[Initial Insight] The Bill of Constitutional Violation and the Resilience of the Sovereign

The international perspective on the series of events following President Yoon Seok-yeol’s ‘December 3 Martial Law Declaration’ was dismal. In particular, the critique from the American economic media Forbes was sharply piercing and foretold an unavoidable reality. “The South Korean government’s likelihood of responding swiftly to the economic crisis has effectively vanished, and the executive branch will enter a realm beyond lame duck status, becoming forgotten. President Yoon’s selfish attempt will be paid for in installments over a long period by the 51 million South Korean citizens.”

The costs that the people will have to pay in installments over a long period. As an inevitable consequence, concerns about the price to be paid after this situation is somewhat resolved are already mounting. The government’s emergency measures, such as the immediate deployment of the 50 trillion won scale Stock Market Stabilization Fund (증안펀드) and Bond Market Stabilization Fund (채안펀드) if necessary, reflect this. Likewise, the Bank of Korea’s decision to purchase repurchase agreements (RPs) and inject funds directly into the market until stability is restored also reflects this. Although the government’s decisions seem to stabilize the domestic stock market and the won-dollar exchange rate immediately, the ‘bill’ will come in some form after several months.

At a critical time when meticulous preparations must be made through various channels for policies such as tariff increases under the second Trump administration, the South Korean government, centered on the acting presidential authority, cannot take active measures. Government uncertainty will persist until the presidential election, which is only a few months away following the impeachment decision, concludes. South Korea’s potential growth rate is expected to drop from 2% to the 1% range, and major industries including petrochemicals, electronics, and even semiconductors are scrambling as they are chased by China. Just a year ago, discussions about ‘Peak China’ analyzed its negative impact on the South Korean economy. However, now ‘Peak Korea’ has become a more likely scenario, and the situation is dire.

This situation and the impeachment phase are directly reflected in the financial markets. Although it was expected that the market would stabilize with the passage of the impeachment motion, on the first trading day after the motion’s approval on the 16th, the KOSPI index and the won’s value initially seemed to rebound but soon plummeted. Some global investment banks (IBs), including Nomura Securities, have forecast the won-dollar exchange rate to reach the 1,500 won level in the first half of next year. If political instability prolongs, much higher costs will inevitably be required to defend the exchange rate, and there are forecasts that the $410 billion foreign exchange reserves could quickly shrink. This is the process of socializing the risks caused by the leader’s wrong choices.

Participants are shouting slogans at a rally calling for impeachment held on the 14th in front of the National Assembly in Yeouido, Seoul, where the second impeachment vote against President Yoon Suk-yeol is scheduled. Photo by Heo Young-han

It is not only tangible assets that are problematic. It is difficult to estimate the additional costs required to restore the fallen national credibility. Immediately after the martial law incident, the U.S. Secretary of Defense canceled a visit to South Korea, the Prime Minister of Sweden and the Defense Minister of Kazakhstan changed their visit schedules, and a Saudi Arabian prince’s delegation canceled their trip. Furthermore, global diplomatic authorities have added South Korea to the list of travel advisory countries, which are typically issued for nations experiencing internal conflict, war, or civil unrest. The once advanced democracy and one of the safest countries, South Korea’s image is highly likely to be diluted through this incident, according to public opinion.

The heads of the Ministry of Economy and Finance, Financial Services Commission, Financial Supervisory Service, and Bank of Korea have hurriedly conducted interviews with major foreign media and supplemented communication channels with key overseas institutions, but it remains uncertain whether the damaged trust can be restored. Even if the existing cabinet claims it will resolve financial instability with the capabilities of the South Korean government, a cold analysis suggests that almost no country will immediately agree given the diminished trust in the ‘counterpart.’

President Yoon’s martial law declaration, which violated the constitution, caused extreme uncertainty, and the astronomical tangible and intangible costs incurred in the process are irreversible. Neither orderly resignation, a national unity cabinet, nor various task forces (TFs) or unlimited liquidity supply as temporary measures can resolve this. Through a swift process that everyone can accept, predictability must be increased together with the people to maintain at least minimal trust in the national system. The impeachment procedure against President Yoon, the minimum condition for activating the resilience of the sovereign people, has only just begun in earnest.

On the 16th, the Constitutional Court in Jongno-gu, Seoul, is conducting related procedures for a swift trial ahead of the full impeachment trial of President Yoon Seok-yeol. Photo by Kang Jin-hyung

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