MERS Rattles Korean Confidence


South Korea has authorized jail for Middle East Respiratory Syndrome (MERS) patients who break quarantine, amid a rising toll of 182 confirmed cases and 31 deaths as of Saturday. For a crisis-hit administration, the disease’s longer-term impacts could prove more troubling, however.

On Friday, Seoul stepped up its battle against the deadly virus by tightening quarantine restrictions and imposing tougher penalties on patients who defy anti-infection measures. Under the new law, false testimony to authorities can result in up to two years in prison or $18,000 in fines, while officials gained extra powers to restrict movement of infected patients and shut contaminated facilities.

Seoul’s mayor declared war against MERS following the largest outbreak of the disease outside Saudi Arabia, with more than 15,000 people placed in isolation after coming into contact with MERS patients. The spread of the disease has been blamed on poor infection control and communication failures by the government, with reports of patients defying orders to stay home, including one who traveled to China and later tested positive.

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The nation’s first MERS patient, a 68-year-old man who had traveled to the Middle East, reportedly failed to disclose his itinerary to doctors and infected dozens of people in three hospitals before being confirmed as a MERS victim at the fourth hospital he visited on May 20.

South Korean Health Minister Moon Hyong-Pyo has apologized for public anxiety over the outbreak, which has led to more than 1,000 schools being temporarily shut and 90 hospitals affected. Public fears have manifested in dwindling patronage of Seoul’s subway network, along with declining audiences at cinemas and public events.

“The MERS virus is understood not to be airborne and is only contracted through close contact. But many people are wearing masks and some schools and kindergartens are canceling classes. That could be seen as the result of the public’s lack of trust and increased anxiety,” disease specialist Lee Dong-hun told ABC News.

South Korea’s outbreak has been blamed on three “superspreaders,” with about one in five of the cases likely to be fatal, according to University of Hong Kong researchers. While South Korea’s fatality rate is currently around 17 percent, the global rate was previously 40 percent, with no known vaccine or treatment for the disease.

Yet according to South Korea’s Ministry of Health and Welfare, nearly all the nation’s fatalities have involved patients with existing conditions such as cancer or diabetes, which were worsened by MERS.

Economic Illnesses

The virus has also exacted an economic toll, with sales at department and discount stores in the first week of June showing double-digit declines compared to the previous two weeks, while consumer sentiment has hit its weakest level since 2012.

South Korean Finance Minister Choi Kyung-hwan has warned that MERS could see economic growth lag below 1 percent in the second quarter and beyond, with the outbreak hitting the economy much harder than last year’s Sewol ferry disaster.

On Thursday, Choi announced a $13 billion stimulus package, including a new supplementary budget, to counteract the effects of MERS and declining exports. The measures included a 10 trillion won Korea Infrastructure Investment Platform, an easing of lending conditions and labor reforms, with plans for a “comprehensive” jobs plan in July.

“We were contemplating a supplementary budget to make up for tax revenue shortfall as global growth had been very weak from the start of the year. Then MERS happened and we had to do it,” Choi told Reuters.

“Part of this [fiscal package] will be to offset an expected shortfall in tax revenue, so the boost to local demand may not be as big as the headlines imply. Still, every little bit helps,” Frederic Neumann, co-head of Asian Economic Research at HSBC, said in a research note.

South Korea’s Finance Ministry expects the disease to cut gross domestic product (GDP) by 0.2 to 0.3 percentage point, and has revised downward its GDP growth forecast for 2015 to 3.1 percent compared to its previous 3.8 percent, with exports also expected to fall by 1.5 percent this year.

In a research note, ANZ economists Raymond Yeung and Louis Lam said the fiscal boost “should have been larger,” stating that increased spending of up to 25 trillion won, equivalent to 2.5 percent of GDP, would have had a more “meaningful” impact.

They also said the Bank of Korea would likely maintain an “easing bias,” with the potential for another interest rate cut in July should the situation worsen. On June 11, the central bank cut the official interest rate by 0.25 percentage point to a record low of 1.5 percent, citing an accelerating decline in exports and the impact of MERS.

HSBC’s Neumann has predicted another rate cut in the third quarter, which would also help put downward pressure on the exchange rate, aiding exports.

In May, the International Monetary Fund (IMF) noted in its annual South Korea report that the nation’s “growth momentum has stalled somewhat during 2014 and the outlook remains challenging, with sluggish domestic demand, low inflation, and increased external uncertainties.”

It forecast GDP growth of around 3 percent this year, with risks including slower growth in its major trading partners, the impact of the weak Japanese yen and side effects from global financial conditions. With long-term challenges including a rapidly aging population, the IMF urged further structural reforms to address “low service sector productivity and bring about a more dynamic corporate and small-and-medium enterprise sector.”

The IMF’s forecasts were echoed by the OECD’s June report, which urged reforms to prevent output staying below its potential for the fourth straight year, amid “sluggish private consumption in the context of high household debt and stagnant wages.”

The MERS crisis has inflicted political damage also, with embattled President Park Geun-hye suffering a slide in her approval ratings.

On Thursday, opposition leader Moon Jae-in condemned the president for her actions during the crisis, saying: “While the citizens battled against MERS, the government’s control tower didn’t operate, and rather caused confusion with belated countermeasures and secrecy.”

South Korean political commentator Se-woong Koo has described government mismanagement as the “rule, not an exception” under Park’s leadership, saying the administration had yet to recover from the Sewol disaster.

“Government ineptitude has laid bare some uncomfortable truths. South Korea, as seen from the outside, is indeed that rare country that transitioned from poverty and dictatorship to affluence and democracy in a miraculously short time. Yet it is viewed by many people here as a crony capitalist state run by corrupt elites who have monopolized power and the national economy, fostering government incompetence and popular distrust of the state,” Koo wrote in the New York Times.

However, signs of a slowdown in the spread of MERS saw Park’s rating gain 4 percentage points to 33 percent this week, according to Gallup Korea.

Amid the fear over MERS, the World Health Organization has stated that there has been only 1,300 confirmed cases since 2012, with 475 deaths, compared to the impact of influenza, which kills up to 500,000 people every year.

“While the number of people that die from illnesses like influenza or other infections in South Korea is many times greater than those that died from MERS – you see much greater societal and economic impact from MERS,” the University of Hong Kong’s Benjamin Cowling told Bloomberg News.

Meanwhile, North Korea has reported its “worst drought in 100 years,” potentially adding to political tensions on the dividend peninsula.

For Park’s administration, limiting the impact of the MERS crisis could prove crucial in ensuring the so-called “unloved Republic” starts winning back some support from its troubled citizenry, as well as reviving its faltering economy.

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