Protesters demand the resignation of President Park Geun-Hye at a rally in Seoul on Saturday © EPA

Park Geun-hye was swept to power four years ago pledging to overhaul South Korea’s biggest family-owned companies. Today, the president stands accused of conspiring to extort millions of dollars from those same corporations, amid a sprawling scandal that is paralysing the Asian country. 

The offices of big-name corporates from Samsung to Lotte have been raided by investigators, Ms Park’s closest aide has been indicted over alleged abuse of power and the president is battling state prosecutors to avoid scrutiny of her alleged role in the drama. 

It is a scandal that is being played out in public, with each day bringing salacious new claims linking the presidential Blue House to shamanistic rituals, slush funds or one of a dizzying array of colourful characters from Seoul’s entertainment industry. At one stage the Korean leader was even forced to deny  that she was a member of a cult.

Graft is not new in South Korea. Five of its six directly elected presidents have been ensnared in scandals, while executives from the country’s top family-owned conglomerates, the chaebol, are frequently hauled in for questioning and regularly face trial. Yet this saga is on a different scale.

South Korea is facing what experts call a “compounded crisis”. At a time of faltering economic growth, heightened geopolitical tensions and a series of high-profile corporate problems, the country has found itself leaderless and in disarray. “South Korea is in a state of total crisis,” says Moon Chung-in, a professor of political science at Yonsei University in Seoul. “We have intertwined political, geopolitical and economic crises …and no leadership to mend the fractures or drive society.”

Influence peddling

There is a growing sense in the country that Ms Park — its first female leader — has lost her mandate to rule and lacks the strength or conviction to take on the chaebol and carry out the reforms she promised while campaigning for the presidency in 2012. 

The pressure on Ms Park has been building for weeks with ever greater street protests © AFP

Her approval rating stands at 4 per cent — down from 63 per cent in 2013 and the lowest ever for a president of the east Asian nation — after weeks of allegations that she had become reliant on a shadowy confidante who influenced a litany of presidential decisions, including key speeches and policy ideas. 

The friend, Choi Soon-sil, allegedly used her position to extort tens of millions of dollars from top South Korean companies — a scheme in which, prosecutors say, Ms Park was an active collaborator. Ms Park denies the conspiracy claims. Her lawyer called them “nothing more than ideological reflections of imagination and speculation, ignoring objective evidence”.

Ms Choi was last week indicted on a string of charges, including abuse of authority, coercion and attempted fraud. A hitherto unknown character, she was catapulted into the spotlight when protesting students, aggrieved over preferential treatment given to Ms Choi’s daughter, sparked a wider influence-peddling investigation.

The controversy has triggered a prolonged public outcry. On Saturday, hundreds of thousands took to the streets of central Seoul — the fifth such mass demonstration in as many weeks — to demand Ms Park’s resignation. Further protests are planned.

For South Koreans, the scandal has reignited concerns not only about corruption and transparency but also fears that the country’s hard-won democracy is being subverted by the president, the daughter of former strongman leader Park Chung-hee. 

“This is a critical moment,” says Kim Jiyoon, a research fellow at the Asan Institute for Policy Studies. “How the country deals with the situation will determine the path of Korean politics.”

“She is ignoring the entire democratic system we’ve been preparing since 1987,” adds Ms Kim, referring to the year that military rule was replaced by an elected government. Such fears were exacerbated when Ms Park’s lawyer, Yoo Yeong-ha, announced last week that the president would not make herself available for questioning by state prosecutors, despite earlier pledges to do so. One conservative newspaper said she was holding the “government and people hostage”. 

South Korea's President Park Geun-Hye offers a public apology for causing the country grief on October 25 © Getty

Ms Park has refused to resign, forcing opposition parties to tread the politically treacherous path towards constitutional impeachment, which will begin with a vote in parliament in December. 

The likely impact, experts say, will be a lame-duck president and a preoccupied parliament, with neither able to make the kind of crucial decisions needed at a time of sluggish growth, heightened security threats and emerging challenges from an ageing population and a declining labour force.

As the crisis began to unfold, Ms Park tried to appoint a new prime minister and finance minister. But, aggrieved by the lack of consultation, the national assembly has not approved the appointments, leaving the posts in limbo.

“I can’t remember a time more challenging than this,” says Jun Kwang-woo, a former head of the government’s Financial Services Commission. “Even before the story of the president was revealed, we had a combination of security crises and economic challenges. Now we have this political crisis, which includes the largest corporations.”

Sluggish growth

The country’s economy, the world’s 11th largest, grew at an annual rate of 2.7 per cent in the third quarter, down from 3.3 per cent in the previous three months — and analysts expect more pain as key industries, such as shipbuilding, undergo deep restructuring. Exports, which account for about 45 per cent of gross domestic product, shrank 3.2 per cent year on year in October after a 5.9 per cent drop in September. 

Ms Park campaigned in 2012 on a plan to revamp the economy by cultivating a start-up culture and reforming the hulking chaebol — the family-owned companies that dominate the economy. 

They are too big to fail in the eyes of South Korean leaders, who regularly resort to presidential pardons to keep company management intact. Ms Park has mostly refrained from handing out such pardons but has only implemented a fraction of her pledged reforms. 

“Park’s government has not only not reformed [the economy] but has also failed to tackle key issues, such as household debt,” says Seo Bok-kyung, a politics expert at Sogang University. 

South Korea’s ballooning household debt amounted to a record $1.15tn by the middle of this year — the eighth highest in the world. 

Some of the country’s most internationally recognisable brands have also suffered high-profile failures. Hanjin Shipping, once South Korea’s largest shipping company, declared bankruptcy in August, sparking a global logistics logjam that shone a light on the beleaguered industry. The nation’s other shipyards are slashing jobs in an effort to avoid a similar fate. 

Samsung Electronics, the tech arm of the country’s largest chaebol, also took a hit when some newly released Galaxy Note 7 smartphones began catching fire. The company axed the phone, losing an estimated $5bn as a result. 

“The Galaxy Note 7 saga hit Samsung and Korea’s national brand image, but at least they dealt with it openly,” says Peter Lee, an analyst at NH Investment & Securities. “The current political issues could be a worse blow to the national image.”

Protectionist pressures

The economic gloom in the export-dependent nation has been magnified by the rising protectionist language in its two biggest trading partners — China and the US, which account for about 40 per cent of its total exports.

Beijing is furious about Seoul’s plan to deploy a US ballistic missile shield on the peninsula and has made its displeasure known. The Terminal High Altitude Area Defence system, or Thaad, was announced ostensibly to protect against North Korea, which in September conducted its fifth nuclear weapons test. But China fears the missile system will be used by the US to peer deep into its territory.

Samsung took a hit when its Galaxy Note 7 smartphone had to be recalled © Bloomberg

Shortly after the deployment was announced, South Korean actors and singers found themselves unwelcome in China as a series of promotional events were axed in what Prof Moon describes as “subtle” sanctions. Shares in leading entertainment groups fell sharply amid fears that there could be further curbs on trade, which had already stalled due to the slowdown in China. 

An editorial in the Global Times, a Chinese nationalist newspaper, laid out the situation facing South Korea’s cultural exports: “It is certain that the Korean wave or Hallyu will inevitably feel the chill in China if Seoul sticks to the Thaad deployment.”

The election of Donald Trump as next US president is perhaps an even greater cause for concern. After his victory, financial officials in Seoul directed banks to prepare for external shocks, while the Blue House convened a national security council session. 

Mr Trump’s election carries other risks for South Korea. There are close to 30,000 US troops in the country to guard against provocations from the north. Mr Trump has said he could withdraw those forces — a statement that shocked many in South Korea, which has been deepening ties with the US amid growing regional instability.

“Any fissures with the Trump government could create anti-US sentiment in Korea,” says Ms Kim.

For Hans Schattle, a professor at Yonsei University, the political crisis in Seoul has created a leadership vacuum that could undermine South Korea’s international ambitions. 

“The bigger problem with the domestic scandal is whether she can credibly represent the county,” says Prof Schattle. “Whether she can be a voice or face of South Korea. If she has lost domestic legitimacy, it crosses over to international issues.” 

Ms Park seems determined to stumble on. She is immune from prosecution while she occupies the Blue House and although impeachment is possible it will take time. No election is scheduled until December 2017 which threatens to drag the scandal through to the opening of the 2018 Winter Olympics in Pyeongchang. 

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Timeline of a political scandal

Ms Park's aide, Choi Soon-sil, arrives at the Seoul Central District Prosecutor's Office on October 31 © AFP

Oct 24
Broadcaster JTBC reports that Park Geun-hye allowed her close friend Choi Soon-sil to revise her public speeches and meddle in the affairs of state.

Oct 25
Ms Park admits her close ties to Ms Choi for the first time and apologises for causing the nation grief.

Oct 29/30
Protesters hold their first mass rally over the corruption scandal and Ms Park accepts the resignations of key aides embroiled in the affair.

Nov 1
Prosecutors question Ms Choi.

Nov 2/3
Ms Park reshuffles her cabinet as the scandal widens and Ahn Jong-beom and Jeong Ho-seong, two of her former aides, are detained for questioning.

Nov 8
Prosecutors raid the headquarters of Samsung Electronics, which is believed to have come under pressure to make donations to Ms Choi. 

Nov 20
Prosecutors accuse Ms Park of collusion in the corruption scandal.

They also announce the formal indictment of Ms Choi and two other former Park aides.

Nov 24
SK and Lotte join a growing list of South Korean companies raided by investigators over the scandal.

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A new beginning

A common refrain, for those seeking a silver lining is that the country is no stranger to crisis. Born out of the ashes of conflict and on a permanent war footing, it has faced pivotal moments on a near 20-year cycle. The most recent, the Asian financial crisis, struck in 1997.

Out of each crisis, the situation for South Koreans has always improved, says Kim Woo-chan, a professor at Korea University. A coup in 1961 led to the transformation of the poverty-stricken economy, while the assassination of Park Chung-hee in 1979 resulted in a more market-focused approach. The 1997 crisis prompted many of the chaebol to change the way they are run and ease their reliance on debt.

The hope is that the current crisis will yield a healthier democracy and a leader strong enough to enforce economic, political and corporate reforms. 

“We are very resilient,” says Prof Kim. “I feel confident that if people keep showing up to protest in these numbers and keep showing their power and influence, the politicians will have no choice [but to clean up politics].” 

Additional reporting by Kang Buseong

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