Crises draw finance chief away from focus as economic challenges intensify

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Crises draw finance chief away from focus as economic challenges intensify

Published: 30 Dec. 2024, 17:57 Updated: 30 Dec. 2024, 19:21

SHIN HA-NEE
[email protected]

Audio report: written by reporters, read by AI

Foreign exchange rates for the Korean won are shown at a money exchange in Jung District, central Seoul, on Dec. 30, when the won-dollar exchange rate closed at 1,472.5 per dollar, up 5 won from the previous session, as of 3:30 p.m. [YONHAP]

The economic crisis mentality sparked by President Yoon Suk Yeol’s martial law declaration has been ratcheted up a notch following the impeachment of former acting President Han Duck-soo and a deadly Jeju Air plane crash in Muan, South Jeolla, that claimed 179 lives.

As Korea continues to grapple with a multitude of challenges including a weakening currency — which closed at its weakest point for a year-end rate since 1997 — the precarious situation is further fueling concerns over a potential leadership vacuum amid persistent economic and political volatility.

Minister of Economy and Finance and Deputy Prime Minister Choi Sang-mok, who stepped into the role of an acting president after the National Assembly passed an impeachment motion against Prime Minister Han on Friday, is now spearheading the government through the aftermath of the worst aviation disaster in Korea.

As such, Bank of Korea (BOK) Gov. Rhee Chang-yong appears to have effectively assumed the leadership of the country's economic policy, presiding over the Emergency Meeting on Macroeconomic and Financial Issues on Monday. The so-called F4 meeting, which has been taking place on a daily basis after the martial law incident on Dec. 3, is typically attended by Korea’s four economic policy chiefs: the minister of economy and finance, the BOK governor, the Financial Services Commission chairman and the Financial Supervisory Service governor.

Bank of Korea Gov. Rhee Chang-yong, left, and Minister of Economy and Finance Choi Sang-mok converse during an Emergency Meeting on Macroeconomic and Financial Issues in central Seoul on Dec. 19. [MINISTRY OF ECONOMY AND FINANCE]

During the latest meeting, the attendees agreed, “Above all, it is of the utmost importance for the domestic political situation to stabilize as promptly as possible,” the Finance Ministry said in a release.

“The international community is closely watching whether Korea’s state leadership will be able to regain stability quickly,” the attendees stressed, adding, “If the current unstable situation continues, it may have negative implications on the country’s creditworthiness, and add direct and indirect impacts on the economy.”

The ministry noted that the financial and foreign exchange markets have experienced increased volatility following Han’s impeachment, once again promising to “closely monitor the situation around the clock and implement every resource available in order to manage the market’s stability at its maximum capacity.”

However, the ministry offered assurances that Korea’s capacity to respond to the foreign exchange market situation remains stable, citing net foreign assets worth $977.8 billion and the world's ninth-largest foreign exchange reserves.

Meanwhile, the Ministry of Economy and Finance delayed the announcement of the Economic Policy Directions, which was initially set to be released on Monday, due to the deadly Jeju Air crash.

The won-dollar exchange rate, which briefly breached even the 1,480-won-per-dollar threshold mid-trading for the first time since 2009 on Friday, continued to hover above the 1,470 mark. After opening at 1,475 won against the dollar, the won closed its final regular session for the year at 1,472.5 per dollar, up 5 won from the previous session. It marked the weakest closing rate since March 13, 2009, and also the weakest year-end rate since 1997.

“Though it is not a base scenario, if additional impeachment motions and increased foreign capital outflow materialize, the won-dollar exchange rate may surpass the 1,500 mark,” suggested NH Investment & Securities analyst Kwon Ah-min.

Kwon expected the won-dollar rate to stay in the lower 1,400 won range in the first half of next year.

The latest deadly plane crash, on top of a series of recent crises, may further dampen Korea’s already weak consumer confidence as well, as events for the New Year celebration are being canceled or scaled back.

The country’s consumer sentiment index fell 12.3 points to 88.4 in December, the largest monthly fall since the Covid-19 pandemic outbreak in 2020, according to the Bank of Korea’s data released on Dec. 24.

BY SHIN HA-NEE [[email protected]]