[Editorial] Economic impact

President Yoon Suk Yeol’s aborted martial law declaration is now hitting the South Korean economy, with local experts churning out dire warnings about the market in general and the sharp depreciation of the Korean currency in particular.

Top financial officials are scrambling to reassure investors but the outlook appears to be murky, if not outright disturbing, as long as the political deadlock over the fate of Yoon continues in a way that increases uncertainties about rudderless political leadership and exacerbates untimely responses to economic turbulence.

Such worries were painfully manifested Monday when the Korea’s main bourse Kospi tumbled 2.78 percent and the Korean won slid 17.8 won against the greenback to trade at 1,437 won.

The Korean currency was at its weakest level since October 2022. Local media outlets were quick to report that the Korean won could continue to weaken to hit the much-dreaded 1,500 won level if the political turmoil continued.

The financial markets regained lost ground Tuesday, and the Korean currency recovered a bit to close at 1,426.9 won against the dollar. But its value could change again depending on the potentially conflict-ridden developments at the National Assembly and the clashes between rival parties.

On Saturday, the main opposition Democratic Party of Korea attempted to pass an impeachment motion against Yoon, but it failed to meet the necessary quorum as the lawmakers from the ruling People Power Party decided to boycott the vote.

Hours ahead of the aborted motion, Yoon made a televised speech and offered an apology but, to the disappointment of critics, did not step down voluntarily. The fundamental issue is that Yoon, whose approval rating has plunged to a dismal 11 percent according to the latest Gallup poll, remains the head of the state. The Korean government is now in a strange new world where Prime Minister Han Duck-soo is supposed to handle state affairs as a temporary caretaker together with the ruling party leader Han Dong-hoon -- an interim leadership structure that has already sparked disputes since such a scheme is not clearly accounted for in the Constitution.

Although Han Dong-hoon pledged to push for Yoon’s “early and orderly” departure, the members of the ruling party itself are now deeply divided over how to arrange Yoon’s exit. Meanwhile, the Democratic Party has pushed for special bills, including one designed to launch a permanent independent counsel to investigate whether Yoon committed treason by declaring martial law.

The question facing policymakers is how to address the growing volatility in the markets that have stemmed from the political turmoil initiated by Yoon. Of course, the impasse over Yoon's fate should be resolved to stabilize the financial markets and calm jittery investors both at home and abroad. But it is difficult to expect Korean politicians to come up with a quick and effective fix, which can translate into a prolonged period of uncertainty and negative reactions from market players.

On Tuesday, Finance Minister Choi Sang-mok said that volatility in the financial and foreign exchange markets appears to be “excessive” in consideration of the solid fundamentals and external stability of the Korean economy.

Choi also encouraged individual investors to adopt a more “measured perspective” in making investment decisions, adding that the country has ample market response capacity in the foreign exchange market.

Choi made timely efforts to show the country’s economy in a positive light to minimize the economic fallout from the martial law declaration. Unfortunately, what’s needed to restore predictability about the Korean market is not positive comments but decisive political breakthroughs that can resolve the growing questions about Korea’s leadership vacuum and its impact on the economy.