Seoul: South Korea’s parliament voted on Friday to impeach President Park Geun-hye over a corruption scandal, suspending her powers.
The Constitutional Court will decide whether to uphold the motion and remove Park from office or reject it and reinstate her.
The prime minister will be acting president until the court delivers a ruling.
What happens now?
The impeachment bill must be approved by the Constitutional Court to take effect. That process can take up to six months. While the review is underway, Park keeps her job but should delegate all her duties to the prime minister, a largely administrative and not-so-influential role in South Korea.
There is actually a good chance that the court will reject the motion – for starters, it blocked an impeachment move in 2004. For the bill to become official, at least seven of the panel’s nine members should be present, and six must vote for it. Two judges’ terms are set to end in January and March. That means if the review drags on longer, and if just one of the remaining judges is absent, the motion would be automatically nullified. In that case, it would also just take two “no” votes to kill the bill. That’s possible given the court’s leanings to the right.
Before the impeachment bill was introduced, Park said she was willing to resign voluntarily – that is, if parliament comes up with ways for her to “shorten” her term, effectively a tactic to minimize the stigma of impeachment. That would prove a tall task requiring a lot of maneuvering among politicians.
If the court does approve the motion, an election should be held within 60 days.
What does this mean for the economy?
The political turmoil, which began with an exposé by a broadcaster less than two months ago, has practically ended Park’s presidential career and all but paralyzed the government. The power vacuum, which won’t end until the next leader is in place, is a blow to a nation that was already facing slowing growth at home and abundant risks from overseas, not to mention the quixotic and unpredictable behavior of its neighbor, North Korea.
There’s been plenty of anecdotal evidence suggesting policymaking has stalled since the scandal erupted. To steer public attention from the crisis, Park in early November appointed a new finance minister. But he hasn’t been sworn in officially, and the old minister awkwardly remains in office. Local media report that negotiations over a currency swap deal with Japan have stalled because Tokyo doesn’t know who to speak to. The release of the government’s economic policy roadmap for 2017 has been pushed back to the end of the year.
All this comes amid potential headwinds, including a more protectionist United States under Donald Trump, a rising dollar and a likely rate hike by the Federal Reserve. During his campaign, Trump also pledged to make Seoul pay more for American military help. Domestic turbulence compounds the difficulty private sector enterprises face in drafting their annual business plans. Taking some of these woes into account, government think-tank KDI estimates South Korea’s economic growth will slow to 2.4 percent in 2017 from 2.6 percent this year.
What is the impact on markets?
Over the past two months, the won dropped more than 4 percent against the dollar. While emerging-market currencies have been weak across the board, investor wariness about the domestic political situation added to pressure on the won. Credit default swaps on 10-year South Korean government bonds touched a four-month high in November. The benchmark equity index Kospi also dipped to its lowest level in as many months in early November.
What are longer-term consequences of the scandal?
For the corporate sector, this could be a catalyst for governance reform, which can benefit investors. Prosecutors are probing whether the country’s biggest conglomerates, such as Samsung, won government favors in exchange for donations to murky foundations linked to Choi Soon-sil, a longtime friend of Park’s who has been accused of meddling in government affairs and using her relationship with the president for personal gain.
To cut such government-corporate ties, the next administration will probably want to enforce better governance at companies, a move that will cheer investors, including foreign funds like Elliott Management, which has rattled the cage at Samsung. The lack of checks and balances on management has weighed on stock prices, contributing to a “Korea discount” on valuations. If some of the reform measures in the works do materialize, firms would have more independent directors, and minority shareholders would have more power to keep management in check.