(Bloomberg) -- South Korean President Yoon Suk Yeol faces another test of his leadership as the main opposition party vies to control the annual budget, an outcome that would cast further doubt on his ability to enact policy as the nation braces for Donald Trump’s return.
Yoon’s government submitted a 677.4 trillion won ($483 billion) budget earlier this year, seeking to beef up spending by 3.2% to shore up an economy that’s expected to cool as export momentum eases. Opposition leader Lee Jae-myung’s Democratic Party last week sliced 4.1 trillion won from the total and is looking to force through the change.
The parliamentary speaker on Monday stopped the revised budget going to a vote for now and has urged both parties to reach an agreement by Dec. 10.
The DP is looking to nix extra spending by the presidential office, prosecutor and the police, according to the minutes of parliamentary discussions. Financial support for Ukraine and South Korea’s development of a potential maritime oil field are among other areas subject to cuts.
The move appears aimed at curbing the power of Yoon’s office and prosecutors amid court cases against Lee, while showing the limitations of the president’s use of veto power. By insisting on a smaller budget, the DP can also push back against the view that it has loose-spending tendencies.
A successful bid to force through the amended budget would be an embarrassing loss for Yoon’s minority government and risks dragging the nation further into domestic squabbling when its economy faces the risk of a hit to trade that could halve its exports to the US.
“This is a saber-rattling by Lee to mount all possible types of pressure on Yoon when he’s struggling to find a way out of his own legal risks,” said Kim Man Heum, former head of the National Assembly Research Service and a political commentator. “It would demonstrate his clout, but could deal a blow to his public image, too.”
The push by the opposition to force through the trimmed budget is likely to lose steam if a deadlock continues, Kim said. That’s partly because the party’s members themselves risk losing spending for their own constituencies, he added.
Yoon’s office has derided the cuts as the “tyranny of the majority,” but is unable to veto the change if parliament votes in its favor.
Finance Minister Choi Sang-mok said the revised budget if passed may lead to a “paralysis” of core government functions, increasing economic risks and making it harder for South Korea to respond nimbly to universal tariffs and supply-chain readjustments expected after Trump takes office.
Research and development funding for semiconductors and other scientific areas has been cut by 81.5 billion won in particular, the government said.
Maintaining an edge on chip technology and production is critical for the longer term prospects of an economy that is heavily reliant on trade and its semiconductor sector in particular. That vulnerability to trade trends makes Trump’s return to the White House a point of high concern.
Bloomberg Economics estimates that Korea exports to the US will drop 55% by 2028, if the president-elect follows through with threats to slap 60% tariffs on China and a 20% tariff across the board.
Lee lost the 2022 presidential election to Yoon, but his party holds a majority in parliament. The DP expanded that majority in a nationwide vote in April that further weakened Yoon’s ability to push through his policy agenda.
The opposition leader has defended the cuts in the budget, saying they are meant to reduce wasteful spending. Party officials have said the DP seeks to protect taxpayers from what they characterized as abusive spending by presidential officials and powerful institutions such as the state prosecution service.
Yoon serves a single, five-year term that ends in 2027. Lee, former governor of South Korea’s most populous Gyeonggi Province, is appealing a court ruling last month that convicted him of election-law violations and would bar him from running for president if confirmed.
--With assistance from Soo-Hyang Choi.
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