Economists and political analysts alike argue that swift action is necessary to end the deadlock and reduce uncertainty that is wreaking havoc on financial markets.
At the heart of the political crisis is the stalled execution of an arrest warrant for President Yoon Suk Yeol, which has left the country in a state of limbo for over a month. The joint investigation team has formally requested Choi’s cooperation in executing the warrant, but he has yet to respond.
Analysts say the best way to stabilize the economy is to address the root cause of the instability - the ongoing political impasse. Acting President Choi has a critical role to play in ensuring the constitutional and legal processes move forward.
The political stalemate comes as South Korea faces broader economic challenges, including weakened domestic consumption and the threat of declining exports amid uncertain global conditions. Prolonged instability could exacerbate these issues, leading to capital flight, rising financial vulnerabilities, and deeper economic disruption.
The prolonged uncertainty has already taken a toll on South Korea’s economy. Foreign investors reduced their holdings of South Korean treasury bonds by roughly 3 trillion won ($2.3 billion) in December, according to the Ministry of Economy and Finance. Futures trading data show a dramatic sell-off of 18.7 trillion won in treasury bonds in December alone, marking the largest outflow in over three years.
The decline in bond prices has pushed yields higher, raising borrowing costs for the government at a time of record debt issuance. This year, officials plan to issue 197.6 trillion won in treasury bonds.
Meanwhile, the foreign exchange market is also under strain, with the won-dollar exchange rate surging over the past month. Some investment banks, including Japan’s Nomura Securities, project that the rate could reach 1,500 won per dollar by mid-2025.
"Foreign investors are dumping Korean bonds due to concerns over political instability and the depreciation of the won," an analyst said on condition of anonymity. "This creates a feedback loop that exacerbates market volatility and raises the government’s financial burden."
Acting President Choi has previously demonstrated a willingness to act decisively to safeguard South Korea’s international reputation, notably during his swift appointment of two constitutional court judges. Experts argue that a similar approach is now needed to address the current impasse.
“The acting president must prioritize resolving this political crisis to restore investor confidence and stabilize the economy,” said another analyst. “Failing to act could result in prolonged financial instability and further damage to South Korea’s global standing.”
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