Stop a perfect storm from hitting the economy
Published: 05 Dec. 2024, 19:57
The storm of six-hour ructions over the emergency martial law abruptly declared by President Yoon Suk Yeol on Tuesday evening can cause serious ramifications for the Korean economy and financial markets. Fortunately, martial law was lifted six hours after the declaration. But on Wednesday, foreign investors dumped a whopping 424.3 billion won ($306.8 million) of Korean shares in the aftermath session. As a result, the main bourse Kospi ended 1.4 percent lower and the secondary Kosdaq retreated nearly 2 percent on the following day of the tumultuous night. The U.S. dollar, which shot up to 1,446 won, eased slightly to around 1,415 won on Wednesday.
The financial market was in total confusion. Authorities wavered until the morning whether to open the stock market or not. They granted trade after vowing “unlimited liquidity supplies” and mobilizing a 50 trillion won stabilization fund to mitigate uncertainties sweeping the stock market. In other words, President Yoon’s bold yet unfathomable experiment with martial law has cost billions of dollars in clean-up funds.
Aftershocks from martial law could build up to a perfect storm for the Korean economy which is already stuck in slow motion due to lethargic domestic demand and weakened in exports because of sluggishness in chip and other mainstay shipments to foreign countries. Worse, domestic political uncertainties could help push Korea Inc. out of the global value chains. The flight of foreign capital can deepen as Korea added another vulnerability to Korean assets on top of its geopolitical risks.
One a positive note, an immediate tailspin was avoided from the market and diplomats. The S&P Global Ratings said that it does not plan to reevaluate Korea’s sovereign credit rating based on the latest affair. The United States is “encouraged by the resilience” of South Korea for resolving the martial law crisis within hours through peaceful and democratic means, according to U.S. Ambassador to Korea Philip Goldberg.
However, we must not let down our guard for the repercussions. Financial authorities must keep close watch on financial and foreign exchange markets and other economic developments. At the same time, the authorities must do their best to earn market confidence through bolstering transparency in implementing economic policies. All economic participants must keep up business as usual, and labor unions must abstain from habitual strikes so as not to aggravate social unrest. Moody’s, a credit rating agency, has warned that a protracted political conflict can be negative for Korea’s credit ratings.
The financial market was in total confusion. Authorities wavered until the morning whether to open the stock market or not. They granted trade after vowing “unlimited liquidity supplies” and mobilizing a 50 trillion won stabilization fund to mitigate uncertainties sweeping the stock market. In other words, President Yoon’s bold yet unfathomable experiment with martial law has cost billions of dollars in clean-up funds.
Aftershocks from martial law could build up to a perfect storm for the Korean economy which is already stuck in slow motion due to lethargic domestic demand and weakened in exports because of sluggishness in chip and other mainstay shipments to foreign countries. Worse, domestic political uncertainties could help push Korea Inc. out of the global value chains. The flight of foreign capital can deepen as Korea added another vulnerability to Korean assets on top of its geopolitical risks.
One a positive note, an immediate tailspin was avoided from the market and diplomats. The S&P Global Ratings said that it does not plan to reevaluate Korea’s sovereign credit rating based on the latest affair. The United States is “encouraged by the resilience” of South Korea for resolving the martial law crisis within hours through peaceful and democratic means, according to U.S. Ambassador to Korea Philip Goldberg.
However, we must not let down our guard for the repercussions. Financial authorities must keep close watch on financial and foreign exchange markets and other economic developments. At the same time, the authorities must do their best to earn market confidence through bolstering transparency in implementing economic policies. All economic participants must keep up business as usual, and labor unions must abstain from habitual strikes so as not to aggravate social unrest. Moody’s, a credit rating agency, has warned that a protracted political conflict can be negative for Korea’s credit ratings.
with the Korea JoongAng Daily
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