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How the leader can upset the economy

Published: 17 Dec. 2024, 19:49

Cho Min-geun
The author is the business and industry news director of the JoongAng Ilbo.

All Korean presidents have vowed to place all hands on deck for the economy. Strangely, the more the president is hands-on over economic management, the worse the outcome. President Yoon Suk Yeol is the perfect example. Uncertainties are the worst possible recipe for an economy. Who would invest in a country when it is uncertain over what may happen the next day? The best economic management would be alleviating uncertainties as much as possible. Few presidents were skillful, but the worst performer title goes to Yoon. He has become the embodiment of uncertainties following his outlandish martial law gamble.

He has a lengthy track record of brewing uncertainties during his two and half years in office even without the extreme martial law case. He continued to exacerbate uncertainties because his perspective on the economy was based on confirmation bias instead of reality. He stayed sanguine about the economy even as it hardly grew in the third quarter while domestic and foreign institutions warned of a bleaker fourth quarter. In August, he declared the economy was showing “sure” signs of recovery. In November, he claimed the economy was “stretching.” After he caused havoc on the markets by declaring martial law, he claimed to have been “invigorated” by the vitality in the economy and positive ripple effects.

His government reluctantly had to go along with him. Until last month, the Finance Ministry found the economy in a “recovery phase” in its regular economic perspective. In this month’s monthly report released a day after Yoon’s impeachment motion was passed, it finally began to mention “downside risks.”

Yoon’s uncertainties also stem from a mismatch of words and actions. The president habitually stressed the values of freedom, market principle and law order. But in actual policymaking, he often resorted to the use of force and intervention. Despite a promise of abstaining from populism, he commanded a ban on stock short-selling and a retraction of taxes on financial investment incomes to appeal to retail investors at the expense of losing the trust of foreign investors. Government officials had to swallow their complaints. And then came the sudden announcement of martial law a day after he visited a marketplace where he promised merchants radical measures to stimulate domestic demand and consumption.

Political risks have once again rocked the markets. Thankfully, the sovereign bond and ratings stayed intact due to the fast lifting of the martial law decree. Korea’s sovereign credit remains at the AA, the third-highest rating, and above those of the United Kingdom and Japan in the scale of global agencies Moody’s and S&P. Korea was able to defend its international credibility despite three presidential impeachments and a never-ending political divide. When asked how the economy can be sustained under such poor political settings, Bank of Korea Gov. Rhee Chang-yong emphasized the economy and politics run on independent machines. He would have felt embarrassed for making such fallible reasoning but could not have found other answers to convince foreign investors.

But the worst is not over. Rating agencies have warned they could revisit Korea’s ratings if the upheaval is protracted. Last week, Moody’s downgraded France’s sovereign debt rating, reflecting its doubt in the deteriorating fiscal situation and the impasse of the 2025 budget threatening a government shutdown for the first time in 62 years amid political “fragmentation.” The same can happen to Korea if a gridlock persists with the rivalling parities entirely engrossed with a potential early presidential election if the impeachment motion is upheld by the Constitutional Court.

“History repeats itself, first as tragedy, second as farce,” Karl Marx famously said. For Koreans who are experiencing another presidential impeachment in eight years while the economy is in tatters, history is repeating purely as a tragedy. The repetition of tragedy demands a thorough examination of our structure. The latest run-up of events amount to the political version of the national bankruptcy crisis of 1997 due to the outdatedness of the 1987 political regime.

Korea arrived at the brink of a liquidity crisis amid Asian currency woes in 1997 because it neglected timely fixes to its structural problems of low productivity and debt-financed overinvestments. The economy became leaner and agile through painstaking restructuring under an international bailout scheme. The mainstream political establishments must put away their differences to debate on the common mission of structural reform so that we can again turn the momentum of a crisis into a blessing in disguise.

Translation by the Korea JoongAng Daily staff.