Diffusing panic key to containing martial law debacle fallout: BOK head

Bank of Korea Governor Rhee Chang-yong speaks during a press conference at the bank headquartes in Seoul, Nov. 28. Yonhap

A team of top financial and economic policy authorities will continue to monitor market developments from the fallout of the short-lived martial law fiasco, in a coordinated effort to safeguard the county’s rule-based democracy and economic stability, the country’s top monetary policymaker said Thursday. 

The short-term devaluation of the Korean won against the U.S. dollar to 1,444 won overnight from Tuesday to Wednesday is expected to gradually recover, aided by the implementation of unlimited government liquidity packages, according to Bank of Korea (BOK) Governor Rhee Chang-yong.

Korea’s creditworthiness will remain robust, he added, underpinned by strong economic fundamentals separate from the recent political turn of events.

The full normalization of political and economic systems immediately after the six-hour martial law debacle proves Korea’s resilience, a source of stability for the country in times of confusion, in his view.

The authorities consider the economic fallout from the martial law debacle will be limited. However, close monitoring of market developments will continue against potential uncertainties from the National Assembly's impeachment vote for Yoon on Saturday. 

“The risks are broadly contained,” Rhee said during a press conference at the bank.

Chief among the remedies were the Bank of Korea's (BOK) pledge to expand unlimited, ad-hoc repurchase agreements (repos), as well as the Financial Services Commission's (FSC) injection of a combined 50 trillion won ($35 billion) in stock stabilization funds and Korea Treasury Bond (KTB) stabilization funds.

The BOK measure expands the repos both in the frequency and scope of eligible market participants. The FSC stabilization funds can mitigate a potential surge in plunging won-triggered margin calls.

The measure followed a meeting of Rhee, FSC Chairman Kim Byoung-hwan, Deputy Prime Minister and Finance Minister Choi Sang-mok and Financial Supervisory Service (FSS) Governor Lee Bok-hyun late Tuesday and early Wednesday.

From left, Financial Supervisory Service Governor Lee Bok-hyun, Bank of Korea Governor Rhee Chang-yong, Deputy Prime Minister and Finance Minister Choi Sang-mok and Financial Services Commission Chairman Kim Byoung-hwan pose before a meeting at the Korea Federation of Banks in Seoul, Nov. 8. Yonhap

“Diffusing widespread panic was our top priority,” Rhee said.

The plummeting value of the won has now recovered to around 1,410 won. However, the still-weak figure will strengthen over time, in his view. 

“The market developments are well within our expectations. The currency will strengthen, provided no new shocks emerge.” 

The martial law was short-lived, and so was the fallout across the broader financial market, he said.

“I have been receiving countless phone calls and e-mails from global organizations and figures that I cannot publicly identify. I found how the recent political turmoil could be a source of sheer shock for foreign investors, especially without the context of domestic politics.”

The six-hour debacle was, in his view, clearly different from ones Korea’s peers experienced – high-conflict political unrests defined by extreme ideological divide over fiscal drives or other policies.

“The political dynamics are separate from the economic dynamics, tied closely to the overall economic fundamentals and growth profile considerations. Korea’s creditworthiness is insulated from factors that rise to the level of political instability, as defined by the global ratings agencies.”

The country’s growth profile will remain intact, as indicated by the market developments surrounding the previous  impeachment of former President Park Geun-hye in 2017 due to a corruption scandal involving a close confidante. 

“Both the short-term and the mid- to long-term GDP growth profile remained unaffected by the political developments at the time. It is all about market confidence and investor sentiment, the direction of which can be guided with immediate swift responses.”

No further monetary easing is warranted for now, since the previous economic outlook remains the same, he added.

"The growth outlook remains unchanged, and so will the path of monetary easing."

The FSS met with the CEOs of 36 brokerages, instructing them to outline contingency plans for managing volatility in the capital and foreign exchange markets.

Choi said the government will spare no efforts to stabilize the economy, business activities and the lives of the public.

“We will make sure the fallout of the martial law declaration will have a limited impact on the financial markets and the economy at large. We will share new developments in a timely manner,” he said.