What South Korea's martial law turmoil means for the economy

“An abortive coup in South Korea was probably not on anyone’s bingo card for 2024,” says Robyn Mak on Breakingviews. “Enter President Yoon Suk Yeol”, who made the shock decision to declare martial law on 3 December, only to “make an embarrassing U-turn” within six hours after both his own and opposition parties forced their way into parliament to vote against his decree.

The main opposition, the Democratic Party, and five other parties submitted a motion the next day, calling for Yoon’s impeachment. This is the first time a president has used his emergency powers since South Korea’s military dictatorship fell in the late 1980s.

Analysts described the move, apparently designed to “rally” right-wing forces behind him, as an “act of desperation” from an “isolated and impulsive” leader “boxed in” by a slowing economy, sliding approval ratings, scandals and an opposition-controlled parliament, say Christian Davies and Song Jung-a in the Financial Times.

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Yoon, a former prosecutor, claimed to be acting to protect the nation from North Korea and the “den of criminals” in the National Assembly, which recently slashed roughly $2.8billion from his budget, which proposed increased funding for the presidential office, the prosecution, the police and the state audit agency, reports AP.

Can South Korea avoid a deeper crisis?

The “dramatic move” to impeach Yoon is in keeping with South Korea’s culture of “revenge politics” (misbehaviour followed by aggressive criminal prosecutions are “all too common”, says The Economist). The week’s events expose both the “vulnerabilities and resilience” of the nation’s democracy, Stanford professor Gi-Wook Shin tells the Financial Times. It laid bare problems such as “polarisation, potential executive overreach and weakened public trust”, while the speed of the response – public protests and parliamentary rejection – demonstrated “strong institutional checks” and “civic engagement”.

“The crisis in the $2trillion economy, a major US ally and chip-making hub”, may have far-reaching effects, says Robyn Mak. Even before 3 December, the “export-dependent economy looked vulnerable to slowing global demand”. Yoon’s “imminent impeachment” may “reshape” regional dynamics. Yoon strengthened ties with Japan and the US, and was pushing for less trade dependence on China.

The foreign-policy implications of a change in power would be “vast”, says The Economist. They come at a sensitive time as a protectionist US president takes office and North Korea is increasingly hostile to the South. The Democratic Party, unlike Yoon’s People Power Party, is “deeply sceptical” of Japan due to its “colonial-era atrocities”, favours engagement with North Korea, and has opposed military aid for Ukraine.

If Yoon is swiftly impeached and a “deeper crisis” is avoided, there is “reason to be more upbeat”, says Capital Economics’ Thomas Matthews. Korea’s listed companies have seen rapid growth in earnings per share over the past year and its large tech firms are “well positioned” to benefit from the enthusiasm for AI. Investor sentiment could eventually turn “quite sharply” positive.

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