Bank of Korea Governor: Trump's tariffs are more concerning than the martial law crisis
Lee Chang-yong stated that the impact of the martial law on the South Korean financial market is "temporary and relatively mild," and the tariffs imposed by Trump are one of the main reasons for our downward revision of growth forecasts for this year and next. Last week, the Bank of Korea unexpectedly cut interest rates, and Governor Lee Chang-yong also expressed concerns about the "red wave" in the United States
After a 6-hour emergency martial law turmoil, South Korea's capital market experienced a major earthquake, but the more dangerous situation may still lie ahead...
Recently, Bank of Korea Governor Lee Chang-yong stated in an interview with the Financial Times that the tariff policy proposed by U.S. President Trump poses a greater threat to South Korea's export-oriented economy than the domestic political crisis.
This week, due to President Yoon Suk-yeol's failure to successfully implement martial law, Lee Chang-yong believes this will delay "critical structural reforms" in South Korea's economy and financial markets. However, he also pointed out that the impact of the domestic political crisis on the economy is "limited" and there are many uncertainties, but external factors bring more uncertainties:
"Trump's tariffs are one of the main reasons for our downward revision of growth forecasts for this year and next."
However, before this week's "political turmoil," South Korea, as the fourth-largest economy in Asia, was already facing issues of weak domestic demand and high household debt, while also contending with increasingly fierce competition from foreign exporters.
Last week, the Bank of Korea unexpectedly cut interest rates, and Governor Lee Chang-yong expressed concerns about the "red wave" in the U.S. (Trump's victory and the Republican Party's success in Congress).
It is noteworthy that after Yoon Suk-yeol announced martial law on Tuesday night, although the iShares MSCI Korea ETF plummeted more than 6% at one point and the Korean won fell nearly 3% against the U.S. dollar, Lee Chang-yong emphasized that the impact of martial law on South Korea's financial market is "temporary and relatively mild." After holding an emergency late-night meeting with the finance minister and chief financial regulator, Lee Chang-yong promised to deploy "unlimited" liquidity in the South Korean financial market if necessary.
Early the next morning, Yoon Suk-yeol announced the withdrawal of martial law, and the South Korean stock market opened with volatility, but analysts believe that investors behaved relatively calmly, with the Korean Kospi benchmark index closing down only 2.23% compared to Tuesday's close. Lee Chang-yong said:
"Our swift and comprehensive preventive measures quickly calmed and stabilized the financial market."
Currently, South Korea is preparing to cope with ongoing political turmoil, as Yoon Suk-yeol will face an impeachment vote in the National Assembly on Saturday. In recent years, South Korea has experienced two presidential impeachment crises, in 2004 and 2017.
Lee Chang-yong expressed his "excitement" about an upcoming revision of commercial law aimed at better protecting minority shareholders' rights, although he acknowledged that the government's push for corporate governance will be delayed due to the political crisis