TLDR:
- President Yoon Suk Yeol briefly imposed martial law in South Korea, leading to opposition parties filing an impeachment motion
- Markets reacted with volatility – the won plunged but later recovered; stocks closed down 1.4%
- The Bank of Korea held emergency meetings to ensure market stability
- Opposition needs 200 votes for impeachment approval, with Yoon to be suspended during proceedings
- The event has deepened the “Korea Discount” – the traditionally lower valuation of Korean stocks compared to global peers
South Korean President Yoon Suk Yeol faces an impeachment motion after declaring and quickly withdrawing martial law, creating a political crisis that has rattled markets and drawn international attention. Opposition parties submitted the motion on Wednesday afternoon, less than 24 hours after Yoon’s controversial declaration.
The Democratic Party, along with five other opposition parties, announced their intent to pursue charges of treason against Yoon, as well as South Korea’s defense minister and safety minister. The defense minister has already offered his resignation in response to the events.
The crisis began Tuesday night when President Yoon made an unexpected televised address declaring martial law, a move that caught both the nation and his own People Power Party off guard. The declaration was met with immediate resistance from lawmakers, who gathered at parliament to vote down the measure.
Within hours of the initial declaration, Yoon appeared in another televised address to announce he would accept the National Assembly’s demand to rescind the martial law order. The rapid reversal highlighted the intensity of opposition to his decision.
The won, which had already been performing poorly as Asia’s worst currency this year, experienced extreme volatility during the crisis. It initially plunged more than 3% when news of the martial law decree broke but recovered most of its losses by Wednesday as the situation stabilized.
The stock market also showed signs of stress, opening sharply lower before partially recovering to close down 1.4%. The Bank of Korea responded by holding an extraordinary meeting Wednesday morning to discuss measures to protect the economy and markets.
Bank of Korea Governor Rhee Chang-yong attempted to calm investors, stating that the political events would not increase the likelihood of another interest rate cut. The central bank promised to increase short-term liquidity and take active steps in currency markets if needed.
Impeachment
The impeachment process requires a waiting period of at least 24 hours before lawmakers can vote, with a maximum time limit of 72 hours. The opposition needs to secure 200 votes – a two-thirds majority – to approve the impeachment proceedings.
If the impeachment motion passes, Yoon would be suspended from his duties during the proceedings. The final ruling on his impeachment would then come from the constitutional court.
The crisis has brought attention to potential successors should Yoon step down or be removed from office. Han Dong-hoon, the leader of the ruling People Power Party, and Democratic Party chief Lee Jae-myung are among the possible replacements. Prime Minister Han Duck-Soo could serve as an interim leader.
The events have drawn parallels to the winter of 2016, when former President Park Geun-hye faced impeachment over corruption allegations. Park was eventually removed from office and served time in prison for abuse of power.
The political turmoil has renewed focus on South Korea’s “Korea Discount” – the traditionally lower valuation of Korean stocks compared to global markets. Many companies listed on the KOSPI trade at price-to-book ratios below 1, far below the MSCI world index’s ratio of 3.5.
Foreign investors have been pulling money out of South Korea’s stock market since August, with outflows exceeding $14 billion over four months. The latest political crisis may further discourage international investment.
The crisis comes at a challenging time for South Korea, as it faces various economic and geopolitical challenges including weak growth prospects, demographic aging, and tensions with North Korea.
Public reaction has been largely negative, with protesters gathering to demand Yoon’s resignation. “It is so embarrassing that I can’t see the faces of Koreans living abroad,” said Park Sam-choon, a 76-year-old at an anti-Yoon rally.
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