April 16, 2024
SEOUL – The April 10 general elections delivered a crushing defeat to the ruling People Power Party, which took home just 108 seats in the 300-member National Assembly in South Korea. The result signals that President Yoon Suk Yeol will be under strong pressure to seek cooperation with the main opposition Democratic Party of Korea to push ahead with his key policy initiatives and grapple with the growing uncertainties on the economic front.
Unfortunately, Yoon is unlikely to ditch his notoriously unilateral style overnight and seek a helping hand from the opposition parties in a friendly manner. Despite public criticism about his reluctance to work with opponents, Yoon has refused to hold a one-on-one meeting with Lee Jae-myung, leader of the Democratic Party.
But Yoon has to change his style as the challenges ahead seem almost insurmountable without compromise and cooperative partnerships. After all, the opposition block led by the Democratic Party garnered a landslide victory and retained a majority in the parliament with 192 seats, a commanding majority that can be used to make things extremely tough for Yoon.
The country’s economy, in particular, confronts more serious challenges. Not only “three highs” — high interest rates, inflation and energy prices — but also the weakening of the Korean currency and the slowing job market pose threats that demand fast and resolute responses from policymakers.
As widely expected, the Bank of Korea kept its policy rate unchanged at 3.5 percent Friday, marking the 10th consecutive freeze since February last year. The reason is straightforward: the board members of the central bank did not see any tangible sign that inflation was nearing the target level of 2 percent. The BOK Gov. Rhee Chang-yon said it is hard to predict when the central bank can cut rates.
Indeed, Korea’s consumer prices, a key gauge of inflation, rose 3.1 percent on-year for the second straight month in March due mainly to the high prices of fruits and energy prices, following a 3.2 percent increase the previous month. Although the government rolled out a series of measures in recent months to rein in skyrocketing fruit prices, the prices of fruits continued to hit fresh highs.
The inflation and rate-cut situation facing the BOK is similar to the stance of the US Federal Reserve. In the 12 months through March, the US consumer price index increased 3.5 percent, the most since September. The stronger-than-expected figures prompted financial markets to expect that the Fed would delay cutting interest rates until September.
Worse, more geopolitical uncertainties are expected to negatively affect oil prices as market watchers are unnerved by the fresh exchange of attacks between Israel and Iran on top of the ongoing Ukraine-Russia war and the Houthi militant attacks in the Red Sea.
The volatile exchange rate is also a big concern for economic policymakers. The Korean won closed at 1,375.4 won against the US dollar on Friday, up 22.6 won from a week earlier. The rate hit a 17-month high since November 2022, deepening concerns about its impact on import prices and the overall inflationary pressure.
Market observers project that the Korean currency will likely see more volatility in the coming weeks in connection with geopolitical risks that prompt investors to seek safety in the US dollar.
In addition to the financial woes, the Yoon administration also has to deal with other economic problems. The number of employed people stood at 28.39 million last month, up 173,000 from a year earlier — the fewest number of new jobs since February 2021.
After the elections concluded, President Yoon said he would focus on stabilizing the economy. To that end, he has to start working with the opposition bloc to jointly address a host of economic challenges. There is no time for political maneuvering.