(Bloomberg) -- South Korea’s finance minister says fears the nation will slide into a recession next year are “excessive,” as he played down the view that this week’s bungled martial law decree will have a lasting impact on the economy or markets.
“Recent emergency measures were quickly lifted in accordance with the constitution and the law, so I think the impact on the market was very limited,” Choi Sang-mok said in an exclusive interview with Bloomberg on Thursday.
Choi also discounted the idea that investors will look to avoid South Korea going forward due to the political instability, while insisting the government will continue to push ahead with efforts to revise legislation to make sure companies give shareholders more consideration.
The finance minister’s comments build on repeated reassurances from government and central bank officials that President Yoon Suk Yeol’s shock attempt to take direct political control will not damage the economy or investors’ confidence in South Korea.
South Korea will keep pushing for reforms in foreign exchange and stock markets “regardless of the recent political situation,” the government said in a statement after Choi met with Bank of Korea Governor Rhee Chang-yong on Friday morning.
Officials also pledged to complete their remaining tasks to follow through with the decision by the FTSE Russell to include South Korea in the World Government Bond Index, it said.
The main Kospi stock index opened 0.71% higher on Friday before losing its gains and slipping into negative territory. The won remained relatively range-bound, staying around 1415 per dollar. That’s still weaker than before the martial-law turmoil erupted.
Doubts remain about the ability of Yoon’s administration to restore faith in the political process and to move forward with any major policy initiatives when he faces an impeachment vote, gridlock in parliament and opposition from within his own party.
The domestic political crisis comes at a sensitive time for South Korea with authorities bracing for US President-elect Donald Trump’s second term and his vow to slap tariffs on trading partners. That has made export-reliant countries such as South Korea vulnerable to protectionism.
A Bloomberg survey conducted after Yoon’s move showed economists see a 33% chance of recession in South Korea in the next 12 months.
Choi disagrees. He cited International Monetary Fund and Bank of Korea forecasts for next year showing growth at or near the economy’s potential level. The central bank sees growth of 1.9% in 2025, a figure it lowered out of concern over the potential impact of protectionist policies on global trade.
Only 18% of those surveyed said they would revise their growth forecasts due to the current political turmoil.
“Foreign investors’ investment in Korea is affected by fundamentals of the nation’s economy,” Choi said. “Because the country’s system is working well, the impact of the non-economic-related situation on the Korean economy has been very limited and well managed.”
Choi reiterated that the government will act swiftly if volatility in financial market rises. He avoided mentioning specific levels for the currency. The finance minister already promised on Wednesday to use all available measures to stabilize financial and foreign-exchange markets if needed, with “unlimited liquidity” on the table.
The political upheaval has also raised concerns about the government’s ability to push through its so-called corporate value-up plan to tackle the nation’s low stock valuations.
“Recently there have been some cases where shareholder protection has become an issue,” Choi said. “Therefore the most important thing is to revise the capital market act to make effective improvements to these areas.”
Proposed changes to the act would beef up M&A rules to better protect shareholders while limiting the requirements to listed firms to avoid burdening smaller businesses.
The opposition Democratic Party, including party leader Lee Jae-myung, argues that the commercial code should be revised instead. The party wants directors to have a legal duty to act in the interests of shareholders.
“It is difficult to agree with the claim that revising the capital market act is insufficient to protect shareholders, and that amending the commercial code will strengthen shareholder protection,” Choi said.
--With assistance from Myungshin Cho, Sarina Yoo, Emily Yamamoto, Shinhye Kang, Sohee Kim, Daedo Kim, Andy Hung, Aarti Jitender, Katria Alampay and Sam Kim.
(Updates with statement from government, economist comments, chart and latest market situation.)
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