South Korean President Yoon Suk Yeol said he will lift his martial law decree, giving in to the parliament’s opposition just hours after his dramatic move imposing it that shook markets and surprised other world leaders.
Yoon said in a televised address early Wednesday that he will “accept the National Assembly’s demand and lift the martial law through a cabinet meeting,” which he said he had called but its members hadn’t yet arrived. He will immediately lift the martial law when they convene, he said.
Yoon, 63, stunned the nation, lawmakers and investors earlier by declaring martial law in a high-stakes move he claimed would prevent the opposition from trying to paralyze his administration amid a political rift that’s now set to deepen markedly. The South Korean leader’s political future will be put to test after his daring move, which caught even his fellow party members and foreign allies like the US by surprise. South Korea’s opposition called for Yoon to step down.
Yoon “is now doomed to face impeachment,” said Rory Green, an economist at research firm TS Lombard who worked almost a decade in Asia. A presidential election will then be held, probably early in the second quarter of 2025, he said, and the opposition Democratic party will be “strong favorites” to win.
Amid thin trading in the New York session, the won dropped as much as 2.9% to 1444.65 per dollar on the martial law declaration before paring losses after authorities pledged to stabilize financial markets. Reaction to Yoon’s reversal awaited the opening of trading in South Korea.
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In his earlier televised address, Yoon said, “I request the National Assembly to immediately stop the reckless acts of paralyzing the functions of the state through repeated impeachments, legislative manipulation and budget manipulation.”
After Yoon announced he would lift the decree, South Korea’s Joint Chiefs of Staff said its troops that had been mobilized for the martial law declaration have returned to their original posts as of 4:22 a.m., Yonhap reported. No unusual activities have been spotted from North Korea, it added.
The move was viewed by analysts as a risky political play that was likely to backfire rather than an attempt to return to military-led regimes of the past. With his own government and party kept in the dark, Yoon created a chaotic moment that left him isolated and even further from controlling the political agenda going forward.
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Early Wednesday morning, 190 lawmakers in the 300-seat parliament unanimously voted to demand the lifting of martial law.
The president had said his move was intended to protect freedom and constitutional order, that it wouldn’t have an impact on South Korea’s foreign policy, and that it would help eradicate the influence of North Korean supporters.
A proclamation released after the address banned all political activities and strikes and said media would be subject to control of the Martial Law Command. Korean assets were battered during New York trading.
The finance minister and central bank chief met and promised to provide unlimited liquidity to markets if needed. The Bank of Korea will meet early Wednesday, just a week after a surprise rate cut partly triggered by heightened uncertainty generated by US President-elect Donald Trump’s election victory.
Adding to the sense of chaos, the nation’s largest union federation called a general strike in defiance of Yoon’s order.
The shock announcement to impose martial law for the first time since the democratization of South Korea in 1987 caught even Yoon’s own party off guard. Han Dong-hoon, leader of Yoon’s People Power Party, condemned the move and vowed to stop it, in a sign of the president’s increasing isolation and his lack of consultation.
The move also surprised the White House, prompting Deputy Secretary of State Kurt Campbell to say that the Biden administration was watching the developments with “grave concern.”
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Yoon’s abrupt decision came after months of wrangling and deadlock in parliament between the president’s minority government and the main opposition Democratic Party, but with little expectation that the president would take such a drastic step.
The opposition has been trying to force its budget proposal through parliament and has submitted an impeachment motion against the chief prosecutor after months of also trying to get Yoon’s wife prosecuted. Adding to the fractious political rift, the DP’s leader has faced multiple court cases and was convicted last month of election-law violations, barring him from running for president if it is finalized.
Amid the political standoff, Yoon had vetoed a string of bills passed by parliament and at times angering his own party. His latest act ramped up tensions considerably domestically, while also creating high uncertainty abroad for the outlook of one of the world’s key suppliers of semiconductors and a stalwart US ally in an increasingly complex security environment in Asia.
Koreans protesting the martial law outside the country's parliament / Photo: Bloomberg
Even though the martial law order lasted less than a day, the political instability it will generate is set to last two or three years, according to Lee Won-Jae, a sociology professor at at Kaist Graduate School of Culture Technology in Daejeon.
“Martial law has lost its effect, so from this moment on, all state institutions exercising physical force, including the military and police of the Republic of Korea, are obligated not to follow unlawful or unfair instructions,” Han, the leader of Yoon’s party, said in a Facebook post.
Yoon’s moves came at a time of high uncertainty for the nation as its trade-dependent economy faces potential tariffs from Trump’s incoming US administration. Bloomberg Economics estimates that full imposition of tariffs on China, South Korea and other US trading partners could reduce Seoul’s exports to the US by as much as 55%.
Meanwhile, North Korea continues to present a security concern as it deepens its ties with Russia, having sent thousands of troops there to help in Moscow’s war against Ukraine. Russia’s defense minister visited Pyongyang last week in the latest sign of talks between the two countries. Russia may help provide North Korea key technology for its weapons programs including its intercontinental ballistic missiles.
“We shouldn’t be fooled - this has nothing at all to do with North Korea and all to do with domestic politics,” said Defense Priorities Fellow Daniel DePetris.
China suggested its citizens residing in South Korea keep calm and try to avoid going outdoors for anything non-essential, the country’s embassy said in a post on social media Tuesday night. The embassy also asked Chinese citizens to comply with official orders from the Korean government and “use caution” over sharing political opinions.
“The domestic uncertainty adds to the external pressures in recent weeks as the market is starting to price in the rise of higher US tariffs under the new Trump administration,” said Aroop Chatterjee, a strategist at Wells Fargo. “Korea is an open economy sensitive to shifts in global export demand and spillovers from a weaker China.”
While it remains to be seen if the short-lived declaration of martial law will have a lasting impact on markets and the economy, Yoon’s high-stakes move is certain to knock confidence in his leadership and his reliability as a bullwark of democracy in a nation with many authoritarian neighbours.
“US officials look to South Korea now as a beacon of democracy so for a president to pull a fast one like this is certainly shocking and unprecedented,” said DePetris.
Bank of Korea’s monetary board, which unexpectedly cut the key rate last week, will also hold an extraordinary meeting Wednesday morning to discuss steps to shield the economy and markets.
“From a near-term policy standpoint, apart from the market disruptions, uncertainty could also arise in the event of cabinet changes,” Goldman Sachs Group Inc. analysts Goohoon Kwon and Kamakshya Trivedi wrote in a note Tuesday.
Markets jolted
The decision, Yoon said, was made to protect freedom and constitutional order, but the market’s early verdict was swift: South Korean-related ETFs, its currency and most actively traded stocks all sharply weakened, while US government bonds and even Bitcoin were also briefly caught up in a risk-off flight to quality.
Korean shares and the won then regained some lost ground after South Korean authorities vowed to provide “unlimited liquidity” to markets as needed and lawmakers voted to request lifting the shock measure, which Yoon ultimately agreed to do. Even so, the move, however brief, created fresh uncertainties within a major economy and pillar of global trade, keeping investors on edge.
“This is clearly going to raise longer term concerns about investing in Korea,” said Mark Ledger-Evans, an investment analyst at Ninety One UK Ltd. “There will need to be a higher risk premium.”
The iShares MSCI South Korea exchange-traded fund (ticker EWY) sank as much as 7.1% in US trading, while London-listed shares of Samsung Electronics lost as much as 7.5%. The onshore Korean won weakened as much as 2.9% to 1444.65 per dollar, leading losses among currency markets amid thin trading during the New York session.
“The domestic uncertainty adds to the external pressures in recent weeks as the market is starting to price in the rise of higher US tariffs under the new Trump administration,” said Aroop Chatterjee, a strategist at Wells Fargo in New York.
Trading volume for the $3.9 billion iShares MSCI South Korea ETF reached a record for any full day in the fund’s more than 20-year lifespan. About 32 million shares traded as of 1:45 p.m. in New York, about 17 times the 20-day average for this time of day.
Other South Korean ADRs also declined. E-commerce company Coupang Inc. fell as much as 9.8% in US trading, alongside losses in steel processor Posco Holdings Inc. and KB Financial Group Inc. The Korea Exchange, the nation’s main stock bourse, said Wednesday trading is under review.
The onshore won pared some of its losses, ending the session at 1428.50 per dollar. Still the currency remains the worst performer in Asia this year, weakening by more than 9%.
“Martial law feels like a bit of overkill,” said Mark McCormick, global head of FX and EM strategy at TD Securities in Toronto. “Seems like the goal is deflection, reflecting low approval ratings and a fair amount of scandals. Policymakers like to keep a grip on KRW, so I would expect some of the volatility to settle down after today’s big move.”
Tuesday’s is the first overnight shock for the won, which began trading extended hours in July amid authorities’ broad push to get its stocks and bonds included in more global indexes. Previously, trading in the currency was halted at 3:30 p.m. local time.
Investors should go long the US dollar as the uncertainty persists, said Win Thin, global head of markets strategy at Brown Brothers Harriman.
“President Yoon may have overplayed his hand but the situation remains fluid,” he said. “Coups in South Korea were a real thing when I was growing up but I think most (including me) believe the country had moved beyond that.”
The declaration of martial law will likely compound an already protectionist zeitgeist, according to Joe Gilbert, a portfolio manager at Integrity Asset Management, adding that he believes “a viable off ramp exists to ameliorate the situation with the Korean parliament.”
In the meantime, Gilbert said he’s watching semiconductor stocks, which he says may be winners in the short term if there is any disruption to chip production with the South Korean behemoth Samsung.
South Korean financial authorities said they will use all possible measures to stabilize markets, according to a statement from the authorities. The finance ministry pledged “unlimited liquidity” to the market and the Bank of Korea said its monetary policy board will hold an extraordinary meeting on Wednesday morning. A decision on whether the local stock exchange will open is expected at 7:30 a.m. in Seoul.
