The impeachment of President Park Geun-hye is unlikely to bring a quick end to the South Korean drama which has unfolded over the last six weeks. But, if a resolution is found, the short-term political turmoil may be a blessing in disguise.
Park’s embroilment in a scandal involving her ‘shaman’ and confidante Choi Soon-sil released pent-up anger built up over years of disillusionment with the administration. The focus of the unhappiness was on Park’s failure to tackle the often uneasy relationship between the government and big businesses.
Five of South Korea’s six directly-elected presidents have fallen foul of the electorate’s diminishing tolerance for failure to achieve genuine reform. President Roh Moo-hyun was driven to suicide following a bribery scandal in 2009. He had been voted in on a promise to end corruption, and was then impeached by his government, only to have the ruling overturned by the Constitutional Court.
South Koreans have been displaying growing feelings of betrayal and intolerance towards the political and business elites, accelerating during the four years of the Park administration. Park started with a pledge to achieve a ‘474’ economy — 4% growth potential, a 70% employment rate, and $40,000 per capita income — but reality has fallen well short of ambition.
A protracted political crisis would leave South Korea weakened to deal with Asian geopolitical instability. The Korean economy is slowing and substantial structural problems remain. China is catching up quickly in the technology and manufacturing industries, putting pressure on Korea’s exports. Household debt continues to grow faster than disposable income. Problems at chaebols, the business conglomerates that account for 80% of the economy, are part of the imbroglio.
The Korean outlook has been overshadowed by protectionist rhetoric between China and the US, accounting for 40% of its exports. The global economic system is highly dependent on trade within the East China Sea, and Korea maintains a central role in the global shipping industry. This sector has felt increased pressure as global trade has stagnated during Asia’s economic restructuring.
The Bank of Korea has reduced its policy rate to a record low of 1.25%, and the economy grew at an annual 2.7% in the third quarter, down from 3.3% in the previous three months. Analysts expect more pain as key industries undergo significant restructuring.
North Korean provocations remain an ever-present concern. Ballistic missile launches continue to rise. The North seems to be advancing in the sophistication of cyber attacks. China is becoming more active in regional security, and Japan is transforming from a passive to an active player.
In terms of South Korea’s political quagmire, if Park is suspended, Prime Minister Hwang Kyo-ahn will take on her responsibilities. However, the divided opposition parties are unlikely to approve Hwang, a key associate of Park, as acting leader because of his strong links to the administration.
South Korea has a history of emerging stronger from turmoil. Questions over corporations’ transparency could eventually boost performance. The stock market has recovered in recent days, with US equity buoyancy a strong advantage. Though government debt has grown, foreign reserves remain healthy and the strengthening dollar and higher US interest rates will probably benefit Korea, given its healthy capital account surpluses.
If the country is fortunate and plays its cards correctly, the Park crisis will be short-lived — creating a platform for a healthier democracy realising the economic, political and corporate reforms previous administrations have failed to deliver. Hope might still triumph over adversity.
This piece first appeared on OMFIF on 9th December 2016.