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As missiles fly, clock ticks for S.Korea's scandal-hit players

It's a big week for South Korea as a disillusioned public awaits updates on the fate of two major players involved in a corruption scandal that's rocked Asia's fourth-largest economy since late October.

The heads of South Korea’s most powerful companies appeared at a parliamentary hearing in Seoul in December as part of a corruption inquiry. The vice chairman of Samsung, Lee Jae-yong, fourth from right, was arrested on Friday on bribery charges.
Jeon Heon-Kyun | Pool | Getty Images
The heads of South Korea’s most powerful companies appeared at a parliamentary hearing in Seoul in December as part of a corruption inquiry. The vice chairman of Samsung, Lee Jae-yong, fourth from right, was arrested on Friday on bribery charges.

On Tuesday, the Constitutional Court is due to announce the date for its decision on President Park Geun-hye's impeachment, a move initiated after parliament voted to eject her from the nation's top elected spot in December.

The independent body, which held its first hearing on Dec. 22 and wrapped its final one on Feb. 27, could make its ruling as early as March 10 or March 13 before one of its key members, Acting Chief Justice Lee Jung-mi, retires on the latter date, according to analysts.

Meanwhile, Thursday marks the start of court proceedings against Samsung vice chairman Jay Y. Lee, who was charged with paying bribes worth $37 million to Park's confidante Choi Soon-sil in. Park and Choi are accused of securing donations from the nation's biggest enterprises, including Samsung, for foundations that backed Park's policies.

Against this tense political backdrop, North Korea's ballistic missile launches on Monday could potentially speed up Seoul's deployment of an anti-ballistic missile system, and subsequently worsen geopolitical tensions with Beijing.

"It's a critical time for the country," summed up Hank Morris, Asia Advisor at wealth management firm Argentarius Group.

A leadership vacuum

It's hoped that Park's impeachment case and Lee's arrest will become watershed events in South Korea's history of corporate governance and democracy.

"There is a serious public perception that the high and mighty are still above the law," said Sung-Yoon Lee, professor of Korean Studies at Tufts University.

Indeed, a deep history of crony capitalism and scandals among the country's political and business elites have left residents hungry for government policies curtailing the power of both groups—sentiments expressed in mass protests that followed once Park's scandal came to light.

"The fact that Jay Y. Lee was imprisoned under indictment, the first for a Samsung scion, has symbolic implications. It's a blow to the chaebol and shady government-business collusion," Lee continued.

But it remains to be seen whether Park's impeachment and Lee's trial will narrow the yawning gap between the elites and the ordinary public in South Korea's highly hierarchical Confucian society, he added.

If the Court approves Park's impeachment, that will trigger a special election that could bring left-leaning candidates from opposition parties to power. So far, former head of the Democratic Party Moon Jae-in boasts the highest approval rating among presidential hopefuls, scoring 36.4 support, according to a Realmeter survey of 2,025 South Koreans released Monday.

While average working-class citizens aren't sure about the opposition candidates, they are still willing to listen, said Morris. "Korean democracy has a shelf life of only 30 years. There is deep dissatisfaction within all elements of people so while Moon may be leading, there is still a struggle for politicians to get their views across because most people don't trust politicians."

In the unlikely scenario of the Court rejecting Park's impeachment, potentially violent street demonstrations are widely expected.

"If the Court rejects the motion, Park will likely serve out the remainder of her term, but her government will be a huge lame duck, with policy initiatives of any kind very difficult to advance," added Scott Seaman, Asia director at the Eurasia Group. "Elections will then be pushed back to December, which would give right-of-center parties a chance to regroup and find better candidates."

Role of chaebols in question

Thursday's trial of Samsung heir Lee, who was indicted on Feb. 28, could have far-reaching consequences for other chaebols, South Korean family-run conglomerates that dominate the economy.

Samsung aside, Lotte, SK Group, and Hyundai are among other major enterprises reported to have paid bribes in exchange for government favors. Analysts say prosecutors will go after Lotte or Hyundai next if a clear trail of evidence is found. The offices of Lotte and SK Group were
raided in November as part of the probe but no charges were made.

"Other chaebols contributed to the funds at the center of investigation, so it's likely Lee's trial will touch on other chaebol leaders and further investigations or indictments concerning other chaebols could crop up," said Morris.

Samsung's succession plan is another concerning factor, with several Korea-watchers noting that the tech giant's future leadership remains unclear if Lee's trial takes him out of the management picture.

Speedier THAAD deployment

In response to Pyongyang's firing of four ballistic missiles on Monday, South Korea has sped up its timeline to implement American anti-missile technology that it hopes will act as an effective safegurd against its hostile northern neighbor.

Known as the Terminal High Altitude Area Defense (THAAD) system, its deployment has already started, Washington said early on Tuesday. But that could trigger more economic retaliation from China, who has long voiced its opposition to THAAD.

"China's economic measures in response to South Korea's installation of THAAD are having an increasingly significant impact on the South Korean economy," explained Rajiv Biswas, Asia Pacific chief economist at IHS Markit, referring to the closure of four Lotte Mart stores in China and the order for Beijing operators to halt the sale of tour packages to South Korea.

"The South Korean economy is highly vulnerable to Chinese economic retaliation as China is its largest export market," Biswas continued. The mainland also accounted for almost half of South Korea's total international tourist visits in 2016, he noted.

For now, South Korea is maintaining an assertive stance on Chinese pressure.

"Responses in the press and among the general population to Beijing's coercive behavior appear broadly negative. Many voices in the South Korean press have accused Beijing of acting like a bully, and some commentators on South Korea social media are calling for boycotts of Chinese products," said Seaman.

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