The detainment of South Korean president Yoon Suk Yeol and the start of the Constitutional Court’s hearings on his impeachment are important steps to resolving the political crisis that has engulfed the world’s 13th largest economy for the last six weeks.
Despite the lack of a new president for another six months (at best), Korea’s economic institutions and bullish experts counsel against panic. This is South Korea’s third impeachment case in the last two decades, after all, suggesting that economic markets, foreign investment and currency rates could perhaps make it through a political crisis with little long-term damage.
Nothing could be further from the truth. War, weak growth, and policy uncertainty around Trump’s return already threaten the Korean economy. An extended political crisis will make things worse, by preventing the government from taking necessary actions until it’s too late to do so.
If you just go by the economic data, there’s good reason to believe optimistic assessments about the Korean economy, like those from the Bank of Korea, that claim the impeachment crisis hasn’t caused major sell-offs or downturns in market confidence. The KOSPI index, which tracks the overall performance of the Korean stock market, dropped 2.9% in the first days of Yoon’s Dec. 3 decision to impose martial law. Yet markets stabilized within the week. The KOSPI ended 2024 down 4%, not much worse than the average 3.2% drop among other major indices (excluding the U.S.)
That performance tracks past impeachments, like Roh Moo-hyun’s in 2004 and Park Geun-hye’s in 2016, where financial and foreign exchange markets eventually stabilized.
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Similarly, glass-half-full experts blame the recent depreciation of the Korean won to the Federal Reserve’s slowdown on rate cuts rather than Korea’s political crisis. The Bank of Korea has attributed any growth slowdown (forecast now at 1.8% instead of 2.2%) to imminent Trump tariffs rather than a crisis of confidence generated by the ongoing impeachment battle.
These bullish assessments may maintain international confidence in Korea, but they also remove pressure on political actors to promptly solve the impeachment crisis. Predicting that the economy will be fine once the crisis is over will leave more space for partisan bickering that ultimately hurts South Korea.
First, conditions are not as favorable today as they were during previous impeachments. In 2004, China’s strong economic growth helped the Korean economy recoup its losses after the impeachment of President Roh. Then in 2016, strong chip exports helped save the economy after the Park impeachment.
In 2025, things are markedly less pleasant, with war in Europe, slowed economic growth in China, and export controls on semiconductors. It’s a much less forgiving environment for Korea’s economic recovery.
Second, an extended impeachment crisis will hurt an undeniably strong record of foreign direct investment in the Korean economy, which peaked at around $34 billion in 2024. After the Park impeachment in 2016, for example, total FDI in Korea shrunk by nearly half in just one quarter, or by $400 million when measured on a year-over-year basis.
Foreign investors are already jittery about today’s political crisis. Since the onset of the current crisis last month, they’ve sold off more than $2.3 billion in stocks and $11.6 billion in bonds.
Third, a highly polarized political environment will prevent the acting government from boosting confidence in the economy. Any policy action—whether incentives for FDI, emergency loans, repurchasing agreements, monetary expansion, or stock market stabilization—risks becoming the target of partisan bickering and even potential criminal investigation if it’s seen to privilege either the incumbent government or the opposition. This stops bureaucrats from advancing well-meaning policy measures.
Even the rosiest assessments of the Korean economy accept that a protracted political crisis could spell disaster. Time is thus of the essence.
The Constitutional Court can ill afford to take the full six months allotted to adjudicate impeachment. South Korea also can’t sustain a continued leadership vacuum that undermines economic confidence or leaves the country without answers to a second Trump administration. The incoming president has made no secret of his desire to impose tariffs on allies that enjoy trade surpluses with the U.S.; South Korea’s is $51 billion. Trump may also want to pursue renewed summit talks with North Korea over the heads of South Korea or, worse, withdraw troops from the peninsula as part of an America First policy.
The message is clear: South Korea needs to get its act together soon. A Korea that emerges too late from its self-absorbed political infighting will soon find itself in a new crisis that could span both its economy and its relationship with the U.S.
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