South Korea is currently facing significant political turmoil as the country's economy grapples with the fallout from the impeachment of President Yoon Suk-yeol and acting president Han Duck-soo. The South Korean won has plummeted to its lowest value against the dollar since 2009, reflecting widespread unease among investors and businesses.
The political crisis deepened dramatically when Yoon was impeached by lawmakers on charges of insurrection, following his controversial attempt to undermine civilian rule earlier this month. On December 27, Han was also impeached, another unprecedented move, making this the first time any acting president has endured such action. Finance Minister Choi Sang-mok has since stepped up to fill both the roles of acting president and prime minister.
According to financial analysts, this political instability is seriously affecting both business and consumer confidence. Data from the Bank of Korea highlighted it as the biggest drop experienced since the onset of the Covid-19 pandemic. Gareth Leather from Capital Economics warned, "The political turmoil is already affecting consumer and business confidence... and uncertainty could deter investment in the long term." Many fear the situation may echo the stagnation of Thailand’s economy post-2014 coup.
The turmoil has resulted in significant market reactions, with the won-dollar exchange rate recently crossing 1,480 won per dollar for the first time since the global financial crisis. The Korea Development Institute (KDI) has cautioned lawmakers about the potential for the rate to breach 1,500 won as the political crisis escalates. "Since exchange rate fluctuations of 3% to 4% are considered 'within the normal range,' we cannot rule out the possibility of the won-dollar exchange rate reaching 1,500 won," stated the KDI.
Lawmakers' failure to appoint three new justices to the Constitutional Court has added to the confusion. Their absence raises questions about the court's capacity to confirm Yoon's impeachment, as it requires a two-thirds majority. With the court currently having three vacant seats, any decision made now will need to be unanimous. If the court does not reach this decision, Yoon will automatically return to office, bringing even more complexity to the already precarious situation.
Despite all this turbulence, some experts maintain faith in South Korea's overall economic resilience. Park Sang-in, an economist at Seoul National University, attributed this stability to the country's mature democratic institutions, stating, "While Yoon’s actions were surprising, the country’s democratic institutions are strong enough to counter them." Meanwhile, he noted the central bank’s commitment to inject sufficient liquidity to help stabilize the markets, with the Kospi Index showing only minor declines amid all the crises.
Interestingly, the political challenges are driving some investors away from traditional assets and toward cryptocurrencies. The Kimchi Premium—showing the increasing price gap between Bitcoin on South Korean exchanges compared to global platforms—has surged amid the crisis. Market analysts reported the premium reached 3-5%, signaling heightened local demand for digital assets. Ki Young Ju of CryptoQuant noted, "Political turmoil, inflation fears... have led to outflows of wealth from South Korea," primarily as investors convert their won-denominated assets to alternatives like Bitcoin and gold.
While the situation remains fluid, the political crisis looks set to affect South Korea over the coming months, with the potential for long-lasting impacts on both its economy and political climate. Finance Minister Choi Sang-mok, now acting as the head of state, has pledged to work tirelessly to resolve the instability gripping the nation. He stated, "This period of turmoil... we will resolve the political crisis gripping the country." His commitment echoes across the nation as hopes rise for swift solutions amid the chaos.
Analysts will be watching closely to see if the Constitutional Court can restore some sense of order, and if traditional investment confidence can be rebuilt as South Korea battles through one of the most turbulent times in recent history.
