When the history of this tumultuous week in South Korean politics is written, legislators who demanded the president rescind his declaration of martial law would surely be lauded. It is also worth standing back to examine the role that economics has played in the country’s transition to democracy and why that least-worst system of government survived.
The contribution of capitalism — its constraints and opportunities — has been vital. The rhythms of global commerce have been present at key points in South Korea’s journey. It is fair to say that without the thrills and spills of money, there would not have been a mature democracy to protect. That you may not have noticed is a testament to its success and durability.
Of all the potential year-end shocks that traders had gamed out, Tuesday night’s brief, but alarming events did not come close to making the cut. Markets were braced for social media posts on outlandish cabinet picks by US president-elect Donald Trump, new tariff threats and the prospect of a French government implosion, not an attempted coup by South Korean President Yoon Suk-yeol.
Illustration: Kevin Sheu
The reaction was swift, but contained: The currency tumbled in offshore trading, along with other assets tied to South Korea. By Wednesday morning, after lawmakers rebuked Yoon, the won had recouped losses and bonds were little changed.
Equities fell in local trading, but by no means was it a bloodbath. Regulators were ready to provide ample liquidity. Dramatic gestures such as shutting the stock exchange were eschewed, as were panicky moves such as further interest rate cuts. Officials backstopped the system without fuss.
That is the way it is supposed to work: Instill confidence, not sap it. Textbook central banking.
That does not mean the economy would sail smoothly. GDP rebounded slightly in the third quarter from a modest contraction in the previous three months. The Bank of Korea had already signaled its worries by unexpectedly reducing borrowing costs last week and making concerned noises about a resumption of trade wars. However, a cyclical downdraft is different from a shock that strikes at the heart of the administration. (When I wrote that the country was preparing for bleak days, the would-be putsch was not what I foresaw.)
The good news is that economics and political upheaval have often been strange bedfellows in South Korea — and elsewhere in Asia. As military-backed leaders in Seoul pushed rapid industrialization in the years after the 1950 to 1953 war that left the peninsula divided, it was almost inevitable that prosperity would bring with it a rising middle class that became more aspirational and demanded a greater say in how it was governed. The scrutiny that came with integration in supply chains, inbound and outbound investment, and the price demanded for access to global markets forced South Korea to clean up its act.
Booms also bring busts and Seoul came within an inch of default in the late 1990s during the Asian financial crisis. As wrenching as the meltdown was, it was also part of a big shift in the country’s politics. For the first time, a long-standing opposition politician, Kim Dae-jung, was elected president. Government figures tried to murder him during the dictatorship years, but US intervention kept Kim alive. His moment came and the transition to full democracy was complete.
As lawmakers debated the future of the now disgraced Yoon on Wednesday, former South Korean minister of trade Yeo Han-koo sat down with Bloomberg journalists in Singapore.
I asked him whether, from a historical vantage point, the ebbs and flows of capitalism were effectively the midwife to democracy in Korea.
“Absolutely,” Peterson Institute for International Economics senior fellow Yeo said. “There’s no turning back.”
Financial swings also led to a revolution and, ultimately, a freer system in Indonesia. It has not been perfect; the years after the International Monetary Fund imposed harsh conditions on loans that pushed autocratic, former Indonesian president Suharto out were marred by communal violence and efforts by far flung provinces to break away. Although Suharto’s son-in-law, Prabowo Subianto, now sits in the presidential office, he had to get there the hard way — via the ballot box. In Malaysia, former prime minister Mahathir Mohamad held on to power for a few years after the financial collapse, but the ructions it produced cemented Anwar Ibrahim as the leading alternative. Anwar became premier in 2022 and presides over a sprawling coalition that, against the odds, he has held together.
There are exceptions to these encouraging stories: China did not democratize as its economy flourished and markets took shape. If anything, it has gone in the opposite direction: Chinese President Xi Jinping (習近平) has accrued more personal authority than any leader since Mao Zedong (毛澤東). Perhaps the moral is you have to be very big to stand against the forces that thriving capitalism and an open economy unleash. Taiwan did manage the transition after decades of enviable growth.
Governance can take detours, as Koreans have found out. However, the necessities of operating within the global economic system also bring checks on the power of ambitious leaders. Let us salute the people of South Korea, but also the not-so-invisible hand of commercial priorities.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was executive editor for economics at Bloomberg News.
The Donald Trump administration’s approach to China broadly, and to cross-Strait relations in particular, remains a conundrum. The 2025 US National Security Strategy prioritized the defense of Taiwan in a way that surprised some observers of the Trump administration: “Deterring a conflict over Taiwan, ideally by preserving military overmatch, is a priority.” Two months later, Taiwan went entirely unmentioned in the US National Defense Strategy, as did military overmatch vis-a-vis China, giving renewed cause for concern. How to interpret these varying statements remains an open question. In both documents, the Indo-Pacific is listed as a second priority behind homeland defense and
Every analyst watching Iran’s succession crisis is asking who would replace supreme leader Ayatollah Ali Khamenei. Yet, the real question is whether China has learned enough from the Persian Gulf to survive a war over Taiwan. Beijing purchases roughly 90 percent of Iran’s exported crude — some 1.61 million barrels per day last year — and holds a US$400 billion, 25-year cooperation agreement binding it to Tehran’s stability. However, this is not simply the story of a patron protecting an investment. China has spent years engineering a sanctions-evasion architecture that was never really about Iran — it was about Taiwan. The
For Taiwan, the ongoing US and Israeli strikes on Iranian targets are a warning signal: When a major power stretches the boundaries of self-defense, smaller states feel the tremors first. Taiwan’s security rests on two pillars: US deterrence and the credibility of international law. The first deters coercion from China. The second legitimizes Taiwan’s place in the international community. One is material. The other is moral. Both are indispensable. Under the UN Charter, force is lawful only in response to an armed attack or with UN Security Council authorization. Even pre-emptive self-defense — long debated — requires a demonstrably imminent
Since being re-elected, US President Donald Trump has consistently taken concrete action to counter China and to safeguard the interests of the US and other democratic nations. The attacks on Iran, the earlier capture of deposed of Venezuelan president Nicolas Maduro and efforts to remove Chinese influence from the Panama Canal all demonstrate that, as tensions with Beijing intensify, Washington has adopted a hardline stance aimed at weakening its power. Iran and Venezuela are important allies and major oil suppliers of China, and the US has effectively decapitated both. The US has continuously strengthened its military presence in the Philippines. Japanese Prime
RSS