BOK appraises scandal’s impact

The central bank projects that the impact of the ongoing influence peddling scandal and impeachment of President Park Geun-hye on the domestic economy will run its course by the third quarter of 2017.

But growth will be negatively affected in the second quarter.

In a preliminary report sent to the National Assembly on Tuesday, the Bank of Korea said that the economic effects should subside in the third quarter, citing major political scandals of former administrations.

“The expanded political uncertainties [caused by the current scandal] have negatively affected services businesses, facilities investment and private consumption for example, but it is analyzed that these effects have been gradually subsiding since the third quarter [of 2016],” the report said.

The Bank of Korea explored five cases including a family bribery scandal during the Kim Dae-jung administration and the impeachment of Roh Moo-hyun, and it went on to measure the average period in which economic indicators return back to the pre-crisis level.

“The number of employed people dramatically reduced right after a certain scandal but quickly bounced back,” the report noted.

Self-employed business men are hardest hit by political scandals because they weaken consumer sentiment.

Korea’s overall consumer sentiment dropped to the lowest point in nearly eight years in January. The composite consumer sentiment index stood at 93.3, the lowest since March 2009 when the country was reeling from the global financial meltdown.

As for industrial sectors, the manufacturing sector is relatively resilient in the face of political scandals while the services sector showed a slower pace of recovery.

Still, it can be questioned whether the scandal about President Park and her confidante Choi Soon-sil can be directly likened to previous scandals given its unprecedented scale. While former cases involve slush funds of politicians’ relatives obtained from a business figure or a company, Choi is suspected of exerting her influence across different industries from Samsung Electronics to retailers including Lotte.

The Bank of Korea offered a detailed future economic outlook.

“The domestic economy will grow by 2.5% during this year as private consumption and construction investment will be slow,” it said, “but thanks to improvements in exports and facilities investment in line with economic recoveries in major countries, the economy is expected to continue a modest pace of growth.”

But when it comes to the growth next year, the economy will expand at a faster pace of 2.8 percent, driven by an improvement in exports and facilities investment.

But uncertainties surrounding the new U.S. president Donald Trump will remain as downside risks.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]