Credit: Public domain.
It had been an open secret within South Korea’s business community that the Yoon Suk-yeol 윤석열 administration was sitting on poor economic news until after the April 10 General Election 총선. The days since the election have been a flood of bad economic news.
The Yoon administration had delayed publication of the 2023 budget accounting report based on a dubious interpretation of the National Finance Act 국가재정법. On April 11, the Ministry of Strategy and Finance 기획재정부 announced a budget deficit of KRW 87t (USD 62.8b), or 3.9% of South Korea’s gross domestic product - higher than the deficit at the time of the global financial crisis that followed the failure of Lehman Brothers. The soft economy dramatically reduced tax receipts, a problem further compounded by the Yoon administration’s drive for tax cuts.
Relatedly, the USD-KRW exchange rate is soaring. As of April 12, one USD equaled KRW 1,375 - a 21-won jump from the price the day before the General Election. Bank of Korea chief Lee Chang-yong 이창용 한국은행 총재 said the central bank will not intervene to stabilize exchange rates, which he blamed on the across-the-board strength of the US dollar. But the Korean won has seen the largest drop in value relative to Japanese yen or even Russian ruble since March 29.
The value of the US dollar has a direct bearing on electricity and gas prices, as South Korea imports virtually 100% of its fuel. The Yoon administration has avoided raising energy prices since last year, after power and gas price hikes in mid-2022 put pressure on the government. (See previous coverage, “Energy Price Hike Pressures Yoon.”) As the election recedes in the rearview mirror, it is inevitable that prices will rise to reflect market rates, further weakening support for the Yoon administration.