South Korea: Major Business Disruptions Unlikely despite Presidential Impeachment

Tuesday Dec. 13, 2016

South Korea: Major Business Disruptions Unlikely despite Presidential Impeachment

Photo by: ​Brad Ko/Shutterstock.com

Executive Summary

South Korea's National Assembly voted Dec. 9 to impeach embattled President Park Geun-hye over a corruption scandal, initiating a trial at the Constitutional Court to decide whether to remove her from office within the next 180 days. Park has been relieved of her executive duties, and Prime Minister Hwang Kyo-ahn will serve as acting president during the impeachment process. The possible departure of President Park could significantly impact domestic and foreign policy, as the scandal has thrown the country's political alliances into disarray at a time when conditions already suggest that the opposition could win the next presidential election. The impeachment process and movement to oust Park will prolong uncertainty in the country in the short term; however, there is likely to be little impact on companies with operations in South Korea.

Key Judgments:

  • The impeachment process and wider scandal are unlikely to significantly impact multinationals operating in South Korea over the short to medium term.
  • The removal of President Park would increase the liberal opposition's chances of winning the next presidential election.
  • An opposition victory in the presidential election could trigger a considerable shift away from the ruling conservative party's aggressive domestic plans for public sector and labor reform and more assertive foreign policy agenda, particularly with respect to North Korea.

Corruption Scandal and Impeachment

South Korea's National Assembly voted 234-56 to impeach President Park for corruption Dec. 9, surpassing the required two-thirds majority to sanction the president. The vote was conducted by secret ballot, but the result indicates that at least 62 - nearly half of the members of Park's Saenuri Party - voted against her. Park has refused to resign and will instead await the outcome of the impeachment hearings before the Constitutional Court, which must decide the case within 180 days. If Park is forced from office or resigns, the South Korean Constitution requires a presidential election to be held within 60 days.

Park has admitted to allowing Choi Soon-sil, her friend and political confidante, to influence official matters of state, though Choi holds no formal office or title. According to investigators, Choi oversaw two nonprofit foundations that received around KRW 77.4 billion (USD 65.5 million) in donations from South Korea's 53 largest conglomerates, allegedly by using Park's name. Critics claim the foundations were set up as slush funds for the president and her inner circle when her term ends in February 2018.

The president continues to deny she has done anything illegal; however, a special prosecutor announced Dec. 11 that it had obtained evidence of her involvement in the scandal. The prosecutor recommended to an independent counsel investigation that bribery charges also be considered. The allegations will further cement Park's unpopularity with the electorate and could be a determining factor in the Constitutional Court's final decision.

It is unclear how long the Constitutional Court will take to decide on Park's impeachment. The court is comprised of nine judges, six of whom would have to rule in favor of removing the president from office. While six of the judges currently on the bench are considered to be allied with Park's conservative Saenuri Party, the recent uproar in the party over Park's scandal casts doubt on whether such a distinction will matter. Furthermore, the terms of two members of the court are slated to end within the 180-day window, a development that could benefit Park. While the acting president could move to replace the justices, it would likely provoke a strong public backlash. It is also possible that the court will await the findings of the independent counsel investigation. Investigators have up to 90 days to finalize and release their findings. These aspects of the impeachment hearings will ultimately determine the court's timeline, despite overwhelming public support for impeachment.

There is a recent precedent for impeachment proceedings against a sitting president. In 2004, the National Assembly voted to impeach President Roh Moo-hyun over an electoral law scandal. The Constitutional Court ruled in Roh's favor after a two-month process, and he was restored to office. However, the political pressure to remove Park, and the allegations she faces, are considered far more substantial than those faced by Roh.

President Park will remain under formal suspension during the hearings and has been relieved of all her executive duties. Prime Minister Hwang Kyo-ahn will be acting president until the court reaches a verdict. Hwang is a long-time supporter and political patron of President Park. Like Park, he is extremely unpopular among large segments of the electorate, and his leadership of South Korea's government is unlikely to have a notable effect on the ongoing stalemate with the opposition-led National Assembly.

Protests

The impeachment vote followed a groundswell of civic action and mass demonstrations in the weeks since the scandal emerged. Activists opposed to Park have staged weekly rallies in central Seoul, drawing hundreds of thousands of participants, as well as regular protests and sit-ins in cities across the country. The mass rallies, the largest protests in South Korean history, remained peaceful, unlike some recent labor and political protests.

Despite Park's impeachment, protests related to the corruption scandal are likely to continue until her status is formally resolved. Hundreds of thousands of people gathered in Seoul Dec. 10 to celebrate the National Assembly vote; however, many activists are still calling on Park to resign, and have pledged to maintain the protest campaign until she steps down. Park is one of the most unpopular leaders in South Korean history; a poll conducted after the National Assembly vote found that 81 percent of citizens supported her impeachment, and her approval ratings had plummeted to four percent before the Dec. 9 vote.

While it is probable that participation in the mass rallies in Seoul will steadily decrease, it is not guaranteed. Local assessments suggest that the scandal and the alleged role of the country's powerful conglomerates have awakened previously politically dormant segments of society, particularly South Korea's youth, who constitute a significant portion of the country's unemployed. Their engagement could sustain the anti-Park movement until the Constitutional Court's verdict. A failure to oust Park could further intensify demonstrations, and while widespread violence remains unlikely, targeted acts of vandalism and clashes with police could begin to occur.

Political Outlook
President Park's political demise will likely be the determining factor in South Korea's upcoming presidential election. While the poll is slated to take place in December 2017, a court ruling to impeach Park would trigger the start of a two-month period in which the next presidential election must be held. The political firestorm surrounding Park will increase the chances of an opposition party or coalition victory; however, South Korea's conservative parties have previously weathered similar, albeit less severe, scandals. The votes against Park by conservative Saenuri Party members in the National Assembly highlight an ongoing internal fissure in the party, which dates back to Park's decision not to allow some candidates to participate in parliamentary elections earlier in 2016. At least 11 independent members of the legislature were former Saenuri Party members, and the action cost the party its parliamentary majority. Calls for the party to abandon Park have been growing, and reports suggest that some lawmakers are preparing for a formal split of the party.

The impeachment proceedings and ongoing scandal are likely to bring to a standstill the Saenuri Party's aggressive economic reform agenda, which was championed by Park and her inner circle. Since taking office, Park pushed for wide-ranging public sector and labor reforms, all of which have faced stiff resistance from labor unions and liberal civic groups. Union leaders from several key industries have organized strikes and protests in recent months against Park's plan to implement a performance-based pay system. Workers from rail, healthcare, national pension services, energy, and other public-sector services have all held costly work stoppages, and Park's efforts to introduce structural reforms and deregulation have largely been stymied. Factors such as sluggish growth, organized labor resistance, reduced manufacturing output, and continued high unemployment have all contributed to Park's inability to enact her domestic agenda. Regardless of the outcome of the impeachment process, these major structural reforms are unlikely to be implemented under the Park administration.

The next president will have a defining role in shaping South Korea's domestic and foreign policy. Currently, presumptive frontrunners for the presidential election include UN Secretary-General Ban Ki-moon, Moon Jae-in, the chairman of the leading opposition Minjoo Party, and Ahn Cheol-soo, chairman of the opposition People's Party. Although Ban was ahead in some recent surveys, as a conservative, Park's scandal has tainted him somewhat in recent polls. Ban, however, benefits from not being officially aligned with any party, and his international prominence and widespread respect within South Korea could see him win the election, particularly if he can run as head of a retooled, scandal-free conservative party. Ban's likely intention to engage North Korea diplomatically would also help him with traditional liberals in the country.

However, as South Korea's parliamentary elections showed in April 2016, the electorate is increasingly worried about economic opportunity, much more so than national security, a balance that traditionally favors opposition parties. The winner of the next presidential election is likely to be the candidate who can convince voters that they are unwilling to maintain the status quo and will instead pursue policies to help reduce unemployment while maintaining stability on the peninsula.

Effect on Relations with the US, China, and North Korea

The mainstream center-left opposition coalition has frequently criticized the Park administration's focus on closer military ties and trade liberalization between South Korea and the US. Opposition leaders tend to advocate for improved relations with China and a less punitive approach to dealing with North Korea. They have been particularly critical of Park's strategy of favoring increasingly tougher sanctions on Pyongyang. An election win, or a strong political mandate for liberal opposition forces, could reshape South Korea's foreign policy stance. It is unclear how Pyongyang will respond to the impeachment vote and a perceived leadership vacuum, but Acting President Hwang Kyo-ahn has warned that North Korea could attempt to carry out provocations during the proceedings. Defense Minister Han Min-goo has also called for a heightened military posture over possible belligerence from North Korea. An opposition win could jeopardize the planned deployment of the US-backed Terminal High-Altitude Area Defense (THAAD) missile defense system. Plans to install the system have been met with steadfast opposition by South Korean opposition parties, as well as Beijing, and Moscow.

Conclusion

The South Korean political and economic environment is likely to remain tenuous over the short term while Park's fate is decided. However, the medium-term economic and operational impact of the impeachment scandal on multinationals operating in South Korea is likely to be minimal. Even if the opposition wins the presidency and expands its power in the legislature, any foreign policy shift or new domestic economic agenda would be unlikely to severely impact areas like foreign trade and investment, or present new barriers to market access. The ongoing focus on corruption in South Korea and the nexus between powerful business interests and top leaders is likely to intensify as a result of the Park influence-peddling scandal, and new and tighter regulations on corruption could be introduced. However, in the longer term, such reforms could improve competition, clarify the business operational environment, and provide multinational firms with additional investment and market access opportunities in South Korea.

Prior to joining iJET as a Senior Intelligence Analyst for the Asia-Pacific region, Gabe spent seven years working in the intelligence community as an analyst focused on China and East Asia. Before that, Gabe worked for the U.S. Foreign Commercial Service, Lenovo, and Plessas Experts Network (OSINT). Gabe holds a B.A. in East Asian Studies from Dickinson College, and an M.A. in International Affairs from American University. Gabe lived in China for four years, splitting work and study time between Beijing and Shanghai.

Prior to joining iJET, Lee worked as a Program Manager and Research Assistant in the Asia Division of the International Security Program at the Center for Strategic and International Studies (CSIS). He coordinated and managed a range of projects on U.S. relations in East Asia including alliance management with Japan and South Korea, U.S.-China coordination on DPRK (North Korea) contingency planning, and China-Taiwan cross-Strait dialogue. Prior to joining CSIS, he served as a Brent Scowcroft Award Fellow within the Aspen Strategy Group of the Aspen Institute in Washington, DC. 

Lee received his masters in international relations from the Elliott School of International Affairs at the George Washington University, and his undergraduate degree in international relations with honors from Claremont McKenna College. Lee is based out of iJET's Singapore Office. 

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