Economic policymakers on alert to contain fallout
Financial Services Commission Chairman Yim Jong-yong, left, presides over an emergency meeting in Seoul, Sunday, urging his employees to maintain vigilance following the impeachment of President Park Geun-hye. / Yonhap
By Park Hyong-ki
Korea’s key economic policymakers are scrambling to contain the economic fallout of the National Assembly’s impeachment of President Park Geun-hye.
Fiscal and monetary authorities and financial regulators will stay alert monitoring the local markets that have been facing volatility on negative external and internal factors, including Brexit and Donald Trump’s upset win in the U.S. presidential election.
Finance Minister Yoo Il-ho appealed to global credit rating agencies, foreign press and local businesses that Korea’s economy is intact and stable, despite the political turmoil.
“In times of trouble, we must stay focused on maintaining (the soundness of) the economy,” said Yoo in an emergency meeting over the weekend.
Minister Yoo urged the private sector through five business associations including the Korea Federation of Small and Medium-sized Enterprises and the Korean Chamber of Commerce and Industry, to operate their businesses as usual.
He asked the heads of the associations to “pursue their investment and recruitment plans,” while the association called on the economic agency to follow through on its policies.
As with the finance ministry boosting its market vigilance ordered by Prime Minister Hwang Kyo-ahn, who became Korea’s acting president immediately after Park’s impeachment, the Bank of Korea (BOK) has launched an emergency preparedness team in case of a potential crisis.
Although the central bank believes the impeachment would have a “very limited impact” on the economy, it could pose a downside risk should the political uncertainty persist in the long run.
“We evaluate that the political uncertainty could increase risk to the economy if it lingers for a long period, as well as potentially destabilize the financial market,” BOK Governor Lee Ju-yeol said in a statement after its emergency meeting Saturday.
Analysts said Park’s impeachment will help ease the political uncertainty that has tainted the country’s economic outlook following the scandal involving Park and her close associate Choi Soon-sil.
“With Prime Minister Hwang having been appointed as the caretaker president, the Korean government will be able to move forward with economic policy decisions,” said Rajiv Biswas, chief economist of HIS Global Insight.
“However, the scope of their policy actions is likely to be relatively limited and the government is unlikely to pursue significant economic reforms until the next presidential election can be held.”
The Korean economy faces significant challenges with many analysts forecasting slower growth next year amid low employment, consumption and weak exports.
The central bank recently warned that the country’s outlook for 2017 looks far worse than expected as political and economic uncertainties persist over Brexit abroad, and domestic factors including corporate debt restructuring and the political scandal involving Park.
Market interest rates will further rise weighing down bond prices on expectations of Trump’s fiscal stimulus for infrastructure spending, the central bank noted, citing market data from investment banks and brokerages.