South Korean Shares Slump After Martial Law Declaration
What is Martial Law?
Martial law refers to temporary rule by military authorities, declared during times of emergencies such as war, natural disasters, and civil unrest, when civil authorities are deemed unable to function. When martial law is in place, the military assumes the authority to enforce laws, manage public order, and ensure national security. All existing laws are suspended, along with civil authority and the ordinary administration of justice. This can lead to the suspension of civil liberties, censorship of media, and curfews.
How Does Martial Law Affect Business and Economic Activity?
Investor sentiment and confidence typically takes a hit when a country imposes martial law. The ability and credentials of the military regime to manage the economy may be unclear, which can slow investor activity. The suspension of civil liberties and imposition of curfews also do not favor consumer sentiment, leading to reduced discretionary spending. The limits on movements can affect logistical operations, such as at ports, disrupting supply chains. Media censorship can further hurt business and consumer confidence.
Consequences for Banking and Currency
The uncertainty and jolt to sentiment can affect banking functions, leading to a potential run on the bank situation. To prevent this, the regime may impose withdrawal caps and curbs on foreign currency transactions, including a complete ban to stem depreciation in its currency. The Korean won tumbled to its lowest in more than two years against the US dollar before recovering on Wednesday, but MayBank analysts predict it could remain under pressure.
Example: Ukraine’s Experience
Ukraine capped cash withdrawals and imposed strict forex controls when it declared martial law in February 2022, following Russia’s invasion. These measures included limiting the repatriation of dividends by Ukrainian companies to their overseas investors, which were later relaxed.
FAQs
Q: What is martial law?
A: Martial law is a temporary rule by military authorities, declared during times of emergencies such as war, natural disasters, and civil unrest.
Q: How does martial law affect business and economic activity?
A: It can slow investor activity, reduce consumer spending, and disrupt supply chains.
Q: What are the consequences for banking and currency?
A: There may be withdrawal caps, curbs on foreign currency transactions, and a potential run on the bank situation.
Q: What is an example of martial law in action?
A: Ukraine’s declaration of martial law in February 2022, following Russia’s invasion, included measures such as capping cash withdrawals and imposing strict forex controls.
