Asan Korea Perspective

Domestic Politics

The New Frontier Party (NFP) Splits

On Dec 27, 30 anti-Park members of the New Frontier Party (NFP)1, led by Kim Moo-sung and Yoo Seong-min, announced that they were leaving the “fake conservatives”2 and establishing “the New Reform Conservative Party” (NRCP). They also elected Joo Ho-young as the party’s new floor leader while Lee Jong-gu was named policy chief. The new conservative party will officially launch on Jan 24 and will have more than the 20-seat requirement to become a negotiating body in the National Assembly. This is the first time in 26 years that the National Assembly will be occupied by four major parties with negotiating power3. Floor leader Joo stated that he hoped to have 60 members by Jan 244, which is possible if former UN Secretary General Ban Ki-moon decides to join the party and convince more NFP members to defect. Even without Mr. Ban, however, more members, including Na Kyung-won, are expected to defect.5 In either case, the new party will likely have enough seats to surpass the People’s Party (PP, 38 seats) and become the third largest party behind the Together Democratic Party (TDP, 121 seats) and the NFP. Also, with more than 200 National Assembly seats being occupied by non-ruling parties, the NFP may not play any decisive role in important new reforms.6

Ban Ki-moon

Former UN Secretary General Ban Ki-moon all but formally announced his candidacy in the upcoming presidential election. During his final press conference as the UN Secretary General on Dec 20, he told the Korean correspondents that he would “sacrifice everything to help South Korea’s development.” At the same time, he dissociated himself from President Park and the NFP, and remained unclear about his party allegiance7. Meanwhile, the PP and NRCP have been warming to the possibility of having Ban run under their ticket.8 The recently established NRCP has been most active with Yoo Seong-min stating that he would “definitely bring UNSG Ban to the new party and conduct a fair presidential election.”9 According to recent poll results by Gallup Korea, Ban Ki-moon, Mon Jae-in, and Lee Jae-myung are the three leading candidates for the upcoming election10.

The Choi Soon-sil Scandal

The Constitutional Court

In a 26-page document submitted to the Constitutional Court, President Park laid out reasons why the impeachment decision by the National Assembly was unjust. According to the document11:
– There is no evidence that Choi Soon-sil was involved in state affairs. If her involvement had to be quantified, it would be less than 1% and, in the end, all decisions were made by President Park;
– Choi’s involvement in bribery and corruption had nothing to do with President Park;
– President Park never forced Korean conglomerates to contribute financially to the establishment of MIR and K-Sports Foundations;
– Accusation that President Park was involved in extortion is premature given that the investigation on this has been less than thorough;
– Choi was a member of President Park’s ‘Kitchen Cabinet’ and was simply a personal confidante of the President (many former presidents had their own ‘Kitchen Cabinets’);
– There were some inadequacies in responding to the Sewol ferry incident but that does not warrant an impeachment.

Former leader of the TDP and leading presidential candidate Moon Jae-in called the document “very embarrassing and humiliating.” He also added that President Park was “busy avoiding responsibilities” and that she “failed as the president of a country.”12

Lee Jae-myung, another leading presidential candidate and mayor of Seongnam City, labeled the document a “despicable attempt by a criminal president.” He also stated that “Park Geun-hye is the one person that I would like to handcuff and put in jail.”13

On Dec 22, the Constitutional Court held its first hearing on whether the National Assembly’s decision to impeach President Park was justified.

The Special Investigation Unit

On Dec 21, the special investigation unit led by Special Prosecutor (SP) Park Young-soo began its official inquiry into the scandal surrounding Choi Soon-sil.14 The investigation scope has been comprehensive with a number of individuals being summoned to testify. Numerous companies have been subjected to search and seizure raids. The list includes, but is not limited to, the following:
– Choi Soon-sil
– Choi Jae-seok (Choi’s brother)
– Jang Si-ho (niece of Choi)
– Kim Ki-choon (former Senior Presidential Secretary for Civil Affairs)
– Ahn Jong-beom (former Senior Presidential Secretary for Policy Coordination)
– Jung Ho-sung (former Senior Private Secretary to the President)
– Kim Jong (former Vice Culture Minister)
– Kim Sang-ryul (former Senior Presidential Secretary for Education and Culture)
– Cho Yoon-sun (Minister of Gender Equality and Family)
– Moon Hyung-pyo (head of National Pension Service)
– Jung Kwan-joo (former First Vice Minister of Culture, Sports and Tourism)
– Kim Jong-deok (former Minister of Culture, Sports and Tourism)
– Kim Jae-yeol (executive at Cheil Worldwide)
– Kim Young-jae (Director of Kim Young-jae Plastic Surgery Clinic)
– Cho Yeo-ok (former Presidential Nurse Officer)
– Mo Chul-min (South Korean Ambassador to France)
– Ministry of Health and Welfare
– National Pension Service
– Chaum Life Center
– Ewha Womans University
– Seoul National University Hospital
– Arts Council Korea

The first phase of investigation is focused on President Park’s bribery charges involving the Samsung and Cheil Industries merger.15 Moon Hyung-pyo, head of the National Pension Service, was the first individual arrested for his involvement in the merger deal.16 The Blue House is also expected to be the target of search and seizure.17

The special investigation unit has also filed a ‘red notice’ to place Chung Yoo-ra on the Interpol’s wanted list.18 Another request was filed with the South Korean Ministry of Foreign Affairs to invalidate Chung’s passport as well.19 Chung was subsequently arrested in Denmark.

The National Assembly Inquiry

The National Assembly Inquiry Committee held its fifth hearing on Dec 22. While former Senior Presidential Secretary for Civil Affairs Woo Byung-woo was in attendance, other key individuals such as Choi Soon-sil and former Senior Presidential Secretary for Policy Coordination Ahn Jong-beom failed to make an appearance citing health reasons20. The committee decided to hold the sixth and final hearing at the detention center where Choi and Ahn were detained21.

On Dec 26, 9 committee members visited the detention center to interrogate Choi but she declined to participate. Committee members then requested the detention center and the Ministry of Justice to allow them to interrogate Choi in her cell. Although the request was denied, Choi eventually agreed to participate in a closed hearing.22

During the private hearing, Choi apologized to the public for “causing chaos,” but denied knowing Kim Ki-choon, Woo Byung-woo, and Ahn Jong-beom. She also denied the accusation that establishing the MIR and K-Sports Foundations was her idea, and that she had asked Samsung for financial contribution. She admitted to being financially broke and that her daughter did not receive any preferential treatment during the Ewha Womans University admissions process. She added that her “life has not been that much fun” and that she was “ready to serve a life sentence.”23

Restructuring in 2017

Finance Minister Yoo Il-ho announced his intention to continue the restructuring of troubled sectors in 2017.24 In this spirit, the Ministry of Trade, Industry and Energy announced on Dec 21 that LG Chem along with four other small/midsize companies in the shipbuilding equipment sector were approved for expedited legal/administrative processing to implement voluntary restructuring.25 The Financial Services Commission (FSC) also defended its decision on Hanjin Shipping’s court receivership when Chairman Yim Jong-yong stated on Dec 27 that Hanjin had about KRW 2.5 trillion in debt and the company possessed no healthy assets.26 As part of the liquidation process, Hanjin has begun selling off its assets including the Long Beach Terminal which was announced on Dec 20 to be sold to the Swiss shipping company MSC.27

There are questions about the extent to which the government is willing to let the market forces dictate the terms of restructuring, however. The FSC, for instance, denied mergers of the Big Three shipbuilding companies due to an industry outlook that is predicting a demand spike in 2018.

Economic Outlook for 2017

Meanwhile, the Finance Ministry recently revised its growth outlook for 2017 to 2.6%, which is lower than the Bank of Korea’s forecast of 2.8%.28 Combination of domestic problems arising from corporate restructuring coupled with rising oil price and benchmark interest rate hike in the US as well as uncertainties arising from a Trump presidency and Brexit were all major factors in the revised forecast.29 The Finance Ministry has announced that the government will spend 31% of the budget in the first quarter of 2017 and increase financing of state supported banks by KRW 8 trillion.30 Inflation is expected to rise by 1.6% (up from 1% for 2016) and jobs are likely to increase by 260,000 (lower than 290,000 for 2016).

The Bank of Korea also raised some red flags by pointing out that the outstanding household debt has risen to a record high with private credit to GDP ratio at 197.8%, which is 3.4%P increase from 2015.31 Most disconcerting are the high interest loans taken on by low-credit borrowers, who accounted for 8% of all borrowers (KRW 78.6 trillion) as of the third quarter in 2016. A growing number of small and medium enterprises are also turning to high interest loans with SME loans from non-bank financial institutions making up KRW 76.6 trillion as of October 2016, which is an increase by 31% from 2015.32 Part of the reason for the rise in high interest rate loans are more stringent screening measures adopted by major banks.

In addition to frontloading government spending in the first quarter of 2017, the government has also announced that it will consider supplementary spending as it has done every year since 2013.33 If the government resorts to the use of supplementary budget in 2017, the Park administration’s reliance on this measure will surpass that of the Kim Dae-jung administration during the immediate aftermath of the Asian Financial Crisis.

The negative outlook is impacting other areas, such as immigration, where the government’s Foreign Workforce Policy Committee announced on Dec 22 that the number of E-9 visas for 2017 will be capped at 56,000 with 43,000 for new hires and 13,000 for re-entry.34 This number is a drop from 58,000 in 2016. According to a survey of 259 executives conducted by Korea Employers Federation, nearly 50% of the respondents stated that they will be focused on cost-saving while 73% planned to either scale back or maintain the same level of investment for 2017.35

Contributing Staff(in alphabetical order): J. James Kim, John J. Lee
Editor:J. James Kim

  • 1.

    “새누리당 비박계 29명 ‘개혁보수신당’ 창당 선언…’친박 패권주의와 결별, 새로운 보수의 집 짓겠다’,” 조선일보, 2016년 12월 27일.

  • 2.

    “새누리 34명 탈당…보수 전쟁 시작됐다,” 조선일보, 2016년 12월 22일.

  • 3.

    “보수 분열, 26년 만에 4당체제,” 중앙일보, 2016년 12월 22일.

  • 4.

    “창당 전까지 의원 60명 참여 희망,” 한겨레, 2016년 12월 27일.

  • 5.

    “非朴 오늘은 30명 안팎, 내달엔 2~3차례 연쇄 탈당,” 조선일보, 2016년 12월 27일.

  • 6.

    “새누리 뺀 나머지 200석 넘게 돼…개혁적 법안 등 진전시킬 여지 커,” 한겨레, 2016년 12월 22일.

  • 7.

    “‘한 몸 불사르겠다’는 반 총장…신당을 만들까 손을 잡을까” 중앙일보, 2016년 12월 22일.

  • 8.

    “박영수 특검 ‘박 대통령 조사, 한 번에 끝내는 것이 좋다’,” 중앙일보, 2016년 12월 16일.

  • 9.

    “유승민 ‘반기문 총장 꼭 모시고 공정한 대선 경선 치르겠다’,” 경향신문, 2016년 12월 25일.

  • 10.

    For poll results, please see Asan Korea Perspective Vol. 1, No. 25.

  • 11.

    “최순실은 키친 캐비닛…국정 관여한 건 1% 미만’,” 중앙일보, 2016년 12월 19일.

  • 12.

    “문재인 ‘박 대통령 답변서, 책임회피 급급…국가지도자 담지 않아’,” 중앙일보, 2016년 12월 19일.

  • 13.

    “이재명 성남시장, ‘대통령의 파렴치한 궤변’,” 중앙일보, 2016년 12월 20일.

  • 14.

    “박영수 특검, 보건복지부·국민연금 등 10곳 압수수색…朴 대통령·삼성 뇌물죄 정조준,” 조선일보, 2016년 12월 21일.

  • 15.

    “특검, 국민연금·복지부 압수수색 ‘삼성 뇌물죄’ 정조준,” 경향신문, 2016년 12월 21일.

  • 16.

    “문형표 前장관… 특검, 긴급체포,” 조선일보, 2016년 12월 29일.

  • 17.

    “특검, 청와대 압수수색 임박,” 조선일보, 2016년 12월 26일.

  • 18.

    “특검 최순실 딸 정유라 씨에 인터폴에 최고 단계인 적색수배 요청하기로,” 중앙일보, 2016년 12월 25일.

  • 19.

    “외교부 정유라 여권 반납 명령, 윤병세 ‘정유라 여권 제재하는 특검의 문서 접수했다…빠른시일 내에 범죄인인도청구 요청도 올 것’,” 조선일보, 2016년 12월 22일.

  • 20.

    “최순실 22일 청문회도 불출석…이번엔 ‘심신이 회폐?’,” 경향신문, 2016년 12월 21일.

  • 21.

    “최순실·안종범·정호성 찾아간다,” 중앙일보, 2016년 12월 23일.

  • 22.

    “‘최순실 감방서 청문회’ ‘인권 침해’…5시간 실랑이,” 조선일보, 2016년 12월 27일.

  • 23.

    “최순실 비공개 청문회 일문일답, ‘그렇게 신나게 살지 않았다. 종신형 받을 각오’,” 중앙일보, 2016년 12월 26일.

  • 24.

    “유일호 ‘내년에도 구조조정 모멘텀 이어갈 것’,” 연합뉴스, 2016년 12월 26일.

  • 25.

    “LG화학 등 5건 사업재편 승인… ‘어떤 정부든 제도 유지 할 것’,” 연합뉴스. 2016년 12월 21일.

  • 26.

    “조선업 구조조정은 풍선 바람 빼듯 서서히… 대우조선 청산했다면 더 큰 피해 났을 것,” 조선비즈, 2016년 12월 29일.

  • 27.

    “한진해운 미 롱비치터미널, MSC에 매각,” 동아일보, 2016년 12월 22일.

  • 28.

    “정부 내년 2.6% 성장 예측… IMF 때도 없던 기록 나오나?,” 동아일보, 2016년 12월 29일.

  • 29.

    “정부 내년 경제전망 3.0에서 2.6% 하향… ‘리스크관리에 주력’,” 조선비즈, 2016년 12월 29일.

  • 30.

    “정부, 내년 경제성장률 전망치 2.6%… 18년 만에 최저,” 조선일보, 2016년 12월 29일.

  • 31.

    “가계-기업 등 민간부채 GDP 2배 육박… 역대 ‘최고’,” 세계일보, 2016년 12월 27일.

  • 32.

    중소 ‘고금리’ 2금융에서 76조 빌려… 31%↑,” 연합뉴스, 2016년 12월 20일.

  • 33.

    “[2017 경제정책] 20조 ‘돈보따리’ 경제불씨 살릴까,” 에너지경제, 2016년 12월 29일.

  • 34.

    “내년 외국인근로자 유입 수 5만 6000명 예상… 경기침체로 전년대비 2000명↓,” 주간무역, 2016년 12월 23일.

  • 35.

    “대기업 CEO 60% ‘내년 긴축 경영’… 3명 중 1명 ‘차기 대통령은 사회통합형’,” 한국일보, 2016년 12월 18일; “최고경영자 절반 내년 ‘긴축경영’… 경제성장률 2.3% 전망,” 뉴스웨이, 2016년 12월 19일.