Protesters demand the resignation of South Korean President Yoon Seok-yeol during a demonstration in the Gwanghwamun area of Seoul, South Korea, on Wednesday, December 4, 2024.
Jean Chung/Bloomberg
SFor the past 27 years, South Korea has tried hard not to become a cautionary tale for developing economies—and has generally succeeded. Since the 1997 Asian financial crisis, China has strengthened its foundations, improved living standards and seen its businesses flourish globally.
Subsequently, South Korean President Yoon Seok-yeol implemented crazy martial law, pushing South Korea back to the “example that shouldn’t be” track that it had escaped.
For six hours on Tuesday and Wednesday, Mr Yoon stunned democracies around the world by suspending the common law. For some strange reason, politicians in Seoul still have a hard time understanding it. These included remarks about mysterious “anti-national” forces sympathetic to North Korea.
Most believe Yin’s actions were motivated in part by desperation that the opposition would thwart his party’s legislative ambitions. Yin seemed to be gambling that martial law might allow him to make his agenda a reality. But the answer should be a shift to different, more moderate policies. or develop new legislative strategies. Don’t let Kim Jong Un go to Seoul.
Calculate the ways in which this strategy could backfire, and not just the possibility that Yin might be impeached.
One is that Yin proved the investors behind the “Korea Discount” correct. He only confirmed their feeling that Korean companies are not as ready for global prime time as many thought. Yoon also reminded the world that South Korea’s past period of military rule dates back to 1948, and that successive South Korean governments have worked very hard to get rid of this rule.
When investors think of martial law enforcers in modern Asia, their minds jump to Indonesia, Myanmar, the Philippines, Thailand and now South Korea. that is quite President Yoon’s legacy.
Another legacy will soon come into focus: how Yin’s all-or-nothing strategy would deliver a proverbial blow to Asia’s fourth-largest economy.
Technically speaking, South Korea’s Finance Minister Choi Sang-mok may be right after all when he dismissed concerns that Tuesday’s botched martial law order would tip the economy into recession as “exaggerated.” At least that’s what he told Bloomberg News on Thursday. Of course, Choi could be wrong if Yin’s actions permanently undermine corporate and investor confidence.
But the real question is the next few years. Even before this week’s farcical events, South Korea was facing a difficult 2025. . By Tuesday, however, prospects for the South Korean government to move quickly to protect the economy from what was coming had all but disappeared.
If Yoon does survive the impeachment motion — and that’s a big “if” — his legislative prospects will be infinitesimally slim. Not only will he fall into a “lame duck” situation, he will also fall into a “forget this government” situation.
Of course, the first half of Yoon Eun-hye’s five-year term, which begins in May 2022, is anything but a reformist whirlwind. He has done little to reduce near-record household debt, which is undermining consumer spending. Nor has he worked to increase productivity or reduce the extreme concentration of power held by a handful of family-owned conglomerates, or chaebols, that dominate the economy.
Yin has achieved no notable victories in addressing gender inequality, halting a decline in already rock-bottom fertility rates, or reducing overreliance on exports for economic growth. Heading into the uncertain year of 2025, these pre-existing conditions are bad enough.
Chronic complacency has long been a challenge for South Korea. During Yin’s 20 years in office, his five predecessors all promised to improve the country’s economic standards. When each new administration comes to power, it examines South Korea’s chaebol-dominated model, sees the amount of work required to reshape it, and turns to other pursuits. Like clockwork, each leader has left the job of steering the trade-reliant economy to the Bank of Korea.
None of this ensures that South Korea will head towards Japan’s “lost decade”. But that complacency, combined with events this week, increases the odds.
If Mr. Yoon makes full use of the past 941 days to improve competitiveness and level the playing field, South Korea may be better able to deal with China’s slowdown and the impending trade war launched by US President-elect Trump. The high price of the failure of Yoon’s selfish martial law will be paid in installments over time by South Korea’s 51 million people. What kind of cautionary tale is this?
