Republic of Korea: Impact of the Leadership Crisis and Security Threats on the Economy

25-11-2016

After decades of authoritarian military rule, South Korea — an East Asian nation on the southern half of the Korean Peninsula — has opened up politically. The current president, Park Guen-hye, faces a range of domestic problems. Recently, a corruption scandal triggered widespread protests and caused her approval ratings to plummet. The US continues to be an important ally in both economic and political terms, particularly in light of deteriorating relations with North Korea, whose nuclear programme has accelerated in 2016. Economically, South Korea, one of the world’s most rapidly aging societies, faces major challenges despite its strong growth and export record. Measures are needed to tackle low employment among women and young people and to support the elderly as well as to promote social inclusion. The large proportion of irregular workers on the labour market accounts for the big wage gap and high relative poverty rate. Economic restructuring in China, South Korea’s biggest trading partner, also has a spill-over effect. In July 2016, trade between the EU and South Korea was fully liberalised, apart from certain agricultural products, under the ambitious ‘second generation’ free trade agreement (FTA) signed in 2011. The FTA has benefited both sides. It does not contain an investment chapter and could be revised to incorporate one. However, public concerns in both South Korea and the EU would first have to be addressed.

After decades of authoritarian military rule, South Korea — an East Asian nation on the southern half of the Korean Peninsula — has opened up politically. The current president, Park Guen-hye, faces a range of domestic problems. Recently, a corruption scandal triggered widespread protests and caused her approval ratings to plummet. The US continues to be an important ally in both economic and political terms, particularly in light of deteriorating relations with North Korea, whose nuclear programme has accelerated in 2016. Economically, South Korea, one of the world’s most rapidly aging societies, faces major challenges despite its strong growth and export record. Measures are needed to tackle low employment among women and young people and to support the elderly as well as to promote social inclusion. The large proportion of irregular workers on the labour market accounts for the big wage gap and high relative poverty rate. Economic restructuring in China, South Korea’s biggest trading partner, also has a spill-over effect. In July 2016, trade between the EU and South Korea was fully liberalised, apart from certain agricultural products, under the ambitious ‘second generation’ free trade agreement (FTA) signed in 2011. The FTA has benefited both sides. It does not contain an investment chapter and could be revised to incorporate one. However, public concerns in both South Korea and the EU would first have to be addressed.