January 15, 2025
SEOUL – The political uncertainty initiated by President Yoon Suk Yeol’s short-lived imposition of martial law last month has remained heightened for weeks, raising concerns about South Korea’s sovereign credit rating.
On Sunday, Yoon’s legal team said the impeached president will not attend the first hearing in his impeachment trial that begins Tuesday, citing worries about personal safety and security.
Yoon’s latest position apparently refers to a high-profile standoff on Jan. 3 between investigators led by the Corruption Investigation Office for High-ranking Officials and the Presidential Security Service over the execution of his detention warrant. But it is also interpreted as a sign that Yoon intends to delay the schedule of legal procedures of the Constitutional Court, which plans to hold five hearing sessions until Feb. 4.
As long as Yoon refuses to cooperate with the investigation for his martial law declaration and impeachment, it is increasingly difficult to say how long this political turmoil will continue in a way that compromises the image of South Korea. Particularly worrisome is the shaky leadership of the nation, which is currently helmed by acting President Choi Sang-mok, and its impact on the overall economy.
Choi has been playing the role of acting president since Dec. 27, 2024, when former Prime Minister and then-acting President Han Duck-soo was impeached by the opposition-led National Assembly, marking the first such incident that revealed the depth of political chaos gripping the nation.
Last week, Choi held separate virtual meetings with senior officials from the world’s top three credit rating agencies — Standard & Poor’s, Moody’s and Fitch. During the sessions, agency officials warned of potential troubles if the current political debacle is prolonged, the Finance Ministry said.
This marks a notable shift from their earlier assessments of South Korea’s economic resilience in the aftermath of the martial law declaration. During a meeting on Dec. 12, the agencies had commended South Korea’s institutional strength and capacity for recovery, expressing confidence in the country’s credit stability despite its political challenges.
However, the ongoing political turmoil, including conflicts surrounding the detention warrant for Yoon, seems to have prompted skepticism about the nation’s political stability linked to the economy.
Choi tried to assure the agencies that uncertainties would soon be resolved as the country’s constitutional and legal systems are now properly operated. Choi noted that South Korea’s financial and foreign exchange markets are gradually recovering to their precrisis levels and authorities including the Bank of Korea, Finance Ministry and the Financial Services Commission will ensure market stability through close coordination.
Choi also stressed the government is fully committed to implementing major economic policies and handling legislative agendas smoothly through a new consultative body with the National Assembly.
In minimizing the impact on the economy, Choi is widely deemed as a competent figure since he doubles as deputy prime minister for economic affairs and finance minister.
But the agencies’ warning about the impact of a protracted political turmoil should be taken seriously, especially in connection with foreign investment plans and corporate decision-making.
The agencies’ current assessment is that the political impact is limited, but a downgrade in the country’s sovereign credit rating cannot be ruled out completely, given the turbulence in the political sector.
There is no question that a downgrade in sovereign credit rating — a key indicator of economic stability and trustworthiness — could deal a severe blow to the South Korean economy. If the worst-case scenario ever happens, the interest rates on government bonds will surge, raising borrowing costs for both the government and businesses and leading to a cascade of economic shocks.
To avert the economic catastrophe of a credit rating downgrade, South Korea must resolve its current political turmoil as swiftly as possible, while implementing policies aimed at regaining confidence among investors both at home and abroad.