South Korea curveball adds new 2025 risks

HD Hyundai Marine Solution

04/12/2024 02:40

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
    By Robyn Mak
       HONG KONG, Dec 4 (Reuters Breakingviews) - An abortive
coup in South Korea was probably not on anyone's bingo card for
2024. Great Power tensions have tended to dominate. Enter
President Yoon Suk Yeol, who shocked the world by declaring
martial law on Tuesday night, only to make an embarrassing
U-turn just hours later after both his own and opposition
parties forced their way into parliament to vote down his
decree. The crisis in the $2 trillion economy, a major U.S. ally
and chipmaking hub, may seem just a domestic issue. But it may
yet reverberate in Asia and beyond.
    Internecine infighting between Yoon and the
opposition-controlled legislature has been building for months.
The latest standoff was over the president's proposed budget,
which would have increased funding to the presidential office,
the police and other bodies. Yoon's approval rating has tanked
amid an election-meddling scandal involving his wife, the latest
controversy surrounding his tenure. To justify calling in the
soldiers, Yoon accused his opponents of "anti-state" activities,
including paralysing his administration "through repeated
impeachments, legislative manipulation and budget manipulation".
    Heads must surely roll. The main opposition Democratic Party
says it will pursue charges of treason and impeachment against
Yoon; the president's party is calling for his cabinet to resign
and for the defence minister, who supported the decree despite
scoffing at the possibility just months ago, to be sacked. The
Korean won tumbled to a two-year low on Tuesday night and the
benchmark KOSPI index  .KS11  opened down 2% the following
morning. Deals like a share sale from the KKR-backed HD Hyundai
Marine Solution  443060.KS  have been yanked.
    It's possible the fallout ends there. Yet the longer-term
damage to investor confidence may be harder to reverse. Even
before the political crisis, the export-dependent economy looked
vulnerable to slowing global demand; last month, Citi analysts
revised down South Korea's 2025 GDP growth forecast to 1.6%,
from 1.8%, mostly due to risks of U.S. trade tariffs. The KOSPI
200  .KS200  is down 9% this year - the worst performance among
benchmark stock-market indices worldwide.
    Yoon's imminent impeachment may also reshape dynamics in the
region. The president has pushed for deeper ties with Japan and
the United States and wants to reduce the country's trade
dependence on China. U.S. President-elect Donald Trump's
protectionist agenda may force Yoon's successor to rethink the
country's allegiances. That will have huge repercussions beyond
Asia: giants like chipmakers Samsung Electronics  005930.KS  and
SK Hynix  000660.KS  play critical roles in Western technology
and auto supply chains. South Korea has thrown a geopolitical
curveball at 2025.
    Follow @mak_robyn on X
    
    CONTEXT NEWS
    South Korea's President Yoon Suk Yeol said on Dec. 4 that he
would lift a shock martial law declaration he had imposed just
hours earlier. 
    Yoon had declared emergency martial law in a televised
address late in the evening of Dec. 3, accusing the opposition
party of "anti-state" activities, including paralyzing his
administration "through repeated impeachments, legislative
manipulation and budget manipulation". Shortly afterwards, 190
lawmakers in the 300-seat parliament unanimously rejected the
decree. It was the first time since 1980 that martial law has
been declared in South Korea.
    The main opposition Democratic Party called for Yoon, who
has been in office since 2022, to resign or face impeachment,
while senior aides of Yoon, including his chief of staff,
offered to resign en masse, according to Yonhap news agency.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic: South Korean stocks have underperformed    https://reut.rs/4ih61om
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Antony Currie and Ujjaini Dutta)
 ((For previous columns by the author, Reuters customers can
click on  MAK/   
robyn.mak@thomsonreuters.com))