Explained | South Korea's crisis playbook

Seoul: Minutes after South Korean President Yoon Suk Yeol declared martial law on Tuesday night, plunging the country into its worst crisis in decades, his stunned finance minister knew his priorities: throw everything at defending the currency. By around 11 pm, Choi Sang-mok, who was among the majority of cabinet members who opposed martial law, had set up an emergency meeting at the Seoul Bankers Club, an unofficial meeting place for top policymakers from the central bank, finance ministry and banking and markets regulators.

As soldiers stormed the nation's parliament, Korea's top four financial authorities, known as F4, activated an emergency playbook that had been used during past crises, scrambling to head off a crippling selloff in the won before Asian markets awoke.

Choi led discussions between the authorities, three people familiar with the meeting told Reuters, with the Bank of Korea responsible for efforts to stabilise the currency.

The first announcement came swiftly. South Korea would inject unlimited cash into markets as needed, the finance ministry said, which pulled the won back from lows last seen in 2009 during the global financial crisis.

"It was BOK Governor Rhee Chang-yong's idea to put this message out quickly," one government official told Reuters, on the condition of anonymity. "Rhee said it was really important to pre-emptively act, as the news should be a bigger shock to foreign investors than for local people."

In the four decades since South Korea was last under martial law, the nation has weathered several crises and significantly evolved its systems to eschew the strongman politics of the past and focus instead on ensuring economic stability.

Lessons from the 1998 Asian financial crisis formed the basis for the playbook. That episode ran deepest for South Korea, a country hugely exposed then to short-term debt and a playground for foreign speculators, forcing it into what many Koreans saw as a humiliating rescue package from the International Monetary Fund. Citizens donated their gold to a depleted national coffer.

"We have had many crises. We experienced ups and downs through those crises, including the pandemic, and have a set of tools ready," said one Bank of Korea official, speaking on condition of anonymity.

The last time Korea's four big agencies intervened this heavily in markets was in 2020 as the Covid-19 pandemic toppled its export-driven markets.

Korea's current struggles with anaemic growth, labour strikes, a budget impasse and the troubles of trade partner China meant authorities were already on heightened alert for sharp currency swings.

The won is down 9 per cent this year against the dollar, while the KOSPI index has shed 8 per cent, both lagging their emerging market peers. Foreign money has been leaving Korea's stock market since August, with outflows in four months topping $14 billion.

"They were obviously aware of the fact that there would be a little bit of panic, particularly from foreigners, and so they did the right thing," said Jon Withaar, who manages an Asia special situations hedge fund at Pictet Asset Management.

"This is now really what governments and central banks do now, when they see these types of events, they just offer unlimited liquidity. That was the playbook in Covid."

'Control tower'

Until this week, Choi was one of Yoon's conservative loyalists in the cabinet who served multiple government positions since the president was elected in March 2022, starting as a secretary of the economy division.

He advanced to chief economic secretary, a position that allowed him to travel with Yoon around the world, before taking his current job in December 2023.

During this week's chaos, Choi was the "control tower", sources said, directing the messaging and responses through the next day and even as subsequent developments led to the entire cabinet offering to resign.

The detailed contingency plan has a long list of actions to take in every possible market scenario, beginning with the first set of reassuring messages to markets to specific funding and rescue operations, said one former policymaker who handled currency matters in the finance ministry.

All the same, martial law was not on the list of possible crises under this plan, other sources said.

Choi was at the cabinet meeting Yoon convened between 9 m and 10 pm on Tuesday to discuss his martial law plans, which government official sources said most members opposed, or expressed concerns about.

Just hours earlier, Choi had been at a forum for global and local investors celebrating South Korea's inclusion in the FTSE Russell's benchmark WGBI bond index.

By 11 pm he had summoned his team to the Seoul Bankers Club. Choi was at the venue before everyone else, an official who went to the meeting said.

"Finance Minister Choi came from the presidential office cabinet meeting. He was fiercely opposed to this absurd plan," said another.

Kang Youngkyu, spokesman at the ministry, declined to comment when asked whether Choi had attended the cabinet meeting and opposed Yoon's martial law plans, but said he "led the F4 meetings around 11 p.m. on Tuesday and reviewed contingency plans with his colleagues throughout the night."

Announcements from the F4 followed in quick succession. The BOK said it will hold an extraordinary monetary policy board meeting in the morning, and the Financial Supervisory Service said it will deploy measures to stabilise markets.

By 1 am in Seoul, parliament had declared the martial law decree invalid. The F4 persisted with measures, held overnight meetings with their deputies, met again at 7 am and pledged to keep markets functioning normally while the financial regulator said it was ready to deploy a 10 trillion won ($7.06 billion) stock market stabilisation fund.

The plan mostly worked. The won is off its two-year lows and Korea's stock market, one of the emerging world's worst performers this year, has lost just over 2.5 per cent over the past three days.

BOK Governor Rhee expressed relief on Thursday.

"The good thing is that it could have really worsened how foreigners view (South Korea) if martial law had been in place for a very long time," he said at a press conference. "But this changed in just six hours."

($1 = 1,415.4600 won)