Published : Dec. 7, 2016 - 15:49
Already reeling from sluggish exports and anemic domestic demand, the Korean economy is set to face several big political and external events over the next seven days.
This Friday, the National Assembly will vote on whether to pass a motion to impeach embattled President Park Geun-hye.
If the parliament passes the motion with more than two thirds of lawmakers voting for the impeachment, the unpopular Prime Minister Hwang Kyo-ahn immediately assume presidential power. It is highly likely that lawmakers will start to discuss whether to hold a parliamentary hearing on Yim Jong-yong, chairman of the Financial Services Commission, to replace the incumbent Finance Minister Yoo Il-ho.
Yim was named by Park on Nov. 2 as the new finance minister, but the confirmation hearing at the Assembly, which will allow him to officially take over, is yet to happen. There is also the possibility that lawmakers will decide not to hold a hearing on Yim and seek a third person for the post.
An official at the FSC, who spoke under the condition of anonymity, said Yim seems to have given up on the possibility of becoming the next finance minister.
“He seems to have let it go. He appears to be wrapping up his job simply as the FSC chairman,” the official said.
Questioning whether Yim would actually want to join the Finance Ministry, the official noted that the economy was in a worse state than expected.
The current situation is awkward for the incumbent Yoo as well, who publicly described himself as a person that is already “out of the picture” at a gathering of the incumbent and former finance ministers.
“I should leave as soon as possible. I was going to. Maintaining the post is quite difficult,” Yoo told his predecessors in Seoul on Nov. 30.
Yeouido, finance and investment banking district in Seoul. (Photo by 123rf)
If the impeachment vote fails to get a parliamentary agreement, the financial markets are expected to see higher volatility due to bigger political uncertainty, analysts said.
Kim Yu-kyum, analyst at LIG Investment & Securities, noted a rejection of the impeachment could flare up even more public anger, which could lead to jittery foreign investment sentiment.
“It is impossible to predict anything about the aftermath of a rejection of the impeachment,” he said.
When lawmakers voted to impeach late former President Roh Moo-hyun on March 12, 2004, the benchmark Kospi fell 2.43 percent on the day to close at 848.80. However, the Kospi quickly recovered to be back to pre-impeachment 900 levels.
The biggest external event next week is the US Federal Reserve’s expected move to increase borrowing costs at the Dec. 13-14 policy meeting.
Empirical data have shown that a US rate hike results in a foreign capital exodus from Korea. Since the Fed last raised the rate to 0.25-0.5 percent by 25 basis points in December last year, about 3 trillion won ($2.59 billion) worth of foreign capital left the Korean market three months later, according to analysis by the Korea Institute for International Economic Policy.
To prevent a massive exodus of foreign capital, the Bank of Korea could seek a rate hike. However, a rate hike can also weigh on households who will have to pay higher interest rates on their mortgage loans in an economy ridden with 1,300 trillion won household debt.
Excluding political risks, the state-run think tank Korea Development Institute sharply cut Korea’s 2017 growth outlook to 2.4 percent from an earlier prediction of 2.7 percent, citing sluggish exports and slowing private consumption. If political risks had been reflected, the figure would have gone lower, observers said.
(yoonmi@heradcorp.com)