'Dead Duck Black Hole' Economic Issues All Stop... Government Postpones Gyeongbang to Next Year

Budget Bill and Martial Law Situation Cause Delay
Economic Policy Direction Announcement Postponed to January Next Year
Major Bills Including Semiconductor Law Stalled in Bulk
If Chaos Prolongs, Export and Domestic Demand Slump Cannot Be Addressed
Trump 2nd Term Leaves Export Companies Helpless

Amid the backlash from the martial law incident and the ensuing impeachment turmoil, the core livelihood and economic policies promoted by the Yoon Seok-yeol administration are facing a major risk of collapse. If the political chaos prolongs, there are concerns that key economic policies will be sidelined, making it difficult to properly respond to export peak-out (a downturn) and sluggish domestic demand. Especially with the second term of the Trump U.S. administration about to begin, comprehensive government support is urgently needed for export companies. Structural reform policies aimed at overcoming the long-term low growth crisis of around 1% are also likely to be pushed to the back burner in a deadduck (a power vacuum more severe than a lame duck) phase beyond the lame duck (power leakage) stage.

According to related ministries on the 5th, the Ministry of Economy and Finance has changed its plan to announce the 'Next Year's Economic Policy Direction,' originally scheduled for mid to late this month, to January next year. The Economic Policy Direction is an annual schedule centered on seven economic ministries including the Ministry of Economy and Finance, which forecasts the economic situation for the new year and presents policy directions. Except for the 2024 Economic Policy Direction, which coincides with the replacement timing of the Deputy Prime Minister for Economy, it is usually announced in mid to late December.

The postponement of the announcement of next year's Economic Policy Direction to January is interpreted as reflecting concerns that the government's policy-driving power may weaken as the impeachment phase begins following the aftershocks of the martial law incident. With the deadlock over the budget bill, which has exceeded the legal deadline due to the martial law incident, expected to prolong, and the next year's budget and tax law amendments not yet processed, it is difficult to announce the new year's Economic Policy Direction. A Ministry of Economy and Finance official said, "We are working on establishing next year's Economic Policy Direction, and the announcement will be in January next year."

With the pressure for presidential resignation and the start of impeachment procedures following the aftershocks of the martial law incident, various economic policy initiatives are expected to be stalled due to political logic. Corporate wish-list bills such as the Semiconductor Special Act promised by the government and ruling party, the Power Grid Expansion Special Act, and the High-Level Radioactive Waste Management Facility Special Act have also been blocked by the martial law political situation. Amid growing external doubts about the competitiveness of domestic semiconductor technology and anticipated policy changes by major countries such as the reduction of subsidies under the U.S. CHIPS and Science Act (CSA), urgent government-level support for information sharing and countermeasure preparation is needed. However, as the impeachment turmoil deepens, discussions on deregulation and industrial support measures are likely to stall repeatedly.

The passage of amendments to the Income Tax Act and the Restriction of Special Taxation Act, which include the abolition of the financial investment income tax and the postponement of virtual asset taxation, has also come to a complete halt. Amendments to the Inheritance and Gift Tax Act, which include lowering the top inheritance tax rate from 50% to 40% and raising the child deduction from 50 million won to 500 million won, as well as amendments to the Commercial Act related to corporate governance improvement, are expected to be stranded in the National Assembly, which is mired in the impeachment turmoil. Although support measures for small business owners and self-employed persons and plans to enhance corporate dynamism, delayed due to the martial law incident, were announced on this day, it is uncertain how much momentum domestic demand stimulus measures can gain at a time when the government's policy-driving power has significantly weakened.

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The industrial sector is also in an emergency situation. With the second term of the Trump administration about to begin, concerns over tariff imposition and trade friction have become urgent enough to directly impact the export paths of domestic companies, but government support is at a standstill. An industry official said, "Diplomatic support at the government level is desperately needed for tariff risks and trade friction, but the government, absorbed only in partisan strife, is not proactive on this issue," adding, "With the martial law incident damaging the external image and increasing internal uncertainty, the situation is unpredictable."

Restructuring of the petrochemical industry, which is a golden time to avoid survival risks, is urgently needed, but the government, which should play a central role, is stepping back. The government recently announced plans to strengthen the competitiveness of the petrochemical business and planned to discuss them with the industry, but discussions have come to a halt due to the current situation. A petrochemical industry official said, "Facing structural limitations such as oversupply from China and being in a precarious situation, the longer the restructuring process is delayed, the more inevitable the decline in competitiveness of Korean companies in the global market."

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Experts expressed concerns that this incident could further drag down the already sluggish economic growth rate. The Korean economy has already entered a structural low-growth phase of around 1% due to export peak-out caused by the deterioration of competitiveness in key industries such as semiconductors and recession caused by domestic demand contraction. Amid declining economic fundamentals and the depreciation of the Korean won leading to capital outflows by investors, there are increasing concerns that the martial law incident could become a factor that increases the Korea discount as an investment destination.

Professor Kim Ji-hong of Yonsei University's Department of Business Administration said, "With added political uncertainty, our companies risk being excluded from global supply chains," and questioned, "Why would overseas companies decide to establish branches or factories in Korea or invest funds while enduring uncertainty?"

If the national leadership vacuum prolongs, the shockwaves of the leadership gap could intensify as the private sector may not follow the policies promoted by the government, making rapid resolution of the situation urgent. Professor Lee Yoon-soo of Sogang University's Department of Economics pointed out, "Economic issues are being deprioritized in the martial law political situation, and external credibility is declining, raising concerns about a possible downgrade of the national credit rating in the future."

This content was produced with the assistance of AI translation services.