Martial law, potential impeachment push gov't into damage control

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Martial law, potential impeachment push gov't into damage control

Published: 05 Dec. 2024, 19:03 Updated: 05 Dec. 2024, 19:46

SHIN HA-NEE
[email protected]

Audio report: written by reporters, read by AI

Minister of Economy and Finance Choi Sang-mok attends a ministerial meeting on economic affairs at the government complex in central Seoul on Thursday. [YONHAP]

Korea's financial authorities are in full damage-control mode amid the political turmoil following President Yoon Suk Yeol's emergency martial law declaration.

But now with the president facing impeachment, the government's initiative to boost the country's global appeal is expected to hit an inevitable snag, regardless of whether the impeachment goes through.

Bank of Korea (BOK) Gov. Rhee Chang-yong said on Thursday that the central bank will not adjust its interest rate trajectory, as well as the growth and inflation outlook for next year, due to the ongoing political unrest.

“As the martial law declaration was lifted very promptly, I don’t think its impact on the economy is [significant enough to] change the growth outlook,” said Rhee during a press briefing at the central bank in Jung District, central Seoul.

“At the moment, we maintain our previously established stance regarding the interest rate trajectory and economic outlook,” the governor said.

Rhee noted that the short-term market volatility has relatively subsided as expected for now, with the government rolling out a series of market stabilization measures.

The comment echoed the market assessment from an Emergency Meeting on Macroeconomic and Financial Issues earlier that day, which was attended by Korea’s economic policy chiefs including Rhee, Finance Minister and Deputy Prime Minister Choi Sang-mok, Financial Services Commission Chairman Kim Byoung-hwan and Financial Supervisory Service Gov. Lee Bok-hyun.

The impact of the martial law declaration on the financial and foreign exchange markets had been limited so far, the Ministry of Economy and Finance said in a release after the meeting, calling for a calm response to the situation.

Finance Minister Choi also has been rolling out a series of messages assuring that the Korean government, as well as the economic institutions, is operating as usual.

The minister met with Pierre-Olivier Gourinchas, chief economist of the International Monetary Fund (IMF), at the government complex in central Seoul to discuss the current market situation in Korea on Thursday.

Minister of Economy and Finance Choi Sang-mok, left, shakes hands with Pierre-Olivier Gourinchas, chief economist of the International Monetary Fund, in central Seoul on Thursday. [MINISTRY OF ECONOMY AND FINANCE]

Choi sent out an emergency letter late Wednesday to finance ministers and governors of international organizations including the IMF, highlighting that the brief volatility in the financial and foreign exchange markets had quickly stabilized, supported by the country’s robust economic system.

Regardless, a leadership shake-up appears inevitable.

Choi is among Yoon’s Cabinet members who submitted resignations on Wednesday to take responsibility for the martial law incident.

As the resignations have not yet been accepted, the Finance Ministry said that Choi would remain committed to his duty until his last moment in office.

One of the flagship projects of the Yoon administration has been the Corporate Value-up program, aimed at resolving the chronic undervaluation of the stock market, or the so-called Korea discount.

While solving the Korea discount is a bipartisan agenda, a potential impeachment and ensuing political unrest may slow the government-led initiative, especially with the stock market facing downside risks under looming uncertainties.

"A red flag has been raised over whether the current administration would be able to remain in power, there is a risk of the program losing its main driving force," said LS Securities analyst Kim Yoon-jeong in a note issued on Wednesday.

“The Democratic Party has been empathetic for the need for the Value-up program, so I don’t think the policy would necessarily lose its drive in the long run, though there remains a possibility that short-term market volatility will increase," noted Lee Hyo-seop, head of the financial industry division at the Korea Capital Market Institute.

“But a prompt resolution of the political risks would certainly help add momentum for the program.”

BY SHIN HA-NEE [[email protected]]