The Choi Soon-sil scandal that has been shaking the nation for weeks is adding adversity to the national economy. Most of all, the leadership crisis and political instability caused by the huge scandal has left the economic policy team without an authoritative helmsman and dealt a blow to the psyche of the business sector.
The Korean economy was already facing formidable challenges here and abroad before the fiasco began.
Within the country, traditionally strong industries such as shipbuilding, steel and petrochemicals are suffering from weakening competitiveness. Restructuring some of the sectors that had buttressed Korea’s export-oriented, heavy industries-focused economy is also progressing painfully slowly.
With exports sputtering and domestic investments and spending in the doldrums, the economy has been caught in a low growth trap, as seen by its gross domestic product, which grew less than 1 percent over four consecutive quarters.
In October, the unemployment rate recorded its worst figure in 11 years, with the number of job seekers standing at 650,000. Household debt has grown to 1,300 trillion won ($1.14 trillion), with experts warning that it is a time bomb that could go off if the housing bubble bursts.
Lately, the election of Donald Trump as the new US president has also been affecting the global and Korean financial and capital markets, with bond yields surging, the greenback gaining strength and prices of raw materials soaring. With the Federal Reserve anticipated to raise its key interest rate toward the end of the year, experts warn about the possible outflow of overseas funds from Korea.
Trade -- Korean exports to be exact -- faces uncertainty as well, as Trump is expected to take a protectionist approach to US trade policy. He is likely to scrap the 12-nation Trans-Pacific Partnership, despite opposition from other members such as Japan. Trump, who described the North American Free Trade Agreement as the worst deal for America, set its renegotiation as one of his first few tasks as president.
During his campaign, Trump also criticized the South Korea-US Free Trade Agreement, saying that it was “killing American jobs.” There is speculation that Trump might not take as tough a stance toward the Korea-US pact as he does to NAFTA, but we should brace ourselves for the worst-case scenario.
Furthermore, Trump mentioned raising tariffs and retaliatory steps against major exporting countries like China.
What is certain is that a protectionist US will not only restrict foreign exporters’ access to the American market but also shrink global trade. Korea’s export-driven economy may bear the brunt of this.
On top of these challenges come the Choi scandal, which has put the entire nation in limbo for weeks. The problem is that the crisis of the Park Geun-hye presidency and the ensuing political uncertainty shows no signs of ending.
From an economic standpoint, one major problem is that the government economic policy team currently lacks a legitimate, effective steward, as Deputy Prime Minister and Finance Minister Yoo Il-ho is waiting for his position’s nominee, Yim Jong-yong, to succeed him. However, it is not certain whether Yim will be able to get parliamentary endorsement.
Park had named Yim as the nominee, along with Kim Byong-joon for the prime minister position, as part of a futile bid to defuse the crisis. Worse still, in view of the disputes over Park’s fate and what kind of responsibilities the prime minister should have, the parliament is unlikely to approve the nominations anytime soon.
This is why the rival parties should view Yim as separate from Prime Minister-nominee Kim and begin confirming the former’s nomination.
The deputy prime minister and finance minister’s job has little to do with politics, and entrusting a technocrat like Yim with economic management is important, especially in times of political instability.
There are already too many uncertainties and the economic leadership vacuum should not be allowed to drag on.
