South Korean President Yoon Suk Yeol has been indicted for being a “ringleader of an insurrection”, following his declaration of martial law on December 3rd. Yoon’s martial law bid, which lasted only six hours, came under fire as lawmakers voted it down and later impeached him, stripping him of his presidential duties. The top court must decide whether to remove Yoon from office or reinstate his presidential powers. This raises questions on the impact of this unfolding political crisis on South Korea’s economy and society, at a time of global uncertainties and turbulence.
Dr. Ryu Yongwook, Assistant Professor, Lee Kuan Yew School of Public Policy, NUS and Ms. Ma Tieying, Senior Economist, CFA, DBS Group Research shared their analysis on South Korea’s political crisis and the stability of its leadership in a dialogue organised by the Singapore Institute of International Affairs (SIIA), on 6th February 2025. SIIA’s Chairman, Associate Prof Simon Tay gave the opening remarks and Mr. Nicholas Fang, SIIA’S Director of Security and Global Affairs, served as the moderator for the discussion.
Key Takeaways
The current political crisis in South Korea is a result of both immediate, as well as deeper and historical causes. On an immediate level, there is a common belief among the South Korean population, particularly the youth, of electoral fraud. That narrative has been further played out by both the conservative and progressive political camps within the South Korean legislature, despite the lack of hard evidence for it. There is also a political imbalance in the South Korea legislature, between the progressive Democratic Party (DP) and the conservative People Power Party (PPP). The 2024 legislative election saw the opposition DP gaining a majority in the National Assembly, hampering the conservative President Yoon’s ability to set the agenda. This had frustrated President Yoon, with referring to the situation as a “legislative dictatorship.”
On a deeper and historical level, the political polarisation in the country has been fuelled by antagonistic group identities of both political groups. Both sides deny the existential legitimacy of each other, with DP being perceived to be supporters of North Korea and China and the PPP to be pro-Japan and pro-US.
President Yoon’s martial law bid led to short-term economic consequences, including a decline in both consumer and business confidence. Financial market investors viewed the political situation to be similar to that of the 2016 impeachment of former President Park Geun-hye, which had also resulted in a presidential re-election. For the longer-term, South Korea’s full year GDP growth forecast would likely remain on the weaker side. The country has been grappling with economic issues such as ageing population, declining birth rate and shrinking workforce. There is also weakening industrial competitiveness among South Korea firms, with key sectors, such as automobiles, electronics and semiconductors facing more competition pressures from Chinese companies. There is also a growing concern among long-term investors that South Korea might be on the trajectory of the “Japanisation” phenomenon, with a rise in the public debt to GDP ratio.
Chaebols, the large conglomerates controlled by generations of families, play a significant role in South Korea’s economic development. The country’s economic dynamics has been largely driven by big companies under these Chaebol structures and hence any reforms made could lead to a further decline in South Korea’s economy. The South Korean government has provided extensive policy subsidy for Chaebols, which in return provided finances for the government. There have been growing concerns regarding the fairness of competition for investors in South Korea’s economy, leading to call for a revision of the current rules to ensure a more level playing field, benefiting not only domestic firms but also international investors.
Depending on how the political crisis would play out in Seoul and which party would emerge the winner in the next election, this would impact the trajectory of the economic reforms. The conservative PPP tend to be more pro-business and would pursue more pro-market reforms, with an emphasis on business de-regulations. These reforms picked, however, tend to be simpler and will look to avoid any structural changes, such as chaebols reforms. The progressive DP’s policies tend to focus on reducing the income and wealth gap within the economy with more measures to support the household sector, helping the consumption part of the economy. But pursuing such re-distributional polices would require increase of government spending on social welfare programs, and that might lead to worsening fiscal deficit and public debt.
