The Constitutional Court’s ruling to remove President Park Geun-hye from office has cleared political uncertainly, but the ailing Korean economy looks set to struggle with major threats. All players need to do their best to contain the possible economic upheaval amid the two-month leadership vacuum in the run-up to the next presidential election.
As the U.S. Federal Reserve is likely to raise its key rate this week, the nation’s household debt, which surpassed 1,300 trillion won late last year, might serve to trigger an economic debacle. The economy could also suffer greatly as Korea and other emerging economies might grapple with a massive exodus of foreign capital. The central Bank of Korea expects an increase of 1 percentage point in lending rates to put an additional interest burden of 8 trillion won a year on households.
Concerns are also lingering over possible trade friction with the Trump administration. The United States, in particular, might designate Korea, which has been enjoying trade surpluses every year, as a currency manipulator in April. This will certainly deal a fatal blow to Korea Inc., which relies heavily on trade.
China is ramping up its retaliatory measures in response to Seoul’s decision to deploy the THAAD missile defense system. A survey of content, tourism and retail businesses last week found that nearly 90 percent are already suffering or would suffer from the fallout of China’s retaliation.
Corporate investment and hiring remain weak as companies await the new government’s policy direction. Fortunately, exports are recovering, but there is no indication yet that consumer sentiment is. The financial market remained calm after the impeachment ruling, but jitters might erupt at any time amid a plethora of populist pledges by presidential contenders.
The role of acting President and Prime Minister Hwang Kyo-ahn is more important than ever. He has to devote himself to improving people’s livelihoods and revitalizing the economy in cooperation with political parties until the next administration is launched in May.
Deputy Prime Minister and Strategy and Finance Minister Yoo Il-ho should faithfully fulfill his duty as the economic control tower so that the public can lead a normal life. He must give top priority to containing external risks and bolstering domestic demand.