The Bank of Korea (BOK) has submitted its “Political Uncertainty Index” to the National Assembly, revealing that the level of domestic political uncertainty remains higher than before the martial law situation. On April 13, the index recorded a weekly moving average of 2.5, still exceeding the long-term average and higher than before martial law was declared. The Political Uncertainty Index, compiled by the BOK’s research department, analyzes the number of news articles that include the words “political” and “uncertainty” in their headlines or content. With the baseline set at 0, representing the long-term average since January 1, 2000, an increase in the index suggests that political uncertainty has expanded beyond historical averages.
The index, which was only 0.4-0.5 in early December last year, rose sharply right after former President Yoon Suk-yeol declared martial law, reaching an unprecedented level of 12.8 on December 14 of the same year. It climbed again to 12.4 on January 2 amid heightened tensions over the execution of an arrest warrant for former President Yoon. Although it stabilized to 1.4 by late February, it surged again around the time of the impeachment verdict earlier this month. While the index has generally declined since the impeachment of former President Yoon, it remains considerably high compared to six months ago when it was in negative territory.
Previous peaks in the index include 8.8 right after the impeachment motion against the late former President Roh Moo-hyun was passed on March 17, 2004, and 6.2 following the passage of the impeachment motion against former President Park Geun-hye on December 13, 2016. Domestic political uncertainty continues to be cited as a factor weighing on the South Korean economy, already facing a low-growth crisis. Bank of Korea Governor Lee Chang-yong stated in January that political reasons such as martial law have led the won/dollar exchange rate to rise about 30 won higher than the fundamentals suggest. The political turmoil ahead of an early presidential election is expected to impact the economy in various ways. Moody’s, an international credit rating agency, stated in its recent report that while the impeachment of former President Yoon may have opened a path to fill the leadership vacuum, it won’t fully resolve the political and economic uncertainties. Barclays also noted that although the impeachment is finalized, the political uncertainty and extended risks leading up to the presidential election are likely to cause volatility in exchange rates.
Im Gwang-hyeon, a Democratic Party lawmaker, warned that although the impeachment process is complete, the unstable acting presidency, coupled with internal and external factors such as growth slowdown and tariff wars initiated by Trump, is increasing risks.