By Aashay Tripathi
The year 2016 is increasingly turning out to be full of unexpected stands taken by nations. Contrary to popular expectations, the vote to leave the European Union dominated the British referendum; Mr Donald Trump had a surprising triumph in the race to the White House, and Mr Matteo Renzi had to bow down and resign when the Italians voted against his suggestion to make constitutional changes in the country. The latest strike has been in South Korea.
The country’s parliament has voted to impeach the President Park Geun-hye over the charges of corruption and cronyism.
South Korean political crisis
The laws of the South Korean Constitution dictate that an impeachment requires a two-thirds majority to pass. The lawmakers in the country’s 300-member National Assembly voted overwhelmingly, 234 to 56 with 9 invalid votes and abstentions, to pass the bill impeaching Park. She is accused of letting Choi Soon-sil, an old family friend who held no political office, have a say in numerous government affairs. Masked under the name of donations for the foundations she runs, Choi has also been accused of using their friendship to extract millions of dollars from companies that include Samsung and Hyundai conglomerates.
Ms Park has been stripped off of her executive powers with immediate effect. The current Prime Minister, Hwang Kyo-ahn will serve as the acting President until the court’s decision. The country’s Constitutional Court will make a decision within the next 180 days on whether Ms Park stays on as the President. The rules require six out of the court’s nine members to agree for the impeachment. Ms Park will be removed immediately. Presidential elections would follow within the next 60 days.
If she is ousted, she would become the first sitting South Korean president to be deposed in the country’s democratic era.
Furthermore, such events can dilute the sort of leadership South Korea needs in order to restructure old industries such as shipbuilding, stimulate flagging exports and pursue labour reforms that would give more stable jobs to the country’s youth. (Forbes)
What does this entail for the economy?
Uncertain environment has engulfed the country. Going forward, the impeachment might impact the country in a number of ways. Analysts are concerned about the following-
- If the impeachment is overturned by the court, the rise in public anger and realignment of the political alliances would feed into the uncertainty. As a result, many foreign investors would sell off assets they hold in South Korea. This sale of assets in U.S. dollars would have a negative impact on the Won, further hampering the economy.
- The growth rate of the South Korean economy has been decelerating in the recent years. It has been impacted by weak corporate investment due to the fear of political turmoil.
- The central bank of South Korea expects that a prolonged power vacuum could increase downside risks in the economy. It would also make the economy more vulnerable to North Korean provocations.
- The relatively weak economy, Park’s impeachment, and the reshuffling of the key officials by Park has weakened the policy implementation, forcing the reduction in growth forecasts from 2.7% to 2.3%.
On the political front, analysts predict that if the general elections pave the way for a liberal government post-Park’s ouster, the change in the priorities would have implications in Asia and beyond. Liberal governments are expected to have a more diplomatic engagement with North Korea. Moving away from their current policy of sanctions. Furthermore, the new government might work more closely with China. Hence, strongly opposing the current plans to implement the American-made THAAD missile defence shield over the Korean Peninsula.
However, the immediate impact of the decision was limited. On Friday (9 December) the KOSPI slid 0.3%. While the volatility of the stocks and foreign-exchange markets was cushioned due to the impeachment being already factored in. Analysts argue that the South Korean economy is majorly affected by external factors and not the home environment alone
In addition, the impact of U.S. President-elect Donald Trump’s policies on trade and foreign affairs is also expected to contribute towards the worsening economy.
The scandal reveals the waning patience of the voters towards the government’s way of working. Including its incapacity in effectively handling various issues plaguing the nation- the rising income gap, youth unemployment, high-profile problems affecting major companies like Samsung and the worsening North Korean problem. As the events unfold, the question of whether this impeachment would eventually pave the way for a new era of clean politics remains to be answered.
Aashay has completed his Masters in Economics from the University of Warwick, U.K. He has worked on the Economics of Happiness and Subjective Well-being under the supervision of Dr Robert Akerlof. He is a Research Analyst at Grail Research, Noida and works on quantitative research.
Featured Image Courtesy: Japan Times