South Korea's Political Turnabout: Can Lee Jae-myung's Reforms Revive the Economy?

The political turmoil in South Korea over the past year has been nothing short of dramatic. The failed declaration of martial law by former President Yoon Suk Yeol in December 2024 not only led to his impeachment and arrest but also thrust opposition leader Lee Jae-myung back into the presidential spotlight. Now, as Lee prepares to ascend to the Blue House, investors are scrutinizing whether his economic agenda—a mix of corporate governance reforms, strategic tech investments, and regional revitalization—can unlock South Korea’s growth potential and narrow its persistent “Korea Discount.”

The Political Pivot to Economic Reform

Lee’s political comeback is a direct result of Yoon’s self-inflicted wounds. By declaring martial law without parliamentary approval—a move widely condemned as a “self-coup”—Yoon alienated even his own party’s base. The National Assembly’s swift vote to lift martial law, spearheaded by Lee as a DPK leader, exposed Yoon’s isolation. His subsequent impeachment and arrest for insurrection, combined with the collapse of his People Power Party, cleared the path for Lee to capitalize on public disillusionment with Yoon’s authoritarianism and corruption scandals.

Now, Lee’s economic policies aim to address the systemic issues that have plagued South Korea for decades. At the core of his agenda is a corporate governance overhaul targeting the chaebol—family-owned conglomerates like Samsung and Hyundai. By revising the Commercial Act to strengthen minority shareholder rights and mandate independent board members, Lee seeks to reduce the “Korea Discount,” a valuation gap where South Korean stocks trade at a 30% discount to global peers due to governance concerns. This reform, if passed, could attract more foreign institutional investors, who currently hold just 22% of South Korean equities, far below Japan’s 35%.

The Tech and Regional Revival Play

Lee’s plan also includes massive investments in strategic sectors. A KRW 100 trillion (USD 71.4 billion) commitment to AI and semiconductors underscores his focus on future-proofing South Korea’s tech dominance. This aligns with a supplementary budget expansion to KRW 12 trillion, targeting AI, green energy, and SME support. Meanwhile, regional initiatives aim to transform Ulsan into an “eco-friendly mobility hub” and Yeongam into a “space-tech mecca,” targeting KRW 35 trillion ($25 billion) in annual regional manufacturing revenue by 2030.

The cultural sector, already contributing 12% of GDP, could see further growth as Lee aims to triple the value of K-content (K-pop, dramas) to KRW 35 trillion by 2030. Yet challenges persist: fragmented IP ownership and low global profit margins for content producers remain hurdles.

Market Reactions: Caution Amid Optimism

Investors have already reacted positively to Lee’s agenda. South Korean equities rose 6% in April 2025, reversing a 9.6% decline in 2024 driven by political turmoil and U.S. tariffs. Goldman Sachs estimates that successful reforms could unlock KRW 200 trillion ($143 billion) in chaebol equity value by narrowing the Korea Discount. However, risks abound.

Key Risks to Watch

1. Political Gridlock: Lee’s Democratic Party holds a narrow 170-seat majority in the 300-seat National Assembly, leaving reforms vulnerable to legislative delays. His ongoing corruption trials—though he was recently acquitted of perjury charges—could further polarize public opinion (approval ratings: 12% among conservatives vs. 68% among liberals).
2. Chaebol Resistance: Samsung and Hyundai oppose governance changes, fearing short-term valuation dips. A KB Securities study warns even modest reforms could pressure chaebol stocks, which dominate the KOSPI.
3. Global Headwinds: U.S. tariffs on South Korean steel and autos (e.g., a potential $140 million annual cost increase for Kia) and Japan’s semiconductor export restrictions threaten the tech sector, which accounts for 25% of GDP.

Conclusion: A High-Stakes Gamble with High Potential

Lee Jae-myung’s presidency represents a pivotal moment for South Korea. His reforms offer a clear path to address governance flaws, boost tech competitiveness, and revitalize regional economies. If executed, they could stabilize investor confidence, narrow the Korea Discount, and lift the KOSPI from its six-month decline in 2024—the longest in 16 years.

However, success hinges on overcoming political polarization, chaebol resistance, and global trade tensions. The June 3 general election will be a critical test: a strengthened Democratic mandate could solidify reforms, while a weak showing might prolong uncertainty. For now, markets are pricing in hope—but execution will determine whether this political turnabout becomes an economic triumph.

In the end, South Korea’s fate rests on whether Lee can transform political momentum into tangible economic progress. The stakes are high, but so is the reward: a 20% valuation uplift in tech stocks alone could add nearly USD 100 billion to the economy. The world will be watching to see if Lee’s gamble pays off.