South Korean President Park Geun-hye’s announcement yesterday that she is willing to step down over a scandal raises a question among investors and economists: Who will be in charge of economic policy?
Park ousted her prime minister and finance minister earlier this month as the scandal over influence peddling deepened, and though they remain on the job in the interim, the process of approving their chosen replacements has been stalled since.
That means Park’s resignation could leave Asia’s fourth-largest economy rudderless at a time of rising challenges, including a new president in the US, South Korea’s second-largest trading partner, who has vowed fundamental changes to trade policies.
South Korea’s economy is already struggling to maintain growth. Its shipbuilding and steel industries are facing difficulties, and Bank of Korea governor Lee Ju-yeol has cited record household debt as a potential risk to financial stability.
The scandal has already hit consumer sentiment, which this month plunged to a seven-year low, meaning people are more pessimistic than the days when a deadly respiratory disease kept shoppers at home in 2015, and when a ferry sank in 2014, killing about 300 people, many of them school students.
Park said yesterday that she will let the parliament decide her term, indicating that she was willing to step down according to a plan set by parliament.
Park’s statement gives opposition and ruling parties a chance to discuss the next steps forward, said Kim Jung-sik, a professor of economics at Yonsei University.
“Now progress can be made to discuss the new prime minister and the finance minister, and let them take care of economic issues including responding to president-elect Donald Trump’s policies,” Kim said. Chang Jae-chul, a Seoul-based economist for Citibank Korea Inc, cautioned that uncertainty would linger until a new president is elected, posing downside risks to the economy.
The OECD said on Monday that it expects South Korea’s economy to expand 2.6% in 2017, lower than forecasts by the central bank and the government. Park’s single five-year term is due to expire in February 2018, with elections set for December next year.