South Korea's economy is reeling after government rescinded martial law declaration

• South Korea's president, Yoon Suk Yeol, declared martial law in a shock address.
• He expressed frustration with paralyzing opposition forces within the government.
• After hours of unrest caused by the decision, Yoon rescinded the order.

In a stunning move that threw the nation into political and economic turmoil, South Korea's president, Yoon Suk Yeol, invoked martial law on Tuesday, only to reverse course hours later.

The decree, which brought temporary military control and the suspension of civilian government activities and civil liberties, marked South Korea's first declaration of martial law since the country's democratization in 1987.

The last time that a South Korean leader declared martial law was in 1979, in the aftermath of the assassination of the president. The resulting turmoil of this instance may be felt for some time.

Calls are growing for the president's resignation. Opposition lawmakers started the impeachment process on Wednesday afternoon by submitting an impeachment bill, local media reported.

After Yoon ordered martial law, South Korea's parliament voted unanimously to block the decree, declaring the move invalid, but martial law remained in effect. Yoon announced he would lift martial law and withdraw troops the following day. The Joint Chiefs of Staff then said that the deployed troops had returned to their original units. In the aftermath, Yoon's cabinet approved the reversal.

The reversal of the order wasn't enough to stymie economic anxieties that arose out of the unrest. On Wednesday, South Korea's Kospi Index opened lower and was nearly 2% lower one-and-a-half hours after the opening bell, before paring losses.

The won fell to its lowest level since October 2022 but trimmed losses in Asian hours.

Companies in the country, including South Korea's SK Group, a conglomerate of semiconductor and energy businesses, and Korean shipbuilder HD Hyundai, were hosting emergency executive meetings in the early morning hours on Wednesday, per Bloomberg.

"We are concerned that these events could impact South Korea's sovereign credit rating, although this is uncertain at this stage," wrote Min Joo Kan, ING Economics' senior economist in Seoul, in a research note.

The leader of Yoon's party said that the ruling party feels "deeply sorry to the public," adding that "the president must directly and thoroughly explain this tragic situation" and that those who called for martial law should be held accountable.

Yoon's chief of staff and more than 10 senior secretaries have offered to resign. The country's largest union, the Korean Confederation of Trade Unions, is on indefinite strike until Yoon resigns.

Why declare martial law?

Yoon indicated the move was necessary to counter North Korea, but the move appears to be at least partly political.

In a televised address, Yoon spoke of "anti-state forces," saying martial law was necessary to eliminate them quickly and "normalize the country." He criticized the country's opposition politicians, responding to a series of political setbacks that have frustrated his agenda.

Yoon has suffered from low approval ratings this year and has been described by critics as a "lame-duck president," as he holds the nation's highest office without a majority in its legislature.

His conservative People Power Party lost the general election in April, in which the rival Democratic Party of Korea took 175 of the 300 seats in the National Assembly.

The opposition majority in parliament last week voted to cut almost $3 billion from Yoon's 2025 budget, undermining his plans. The opposition has also tried to impeach three top prosecutors, The Associated Press reported. Yoon has also been involved in several scandals, including one in which the president's wife was accused of manipulating stocks.

Even as he reversed his decision on martial law, Yoon continued to criticize people he sees as frustrating his agenda, requesting in a later address that the National Assembly "immediately stop its reckless actions that paralyze the functions of the state through repeated impeachment, legislative manipulation, and budget manipulation."

The decision to invoke martial law led to parliamentary activity being prohibited, according to the country's government-funded Yonhap news agency. Anyone who violated the rules could be arrested without a warrant. The semiofficial South Korean news agency also said that media and publishers fell under the control of South Korea's military.

The provisions of martial law also allowed for the suspension of certain civil liberties.

What has been the political reaction?

Yoon's late-night announcement prompted protests outside parliament, with some lawmakers trying to climb its walls and intense criticism of Yoon for short-circuiting the country's democracy.

Han Dong-hoon, the leader of the ruling People Power Party, said imposing martial law was "wrong" and that he would "stop it with the people." South Korea's main opposition leader, Lee Jae-myung, described the move as unconstitutional.

Yoon was already an unpopular leader in Korea. Gallup's latest poll, released last week, showed his approval rating falling to 19%, per a poll of 1,000 adults.

He postponed his first scheduled meeting, about drugs, that was slated for Wednesday morning.

The unexpected declaration of martial law was said to have caught the Biden administration by surprise.

South Korea is a key US ally in the Indo-Pacific region and home to roughly 28,500 American service members, as well as numerous civilian workers and dependents.

"We continue to expect political disagreements to be resolved peacefully and in accordance with the rule of law," US Secretary of State Antony Blinken said in a statement after martial law was rescinded.

How was the economy affected?

Markets reacted immediately to South Korea's political crisis, with US-listed Korean stocks and the South Korean won taking a hit in overnight trade.

South Korean authorities rushed to reassure investors.

The country's finance ministry said on Wednesday it was standing ready to to deploy all necessary measures to stabilize the financial markets.

"We will inject unlimited liquidity into stocks, bonds, short-term money market as well as forex market for the time being until they are fully normalised," the ministry said in a statement.

The Bank of Korea held an emergency meeting on Wednesday morning. The central bank pledged to increase short-term liquidity and stabilize the markets.

Citi economist Kim Jin-wook wrote in a research note viewed by Reuters that the political turmoil could have "short-lived" effects for the market and economy with "proactive policy response."

Bloomberg reported Min Gyeong-won, an economist at Woori Bank, wrote in a research note that political uncertainty would disrupt investor interest in Korean assets like the Kospi and government bonds.

One notable stock surge amid the turmoil: Kakao, and subsidiaries Kakaopay and KakaoBank, were up on Wednesday. Billionaire founder Brian Kim was arrested in July on charges of manipulating a major K-pop agency deal last year.