[Journalism Internship] Stabilizing the economy amid martial law turmoil

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[Journalism Internship] Stabilizing the economy amid martial law turmoil

 
Choi Alvin Wonjae, Kong Jinmyung, Michaela Cho Kwon, Seo Moonki

Choi Alvin Wonjae, Kong Jinmyung, Michaela Cho Kwon, Seo Moonki

 
Korea’s economy suffered losses since President Yoon Suk Yeol’s declaration of martial law, with the government making concerted efforts to stabilize the situation.
 
On Dec. 3, President Yoon Suk Yeol declared emergency martial law, citing threats from pro-North Korean forces. Immediately after the declaration, armed forces attempted to prevent National Assembly lawmakers from lifting the martial law. However, the martial law was officially dismissed, with 190 lawmakers from all parties voting to end it.  
 
The impact of martial law was felt across Korea, significantly influencing the nation’s economy.  
 
A recent Marketwatch report compared past impeachment cases involving two former Korean presidents.
 
In the 2003 impeachment case of late President Roh Moo-hyun, the Kospi initially saw a rebound after the parliamentary impeachment vote but later experienced a decline of over 20 percent within 92 days after the court overturned the impeachment.  
 
In contrast, during former President Park Geun-hye’s impeachment case in 2016, the market experienced initial volatility.  
 
Still, it ultimately surged over 20 percent six months after the National Assembly's decision to uphold the impeachment.  
 
 
Before and after
 
Before the martial law, Korea’s economy showed moderate stability.
 
In reports from the Ministry of Economy and Finance, GDP growth was described as steady, supported by strong semiconductor and green energy exports. The won remained undervalued but stable at around 1,350 won to the U.S. dollar, while the Kospi index stayed stable due to foreign investments.
 
Despite challenges, such as high household debt and geopolitical tensions with North Korea, investor sentiment was cautiously optimistic, as Korea remained an attractive market for long-term investment.
 
The declaration of martial law, however, caused immediate market turmoil.
 
The won plunged to a 15-year low of 1,470 won to the dollar on Dec. 27, while the Kospi index dropped sharply, with ETFs tied to Korean equities falling over 7 percent, according to data published by Reuters.
 
Accelerated foreign capital outflows exacerbated financial instability. Consumer confidence also fell to extreme lows after the activation of martial law. As a result, domestic spending and investment decreased. Inflationary pressures rose as the weakening won increased import costs.  
 
The Bank of Korea (BOK) quickly responded to the challenges by introducing emergency liquidity measures and trying to stabilize the foreign exchange market, according to BOK Gov. Rhee Chang-yong.  
 
Despite this effort, the GDP forecast for 2024 was lowered, highlighting ongoing uncertainty.  
 
In a Bloomberg report, experts stressed the importance of rebuilding investors' trust and maintaining political stability to prevent long-term economic harm. Korea’s path to recovery now relies on thoughtful and decisive actions from leaders and the Korean government.  
 
 
Road to recovery
 
Currently, the government is making a concerted effort to repair the Korean economy by stabilizing the financial and foreign exchange markets.  
 
Deputy Prime Minister and Minister of Economy and Finance of Korea Choi Sang-Mok attends the macroeconomic and financial issues meeting held on Dec. 5 at the government complex in central Seoul. [JOONGANG ILBO]

Deputy Prime Minister and Minister of Economy and Finance of Korea Choi Sang-Mok attends the macroeconomic and financial issues meeting held on Dec. 5 at the government complex in central Seoul. [JOONGANG ILBO]

 
Minister of Economy and Finance Choi Sang-mok, and now acting president, immediately held a meeting to review the situation for the foreign exchange and financial markets on Dec. 4, according an energy economy report.
 
The meeting concluded that a total of 19.6 trillion won (13.4 billion) in non-scheduled repurchase agreements must be supplied, and additional purchases are required to prevent further market instability.
 
Moreover, the Bank of Korea intervened in the foreign exchange market to stabilize the exchange rate and announced the start of a 24-hour emergency response system on Dec. 4 until the complete normalization of financial markets, as reported by Newswatch. As a result of the Korean government's effort, the exchange rate decreased from the 1,440 won range to 1,410 won on Dec. 4, a day after the establishment of martial law.
 
Despite the immediate success in mitigating the collapse of the Korean economy, the Korean government is currently planning to ease regulations on foreign exchange by raising the limit on the foreign exchange forward cap to better stabilize the exchange rate, as stated in a joint statement by government ministries.  
 
 
Looking forward  
 
With uncertainty surrounding the Korean economy, consumer outlook for the economy is pessimistic, according to the “2025 Korea Economy Outlook” report from the Hyundai Research Institute released in September.  
 
The CCSI (composite consumer sentiment index) shows a decrease, which is a significant change to the constant escalation reported in early 2024, according to the Bank of Korea’s consumer trend survey for December. Compared to November’s CCSI of 100.7, December’s CCSI dropped 12.3 points to 88.4.  
 
Generally, a CCSI higher than 100 is considered optimistic, while 88.4 is pessimistic. This change demonstrates the negative consumer attitude toward Korea's current and future economy after the martial law enactment.
 
The won’s plunge to 1,470 won on Dec. 27 even signaled a possible nosedive to 1,500 won, which is a level that was only reached during the currency crisis in 1997 and the financial crisis in 2008 in Korea.  
 
The exchange rate rapidly increased by 30 won immediately after the enactment of martial law, and the trend will likely remain at around 1,450 to 1,460 won, according to Woori Bank economist Min Gyeong-won.
 
Currently, Korea’s foreign exchange reserve is $415.68 billion, and is ranked ninth globally. Experts expect Korea's foreign exchange reserve to drop with the significant fluctuation of the exchange rate, with added concerns over the reserves dropping below $400 billion — known as the “Maginot Line” of the economy.
 
Choi talked about the current economic situation and his further steps to calm the crisis. “I will resign from my position as soon as I complete my responsibility to manage our economy as stably as possible under any circumstances,” he said.

BY CHOI ALVIN WONJAE, KONG JINMYUNG, MICHAELA CHO KWON, SEO MOONKI [[email protected], [email protected], [email protected], [email protected]]
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