South Korea Passes Controversial Budget Bill Amid Political Turmoil

South Korea’s parliament, controlled by the opposition Democratic Party, approved a reduced government budget for 2025, intensifying tensions with President Yoon Suk Yeol’s administration. The unprecedented move sparked debates over economic and governance implications in Asia’s fourth-largest economy.

Key Developments

• The 673.3 trillion won ($470.60 billion) budget was approved by a 183-94 vote, slashing the government’s initial proposal of 677.4 trillion won.
• This marks the first time a budget has been passed without consensus between the government and opposition parties.
• The Democratic Party justified the cuts by targeting reserve funds, interest costs, and classified operations related to the presidential office, prosecutors, and auditors.

Government Response

• The administration criticized the cuts, warning they could cripple essential government operations, delay support for small businesses, and hinder responses to economic challenges.
• President Yoon cited opposition resistance to budgets as a rationale for invoking a short-lived martial law decree on December 3, leading to a constitutional crisis.

Economic Implications

• Economists expressed concerns that reduced government spending could hamper South Korea’s fragile economic recovery.
  • Citi analysts estimate a 0.02 percentage point reduction in annual growth due to the cuts.
• South Korea narrowly avoided a technical recession in Q3, grappling with slow export growth and weak domestic demand.
• The Bank of Korea projects economic growth to slow from 2.2% in 2024 to 1.9% in 2025 and 1.8% in 2026.

Opposition Perspective

• Democratic Party Leader Lee Jae-myung called the swift passage essential to resolving “unease and crisis.”
• Senior lawmaker Park Chan-dae emphasized that necessary spending could later be addressed via an extra budget.

Speaker’s Comments

Parliament Speaker Woo Won-shik criticized the government for its lack of cooperation during budget discussions, urging it to propose a supplementary budget for 2025.

Outlook

The political discord adds uncertainty to South Korea’s economic trajectory, with analysts highlighting the risk of delayed policy measures at a critical time. Collaboration between parties will be crucial to mitigate the impact of reduced fiscal spending and bolster economic stability.