The Impact of Martial Law and the Jeju Air Tragedy on the South Korean Economy. Jeongmin Yoon, Economist (Intern) Incheon National University.
In December 2024, South Korea faced an unprecedented dual crisis: political instability triggered by President Yoon Suk-yeol’s imposition of martial law, and the tragic crash of a Jeju Air passenger plane. These events together precipitated significant disruptions across key economic indicators, notably exchange rates and the stock market. This study examines the economic fallout from these crises and proposes policy recommendations to facilitate recovery and strengthen economic resilience.
The declaration of martial law severely undermined the stability essential for economic functionality. The announcement prompted a sharp depreciation of the Korean won, as foreign investors reassessed the country's political risk, leading to substantial capital outflows. This depreciation weakened the won against the U.S. dollar, creating a mixed economic impact. While a weaker currency offered temporary advantages for export-oriented industries, Korea’s heavy dependence on imported raw materials and energy mitigated these benefits by raising costs in the manufacturing and consumer goods sectors. Rising production costs strained domestic consumption and fueled inflationary pressures.
In addition, political uncertainty dampened investor confidence, resulting in a withdrawal of funds and halting new foreign investments. This raised concerns about long-term financial market stability. While political instability has historically influenced Korea’s economy, this episode's severity was compounded by preexisting global economic challenges and restrictive monetary policies.
The Jeju Air tragedy, which resulted in 179 fatalities, had an immediate and profound effect on South Korea’s aviation and tourism sectors. Jeju Air’s stock value plunged in the wake of the crash, triggering a broader sell-off that affected other airlines. Heightened safety concerns led to a loss of investor confidence across the aviation industry, which spilled over into related sectors, including tourism, hospitality, and aircraft manufacturing. These industries saw declines in stock prices as investor sentiment soured. The compounded effect of these disruptions contributed to a wider stock market downturn, raising concerns about the economy’s recovery.
Additionally, the tragedy placed significant financial strain on the insurance sector. An increase in claims and compensation payouts burdened insurers, leading to a decline in stock valuations and exacerbating market instability. These disruptions not only posed immediate challenges but also heightened concerns over long-term growth prospects.
To mitigate the economic impact of these crises, the South Korean government must implement targeted and robust policy measures. First, following the cessation of martial law, efforts should focus on restoring investor confidence. Clear, consistent communication emphasizing political stability and governance transparency is crucial to reversing capital outflows and rebuilding market trust. Second, the Bank of Korea should strategically deploy foreign exchange reserves to manage currency fluctuations, helping to stabilize the won and contain inflationary pressures from import costs. Third, the government should introduce fiscal and monetary measures to stabilize the stock market, reduce sell-offs, and boost investor confidence. These could include market interventions and accommodative monetary policies to enhance liquidity. Fourth, targeted support for the aviation and tourism industries is vital. Strengthening aviation safety standards and providing financial assistance to affected companies are essential steps in rebuilding public and investor trust. International campaigns promoting Korea’s safety protocols and tourism appeal could further revitalize the tourism sector.
The events of 2024 highlight the profound economic vulnerabilities tied to political instability and large-scale disasters. The resultant fluctuations in exchange rates and stock market performance underscore the systemic risks posed by such crises. However, these challenges also present an opportunity to enhance South Korea’s economic resilience. Through decisive policy actions, the government can facilitate short-term recovery while laying the foundation for a more stable and robust economic framework. The lessons learned from 2024 should drive institutional reforms and improvements in economic governance, ensuring greater preparedness for future challenges.
The imposition of martial law and the subsequent public response underscored the deep-rooted value of democracy in South Korea. I personally participated in the protests calling for President Yoon's impeachment, witnessing firsthand the collective determination of countless citizens raising their voices for democratic principles. The experience was profoundly moving, highlighting the people's unwavering commitment to preserving their rights and freedoms. The connection between democracy and economic stability cannot be overstated; political uncertainty and authoritarian measures erode investor confidence, disrupt markets, and weaken the economic foundation. The widespread protests served as a testament to the resilience of South Korea's civil society, reinforcing the need for transparent governance and institutional safeguards. As the country works toward recovery, ensuring a strong democratic framework will be crucial in fostering long-term economic and political stability.
I hope for a swift return to peace and stability in South Korea, where economic growth and democratic values can coexist harmoniously.