March 16, 2017 10:00 am JST

Park's impeachment leaves South Korea adrift

Heightened regional tensions are not being helped by Seoul's power vacuum

KIM JAEWON, Nikkei staff writer

SEOUL South Korea's disgraced former President Park Geun-hye is gone. Hundreds of thousands took to the streets of Seoul to celebrate on March 11.

The eight-member Constitutional Court ruled unanimously to uphold Park's impeachment on the grounds that she had violated the constitution and broken the law by helping her longtime confidante, Choi Soon-sil, receive bribes from corporations. Lee Jung-mi, the acting chief of the court, said Park had betrayed the public by abusing her power and status.

The ruling has set the clock ticking for presidential elections to be held within 60 days. Several candidates are expected to run in the vote on May 9.

Moon Jae-in of the center-left opposition Democratic Party of Korea appears to have the edge, as the public looks set to swing away from Park's ruling conservative Liberty Korea Party, formerly known as the Saenuri Party. The human rights lawyer-turned-politician, who narrowly lost out to Park four years ago, now leads the polls, with support of more than 30%.

The front-runner's campaign focuses on reforming the country's hugely powerful family-owned conglomerates, or chaebol, and he has vowed to make them more transparent by severing the cozy ties they enjoy with the political elite. The Choi-gate scandal has put Samsung Electronics Vice Chairman Lee Jae-yong in jail. The de facto head of the country's largest company allegedly paid 43 billion won($37.1 million) to Choi to smooth over his succession as leader.

Moon insists he is right for the job, having never received any favors from Samsung or other business groups. He claims the Lee family have run Samsung as though it were their own "empire," controlling all aspects of the business despite only having a limited stake and taking no responsibility for its failures. He says the family's totalitarian leadership style needs to make way for democratic, professional management.

South Chungcheong Province Gov. Ahn Hee-jung, also of the Democratic Party, is hot on the heels of Moon, with support of 15%. He has promised to level the playing field between the chaebol and small- and medium-sized enterprises by imposing penalties on big corporations that exploit contractors.

Ahn is also intent on reforming corporate governance at the chaebol, seeking to resolve issues like crossholding ownership, and has promised to levy inheritance tax when owners of corporations want to hand them down to their heirs.

TESTING TIMES The campaign comes as tensions run high on the Korean Peninsula. Earlier this month, North Korea test fired four midrange ballistic missiles which fell in the Sea of Japan.

The actions drew strong protests from Tokyo, which described them as a "new level of threat." Japanese Prime Minister Shinzo Abe condemned the tests, saying they were "utterly intolerable." The assassination of Kim Jong Nam, the half-brother of North Korean leader Kim Jong Un, in a Malaysian airport also shocked the world.

Seoul's defense ministry said that Pyongyang conducted the tests to calm its political elite following the assassination. The regime also wanted to display a show of force in the face of the new U.S. administration's North Korean policy.

The ministry said that North Korea's nuclear and missile threats have become more dangerous since Kim took power five years ago. The country has fired 46 missiles on 28 occasions since the young leader's inauguration. The latest tests demonstrated a new solid-fuel launcher capable of firing missiles at various locations.

According to a 2016 white paper from the ministry, North Korea has deployed five types of short- and mid-range missiles in the field and is developing two mid- and long-range missiles. Pyongyang's Scud and Rodong missiles have a range of 1,300km, enough to target South Korea and Japan, while its mid-range Musudan missiles have a range of 3,000km and can reach U.S. bases in Guam.

The North is also allegedly developing an intercontinental Taepodong-2 missile, with a range of 10,000 kilometers that would put Los Angeles within reach.

At times like this, South Korea needs focused leadership on the diplomatic front, but its current foreign policy may be doing more harm than good.

The Park government had been at odds with Tokyo over historical issues. Two months ago, after a statue commemorating World War II "comfort women" was placed in front of the Japanese Embassy's consular office in Busan, the country's ambassador, Yasumasa Nagamine, was recalled and remains in Tokyo.

South Korea's relationship with the U.S. government is also in a precarious state, with nobody really sure if President Donald Trump will carry out campaign promises to make allies foot more of the bill for defense cooperation.

Pivotal to the relationship is the deployment of the U.S. Terminal High Altitude Area Defense system in South Korea. Seoul and Washington agreed last year to station the system in Seongju, in the southeast of the country, and two missile launchers have arrived.

China strongly opposes the move, claiming the system is a threat to national security. Washington, on the other hand, argues it is a necessary safeguard against a possible North Korean attack.

BUSINESS BARRIERS Beijing has imposed economic sanctions on South Korean companies doing business in the country. Lotte was hit hardest by the Chinese authorities as the Seoul-based retailer had reached an agreement with the defense ministry for one of its golf courses to be used for the THAAD battery base.

In China, operations of Lotte Shopping discount stores are suspended and group tours bound for the neighboring country blocked. The company said its 39 outlets in China have not been allowed to do business since March 4, a week after an affiliate of the company agreed to hand over the golf course.

South Korea's Asiana Airlines said flight bookings for March 15 to 31 from China fell 9.4% on the year. South Korea's second-largest carrier said it would cope with the slowdown by shifting focus to other markets.

China is a key market for the airline, with routes to the country accounting for 21.1% of its passenger ticket sales last year, slightly behind Southeast Asia, at 22.3%. Sales from the Americas accounted for 19.6% of the total.

But, it is not all bad news. South Korea's stock and foreign exchange markets have showed resilience since the court's ruling as investors bet on the country overcoming the turmoil.

"The mature institutions in South Korea will enable politics to revert to normal in due course. Any impact on domestic economic sentiments arising from the impeachment is likely to be temporary," said S&P Global Ratings in a statement.

The new leader will take the helm in tough circumstances and analysts expect the new government will have to earmark additional budget to boost the economy.

"After the presidential election in early May, we expect the government to announce a 2017 supplementary budget of 10 trillion won, or 0.6% of GDP, as early as June to offset the negative impact from falling tourist arrivals from China and corporate restructurings," said Kwon Young-sun, an economist at Nomura.


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