Domestic observers expect South Korea's economy to face challenges following the passing of a bill in the National Assembly to impeach President Park Geun-hye, after weeks of protests by South Koreans calling for her to step down.
Park was immediately suspended from state affairs on Dec. 9 following the vote, with the incumbent prime minister temporarily taking the reins of the country. The bill had passed with more than half of the ruling party voting in favor of impeachment.
The bill was proposed in the National Assembly on Dec. 2 by opposition parties, which accused Park of breaching constitutional and criminal law to benefit a confidante, Choi soon-sil. Choi allegedly exerted influence over state affairs and benefited financially as a result of her personal relationship with the president.
All eyes are now on the constitutional court, which has up to 180 days to consider the motion. After the court ratifies the decision, the country will hold a presidential election within two months.
S&P Global Ratings said Dec. 12 that the impeachment will have no material effect on South Korea's sovereign credit rating, with any impact on domestic economic sentiment likely to be temporary.
However, views from within South Korea are more pessimistic. Park's impeachment will result in great uncertainty for the country's economy, Kim Sang-jo, a professor in the economics department of Hansung University in Seoul and a civic activist advocating corporate reform, told S&P Global Market Intelligence.
"Until a newly elected president takes office, the government will be without a de facto control tower to tackle issues facing the economy," Kim said, such as the U.S. Federal Reserve's rate hike.
Aside from the Fed's rate increase, U.S. President-elect Donald Trump's seemingly protectionist stance on trade will be another burden for the South Korean economy in 2017, which is seeing record levels of household debt, Kim added.
The political turmoil could freeze domestic consumption, which would stall growth in the economy, said You Jong-il, a professor at the Korea Development Institute School of Public Policy and Management, a state think tank.
The South Korean economy and financial sectors have not been left untouched by the scandal, with one bank, KEB Hana Bank, drawn into the political firestorm early on. Park and Choi also allegedly exerted pressure on major conglomerates and institutional investors in the country.
They have been accused of pressing the National Pension Service to agree to the controversial US$8 billion merger of two Samsung Group units, Samsung C&T Corp. and Cheil Industries Inc., in 2015. The NPS was Samsung C&T's largest institutional investor at the time. The transaction was pushed through over opposition from foreign investors such as U.S. hedge fund Elliott Management Corp.
South Korean prosecutors had raided NPS and Samsung offices in a probe of the merger in November, Reuters reported Nov. 23.
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