Political crisis threatens South Koreas economy and currency

Currency decline and economic impact

The South Korean won plunged to its lowest level against the dollar since 2009 on Friday, continuing its downward trend since President Yoon's controversial attempt to dismantle civilian rule in early December. Business and consumer confidence have also suffered significant declines, marking the largest drop since the Covid-19 pandemic, according to data from the Bank of Korea.

Political instability deepens with impeachment

In mid-December, lawmakers impeached President Yoon on charges of insurrection. On Friday, they also impeached his successor, acting president and prime minister Han Duck-soo, accusing him of refusing to complete Yoon's removal from office. This led to Finance Minister Choi Sang-mok assuming the additional roles of acting president and prime minister. Choi has vowed to work towards ending the political crisis and stabilizing the country.

Constitutional court’s key role in resolution

At the heart of the political impasse is the Constitutional Court, which will decide whether to uphold the parliament's impeachment of Yoon. To confirm the removal, a two-thirds majority is required, but with three of the court's nine seats vacant, a unanimous vote is necessary. If the court does not reach this decision, Yoon will automatically return to office. Lawmakers recently nominated three judges to fill the vacancies, but acting president Han refused to approve them, leading to his impeachment.

Economic challenges amid political uncertainty

The political crisis is taking place against the backdrop of a struggling economy. South Korea’s GDP growth is projected to be only two percent this year, hindered by a global slowdown in demand for semiconductors. Capital Economics' Gareth Leather notes that the political turmoil is already affecting consumer and business confidence, and the uncertainty could deter investment in the long term, similar to the stagnation seen in Thailand after its 2014 coup.

Resilience of South Korea’s economy and democracy

Despite the crisis, some economists believe South Korea's economy has managed to withstand the turbulence. The central bank promised to stabilize the markets with sufficient liquidity, and the Kospi Index has only fallen by less than four percent since the crisis began. Park Sang-in, a professor of economics at Seoul National University, attributed this resilience to South Korea’s democratic maturity and rapid economic growth. He argued that while Yoon’s actions were surprising, the country’s democratic institutions were strong enough to counter them.