South Korea’s political arena experienced a dramatic twist as President Yoon Suk Yeol declared martial law late Tuesday night (December 3), only to rescind it six hours later. The reversal came after a parliamentary vote where 190 of 300 lawmakers demanded its termination, in accordance with South Korean law requiring martial law to be lifted if the majority of parliament opposes it. The decision has not only unsettled financial markets but also cast doubt on President Yoon’s political future.
Implications for President Yoon and Markets
The unexpected declaration and subsequent withdrawal of martial law have been labeled a political misstep, potentially leading to an early end to President Yoon’s tenure, originally slated to conclude in May 2027. Analysts speculate that impeachment proceedings could commence, with the possibility of a general election being held as early as 2025.
The turmoil has heightened economic uncertainties, prompting South Korea's financial authorities to pledge “unlimited liquidity” to stabilize markets. Despite this, the South Korean won (KRW) remains under pressure, with the USD/KRW exchange rate likely to stay above 1,400 in the near term, reflecting lingering political risks.
Bank of Korea May Act to Mitigate Instability
Given the heightened uncertainty, the Bank of Korea (BOK) may implement a 25-basis-point rate cut as early as its January meeting on the 16th. While the currency has recouped some losses, the BOK’s measures could help contain further depreciation of the KRW. However, analysts project that USD/KRW will maintain higher levels throughout most of 2025.
As South Korea grapples with this political crisis, the repercussions for its economy and leadership remain under close watch.
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