairs at Columbia University and a senior professor at the National Graduate Institute for Policy Studies in Tokyo.
Copyright: Project Syndicate
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