The Financial Instability Index (FSI) in South Korea surged to its highest point in a year last December, approaching levels seen during the 2022 Lego Land crisis. This spike reflects the adverse impact of political uncertainty on the real economy and financial markets.

According to data released by the Bank of Korea (BOK) on January 30th, the FSI for December 2023 reached 19.2, a 1.1 point increase from the previous month. This figure is the highest recorded in 2023 and is close to the 19.7 recorded in September 2022 when the Lego Land incident caused turmoil in the bond market.

While lower than the FSI peaks during the 2008 global financial crisis (76.9) and the 2020 COVID-19 pandemic (25.1), the December 2023 figure is double the level seen during the impeachment of former President Park Geun-hye in December 2016 (9.5).

The FSI, compiled monthly by the BOK, assesses potential financial instability across five sectors: financial markets, external factors, real economy, banking, and non-banking. It incorporates 20 detailed indicators from these sectors.

The BOK attributed the December 2023 surge to factors such as declining stock prices, rising credit spreads, and a drop in economic sentiment.

The BOK classifies an FSI of 12 or higher as "caution" and 24 or higher as "crisis." The current level falls under the "caution" category.

Democratic Party Representative Lim Gwang-hyeon, a member of the National Assembly's Finance and Economy Committee, stated, "The impact of the December 3rd emergency martial law incident on financial markets and the real economy has been confirmed through concrete indicators." He urged the government to promptly address the political uncertainty and actively cooperate in formulating a supplementary budget to boost domestic demand and stabilize livelihoods.

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