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South Korean President Yoon Suk-yeol’s recent decision to impose and then withdraw martial law has created a political and economic storm.
This unexpected turn has shaken the country’s financial markets and put internal political divisions at the center of the debate.
The won, in free fall but with a slight recovery
On Tuesday, the South Korean won suffered a sharp depreciation against the US dollar. Although it managed to reduce some of its losses, the currency fell to its lowest level in two years. At its most critical point, the dollar rose as much as 2.7% against the won, before stabilizing with a rise of 0.9%.
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Evolution of the won in Tuesday’s session. Source: Google Finance
Yoon’s initial announcement to impose martial law, a measure not used in South Korea since 1980, sparked fear in the markets.
This temporary action, which gives the military control over the civilian population in times of emergency, generated uncertainty both nationally and internationally.
Why did South Korea declare martial law today?
South Korea declared martial law today as an extreme measure taken by President Yoon Suk-yeol.
In an unannounced speech, he justified the decision by accusing the political opposition of being allied with North Korea and seeking to destabilize the country. According to Yoon, the measure was necessary to protect the constitutional order against what he described as “anti-state forces” within Parliament. This action included the deployment of troops near the National Assembly, which generated significant clashes and political and social tensions.
However, martial law faced strong opposition both domestically and internationally.
International organizations such as the UN and foreign governments, such as the United States, expressed their concern about the situation and called for peaceful solutions respecting the rule of law.
A divided parliament and the annulment of martial law
Following Yoon’s statement, parliament acted quickly and rejected the measure, forcing the president to lift martial law. This decision was perceived as a victory for the opposition, which accused the president of exacerbating the political crisis.
Yoon singled out opposition lawmakers as responsible for controlling parliament and hindering the country’s progress.
These tensions have intensified amid negotiations over the 2025 budget, where Yoon’s People Power Party and the opposition Democratic Party have been in a prolonged stalemate.
Immediate economic consequences
The effects of this political crisis were quickly felt in the financial markets. Exchange-traded funds (ETFs) linked to South Korea and shares of South Korean companies listed in the United States suffered significant declines.
The MSCI South Korea ETF lost 1.6% at the close, after falling as much as 6.5% at the lowest point of the day. Among the most affected companies were Coupang, whose shares fell more than 3%, and Posco Holdings, which registered a drop of more than 4%. Minor declines were also seen in KT Corp. and KB Financial, with declines of 0.4% and 1.6%, respectively.
Evolution of the MSCI ETF in Tuesday’s session. Source: Yahoo Finance
Leadership under pressure
President Yoon, who took office in May 2022 after a narrow election victory, faces one of the most challenging moments of his term. With a foreign policy focused on a tough stance toward North Korea and strengthening strategic alliances with the United States and Japan, Yoon has prioritized national security. However, recent events have diverted attention to internal conflicts.
The attempt to implement martial law damaged confidence in his leadership and revealed a lack of consensus at a critical time. This extreme measure, which many perceive as unnecessary, has generated criticism both inside and outside the country.
Lessons for the economy beyond politics
The crisis in South Korea highlights the vulnerability of economies to political uncertainty.
For a country that is Asia’s fourth-largest economy, political stability is crucial to maintaining investor confidence and economic growth.
Global financial markets are watching this situation closely as South Korea plays a critical role in technology, the automotive industry and other strategic sectors. Any prolonged impact could have broader repercussions on the global economy.
Final reflection
The political chaos in South Korea serves as a reminder of how internal tensions can affect economic stability and financial markets. Yoon’s leadership faces significant challenges in the coming months, where he will have to balance his national security priorities with the need to restore confidence in his government.
For international investors and observers, this episode highlights the importance of solid governance and the need for quick and consensual solutions to unexpected political crises.
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