South Korea's Yoon must be suspended as soon as possible, ruling party leader says

South Korea's economy, already strained by slowing growth and concerns over U.S. trade policy shifts, now faces additional uncertainty following President Yoon Suk Yeol's brief declaration of martial law.

Before the political upheaval, South Korea's economic outlook was bleak. Its stock market ranks among the world's worst performers this year, its currency has significantly weakened against the U.S. dollar compared to other major Asian currencies, and economic growth has largely stalled.

The election of Donald J. Trump, with his promise of comprehensive tariffs, has exacerbated anxieties among South Korea's major exporters, who are crucial to the economy. This shift is particularly concerning as South Korea now exports more to the United States than China for the first time in over two decades, largely due to Washington's restrictions on selling advanced semiconductors and chip-making equipment to Chinese firms.

Last week, South Korea's central bank made a surprise interest rate cut, attributing the decision to "heightened uncertainties surrounding growth and inflation, driven by the new U.S. administration’s policies." Economic growth for the third quarter was a mere 0.1 percent from the previous quarter, following a 0.2 percent contraction in the second quarter.

Public opinion surveys consistently highlight dissatisfaction with Mr. Yoon's economic management as a major grievance during his increasingly unpopular presidency. On Friday, the leader of Mr. Yoon’s own party expressed support for the president's impeachment, scheduled for a vote on Saturday.

Immediately after the martial law decree, South Korean stocks and currency plummeted, though they partially recovered following Mr. Yoon's swift reversal. Since then, top financial officials have pledged "unlimited" market support and daily "emergency" meetings until stability is restored. They have urged investors not to be "overly anxious" and, on Friday, reported that market conditions were "generally stable."

Credit ratings agency Standard & Poor’s described the brief martial law imposition as "very unexpected" for a country with high creditworthiness. While investor confidence may take time to recover, the agency does not anticipate a short-term rating change.

 South Korea's ruling party leader said on Friday that President Yoon Suk Yeol needs to be removed from authority for trying to impose martial law, but stopped short of urging members to vote for impeachment.

Yoon shocked the nation and his own ruling People Power Party on Tuesday when he imposed martial law to root out "anti-state forces" and overcome obstructionist political opponents.

He reversed course about six hours later after parliament, including some members of his party, voted to oppose the decree.

The main opposition Democratic Party has scheduled an impeachment vote for Saturday evening, and the national police have launched an investigation into Yoon on claims of insurrection filed by an opposition party and activists.

Speaking after a People Power Party meeting at the parliament on Friday, leader Han Dong-hoon said Yoon had ordered the arrest of prominent politicians on the grounds they were among those "anti-state forces" during the martial law.

On Thursday, the ruling party said it was against impeachment, but Han suggested that stance may be shifting in light of "credible evidence" that Yoon had intended to arrest and detain political leaders at Gwacheon, just south of Seoul.

"I said yesterday that I would try not to pass this impeachment to prevent damage to the people and supporters caused by the unprepared chaos, but I believe that President Yoon Suk Yeol's immediate suspension of office is necessary to protect the Republic of Korea and its people in light of the newly revealed facts," Han said.

He did not explicitly call for impeachment or respond to reporters when asked for clarification.

Fearing another attempt to declare martial law, opposition lawmakers were rotating through parliament's plenary session hall to block any such attempt, a Democratic Party official said.

RULING PARTY MEETS

The PPP was holding an enlarged meeting with rank-and-file lawmakers to discuss Yoon's impeachment.

Cho Kyoung-tae, a senior ruling party lawmaker who supports Yoon's impeachment, told reporters that each party lawmaker must now decide "whether they want to take the people's side or become collaborators of martial law forces."

Others however said they did not want a repeat of the 2016 impeachment of then-President Park Geun-hye, which triggered the implosion of the conservative party and a victory by liberals in the presidential and general elections.

Yoon Sang-hyun, a five-time ruling party lawmaker, said he still opposed impeachment, complaining Han did not consult enough with senior party members.

"We cannot impeach the president tomorrow and hand over the regime to Lee Jae-Myung's Democratic Party. It is not for the sake of protecting President Yoon Suk Yeol, but for the sake of the Republic of Korea's system and our children's future. I cannot participate in the impeachment of the president tomorrow," Yoon told reporters.

Ahn Gwi-Leong, a spokesperson for the opposition Democratic Party, said she believed the people had already psychologically impeached Yoon.

Images of Ahn grappling with a soldier and grabbing hold of his gun outside parliament on Tuesday went viral on social media as a symbol of the country's defiance against martial law.

"Who could trust a president declaring martial law almost like a child playing games or entrust the nation to such leadership?" she told Reuters on Thursday.

Yoon's approval rating plunged to a new low of 13%, according to the latest Gallup Korea poll released on Friday.

 Minutes after South Korean President Yoon Suk Yeol declared martial law on Tuesday night, plunging the country into its worst crisis in decades, his stunned finance minister knew his priorities: throw everything at defending the currency.

By around 11 p.m., Choi Sang-mok, who was among the majority of cabinet members who opposed martial law, had set up an emergency meeting at the Seoul Bankers Club, an unofficial meeting place for top policymakers from the central bank, finance ministry, and banking and markets regulators.

As soldiers stormed the nation's parliament, Korea's top four financial authorities, known as F4, activated an emergency playbook that had been used during past crises, scrambling to head off a crippling selloff in the won before Asian markets awoke.

Choi led discussions between the authorities, three people familiar with the meeting told Reuters, with the Bank of Korea responsible for efforts to stabilize the currency.

The first announcement came swiftly. South Korea would inject unlimited cash into markets as needed, the finance ministry said, which pulled the won back from lows last seen in 2009 during the global financial crisis.

"It was BOK Governor Rhee Chang-yong's idea to put this message out quickly," one government official told Reuters, on the condition of anonymity. "Rhee said it was really important to pre-emptively act, as the news should be a bigger shock to foreign investors than for local people."

In the four decades since South Korea was last under martial law, the nation has weathered several crises and significantly evolved its systems to eschew the strongman politics of the past and focus instead on ensuring economic stability.

Lessons from the 1998 Asian financial crisis formed the basis for the playbook. That episode ran deepest for South Korea, a country hugely exposed then to short-term debt and a playground for foreign speculators, forcing it into what many Koreans saw as a humiliating rescue package from the International Monetary Fund. Citizens donated their gold to a depleted national coffer.

"We have had many crises. We experienced ups and downs through those crises, including the pandemic, and have a set of tools ready," said one Bank of Korea official, speaking on condition of anonymity.

The last time Korea's four big agencies intervened this heavily in markets was in 2020 as the COVID-19 pandemic toppled its export-driven markets.

Korea's current struggles with anemic growth, labor strikes, a budget impasse and the troubles of trade partner China meant authorities were already on heightened alert for sharp currency swings.

The won is down 9% this year against the dollar, while the KOSPI index has shed 8%, both lagging their emerging market peers. Foreign money has been leaving Korea's stock market since August, with outflows in four months topping $14 billion.

"They were obviously aware of the fact that there would be a little bit of panic, particularly from foreigners, and so they did the right thing," said Jon Withaar, who manages an Asia special situations hedge fund at Pictet Asset Management.

"This is now really what governments and central banks do now when they see these types of events, they just offer unlimited liquidity. That was the playbook in COVID."

'CONTROL TOWER'

Until this week, Choi was one of Yoon's conservative loyalists in the cabinet who served min multiple government positions since the president was elected in March 2022, starting as a secretary of the economy division.

He advanced to chief economic secretary, a position that allowed him to travel with Yoon around the world, before taking his current job in December 2023.

During this week's chaos, Choi was the "control tower", sources said, directing the messaging and responses through the next day and even as subsequent developments led to the entire cabinet offering to resign.

The detailed contingency plan has a long list of actions to take in every possible market scenario, beginning with the first set of reassuring messages to markets to specific funding and rescue operations, said one former policymaker who handled currency matters in the finance ministry.

All the same, martial law was not on the list of possible crises under this plan, other sources said.

Choi was at the cabinet meeting Yoon convened between 9 p.m. and 10 p.m. on Tuesday to discuss his martial law plans, which government official sources said most members opposed, or expressed concerns about.

Just hours earlier, Choi had been at a forum for global and local investors celebrating South Korea's inclusion in the FTSE Russell's benchmark WGBI bond index.

By 11 p.m. he had summoned his team to the Seoul Bankers Club. Choi was at the venue before everyone else, an official who went to the meeting said.

"Finance Minister Choi came from the presidential office cabinet meeting. He was fiercely opposed to this absurd plan," said another.

Kang Youngkyu, spokesman at the ministry, declined to comment when asked whether Choi had attended the cabinet meeting and opposed Yoon's martial law plans, but said he "led the F4 meetings around 11 p.m. on Tuesday and reviewed contingency plans with his colleagues throughout the night."

Announcements from the F4 followed in quick succession. The BOK said it will hold an extraordinary monetary policy board meeting in the morning, and the Financial Supervisory Service said it will deploy measures to stabilize markets.

By 1 a.m. in Seoul, parliament had declared the martial law decree invalid. The F4 persisted with measures, held overnight meetings with their deputies, met again at 7 a.m., and pledged to keep markets functioning normally while the financial regulator said it was ready to deploy a 10 trillion won ($7.06 billion) stock market stabilization fund.

The plan mostly worked. The won is off its two-year lows and Korea's stock market, one of the emerging world's worst performers this year, has lost just over 2.5% over the past three days.

BOK Governor Rhee expressed relief on Thursday.

"The good thing is that it could have really worsened how foreigners view (South Korea) if martial law had been in place for a very long time," he said at a press conference. "But this changed in just six hours."

($1 = 1,415.4600 won)