Contraction in Financial Market Due to Impeachment Seen as Temporary

How do foreign investors view the economic consequences of the Assembly vote to impeach President Roh? Many foreign investment banks do not believe the incident will have much effect on the Korean economy.

According to both direct and indirect research conducted on Sunday by the Ministry of Finance on responses of overseas financial markets and foreign news to the Assembly vote to impeach Roh, foreign investment institutions have analyzed the economic effect of impeaching the president to be limited.

American investment bank Bear Sterns said in its analysis report on the effect to impeach that “the basic motivation for filing the impeachment vote was related to the investigation of the Grand National Party’s illegal election funds and the split in the Democratic Party,” adding that “although the impeachment is a negative factor, political instability in Korea has been well known ever since last year, hence the economic shock will be limited.”

In addition, Bear Sterns said that “the conversion to the substitution system of Prime Minister Goh Kun as the Acting President will improve the operations of the administration since it would aid in leaving out political influences in the decision making process.” Bear Sterns also commenting that “based on the past performance of Goh, we are confident of his capability.”

Goldman Sachs said that “the contraction in the financial market from the impeachment is temporary” and that “we still maintain our initial expectation that Korea will enter its recovery stage this year.”

Goldman Sachs diagnosed that despite the impeachment incident, Korea has the potential to achieve 6 percent economic growth, and the Composite Stock Index has the potential to break the 1,000 level.

JP Morgan emphasized that “not only the strong leadership of finance minister Lee Hun-jae, but that of related authorities as well are expected to put their best efforts to stabilize the financial market.”

Japan’s Nomura Securities forecasted that “although the impeachment vote will bring negative effects to the credit rating, the national credit ranking is not expected to fall at the present moment.”

Prior to such remarks, the three international credit rating companies: America’s S&P and Moodys, and England’s Fitchratings, have already made similar comments on Friday that “the impeachment vote will not affect the national credit rankings.”

In relation to the incident, Minister Lee said at a press conference on Sunday that “foreign credit ranking institutions are interested in the ability to make policy changes and to eliminate uncertainties,” adding that “the credit ranking agencies believe that the Korean government has the capability to take care of current issues such as poor management of credit card companies, credit delinquents, and household loans.”

Chi-Young Shin higgledy@donga.com