Economists See Impeachment as Way Forward for South Koreaby
’Worst-case scenario’ avoided after vote against Park
Central bank meets to assess impact on markets, economy
Parliament’s overwhelming vote on Friday to impeach South Korean President Park Geun-hye lifts some of the political uncertainty clouding the nation’s economic outlook, likely preventing the crisis from worsening in the near term.
“Korea has avoided the worst-case scenario with the vote,” said Park Sang-hyun, an economist for HI Investment & Securities in Seoul. “The results have prevented an all-stop in state affairs, and things can improve if the prime minister taking over power makes his stance on economic policies clear.”
Had the impeachment motion been rejected, consumption and corporate investment likely would have plunged as even-angrier protesters returned to the streets, said Lee Sang-jae, an economist for Eugene Investment & Securities in Seoul. Now some calm should be restored at least temporarily, Lee said.
Just hours before the vote, 81 percent of South Koreans supported Park’s impeachment, according to a poll released by Gallup Korea. Her approval rating was at 5 percent.
The Bank of Korea held a meeting on Friday afternoon to discuss the impeachment’s impact on markets and the economy. Finance Minister Yoo Il-ho will host a government meeting late Friday.
Much remains to be decided. The Constitutional Court has 180 days to determine whether it will uphold the impeachment. If the court does so, a presidential election would be held in 60 days. In 2004, the court took about two months to review and overturn the impeachment of then-President Roh Moo-hyun.
Should the court overturn Park’s impeachment, public anger is sure to rise and political alliances to realign, developments that would have a “sizeable effect” on the economy, Chang Jae-chul, an economist for Citibank Korea Inc., wrote in a report.
The political uncertainty that followed the eruption of Park’s influence-peddling scandal in October had already caused economists to cut their forecasts for the nation’s growth next year. With the economy struggling, Park’s political battles and the reshuffling of key officials weakened policy implementation. In South Korea, decisions from the presidential office are key in economic policy making.
Citibank cut its 2017 forecast for growth in gross domestic product to 2.4 percent from 2.7 percent, while Standard Chartered lowered its outlook to 2.3 percent from 2.5 percent. The state-run Korea Development Institute, a think tank, said prolonged domestic political uncertainty could hurt growth by a “large extent.”
The impeachment vote means Park will need to step aside for now. The interim leader will be Prime Minister Hwang Kyo-ahn. Park dismissed Hwang when the scandal erupted, but the replacement she appointed in early November, Kim Byong-joon, has not been approved by parliament. The fates of Finance Minister Yoo Il-ho, who was also cast aside as Park sought to stem the fallout from the scandal, and Yim Jong-yong, who was named Yoo’s replacement, remain unclear.
The timeline for the next presidential election depends on when the court releases its decision on the impeachment, but should happen by August at the latest. The election was originally scheduled for December next year.
An early election could be positive for the economy, perhaps enabling it to gain traction in the second half of 2017, said Lee at Eugene Investment & Securities. The current consumption slump is expected to last through the first half of next year but could ease as the uncertainty fades, Lee said.