Tensions With North Korea Unsettle South’s Economy
By CHOE SANG-HUN
The Seoul stock market fell Friday, and General Motors said it was
making contingency plans for its workers amid a torrent of threats from
North Korea.
- North Korea Moves Missile to Coast, but Little Threat Is Seen
- British Premier Says Nuclear Risks Highlight Need for Deterrent
Tensions With North Korea Unsettle South’s Economy
Chung Sung-Jun/Getty Images
South Korean cars return from a
joint industrial park in the North Korean town of Kaesong, which
Pyongyang has threatened to close.
By CHOE SANG-HUN
Published: April 5, 2013
SEOUL — North Korea’s torrent of threats — and the matching show of military power and political resolve from the United States and South Korea — began showing signs of unsettling foreign investors’ confidence Friday.Multimedia
The development magnified the challenges Seoul and Washington face. The
two powers are trying to show the North’s novice leader, Kim Jong-un,
that they will not be blackmailed by his bluff and bluster. But at the
same time, they do not want to escalate the tensions to an extent that
they hurt the South Korean economy, the pride of the local population,
or President Park Geun-hye’s political standing at home.
“In the past, North Korea-related events had little impact or the
markets recovered quickly,” the South’s vice finance minister, Choo
Kyung-ho, told a meeting of top finance officials Friday. “But recent
threats from North Korea are stronger and the impact may therefore not
disappear quickly.”
His comment came hours after the chief executive of General Motors, Dan
Akerson, underscored the increased concern by saying that his company
was making contingency plans for employee safety at its South Korean
plants and that further increases in tensions would prompt G.M. to look
at moving production elsewhere. In an interview with CNBC television, he
said, “If there were something to happen in Korea, it’s going to affect
our entire industry, not just General Motors.”
South Korean stocks slumped 1.64 percent Friday in a selling spree among
foreign investors that analysts attributed to jitters over North Korea.
The South Korean won also sank against the U.S. dollar.
Although South Koreans have become almost nonchalant after decades of
on-and-off threats from North Korea, they believe that when things get
ugly with the North, their globalized economy has much more to lose than
the North’s isolated and already highly sanctioned economy.
“The North Koreans are now using the propaganda in an extreme form to
try to damage foreign direct investments into South Korea,” said Tom
Coyner, a member of the American Chamber of Commerce in Korea and author
of “Doing Business in Korea.” “They are, in a sense at this point,
winning in an asymmetrical psychological warfare, attacking the economic
strength of South Korea.”
War cries from North Korea have been factored into the stock market for
decades. Still, its threats have grown in their intensity and frequency
since the country upheld Mr. Kim as its top leader in late 2011, and
especially after the United Nations imposed sanctions against the North
following its nuclear test in February. The sanctions took direct aim at
North Korea’s Achilles’ heel by focusing on cash transfers and luxury
items, which the Kim regime uses to buy the loyalty of the elite.
North Korea has since called the Korean Peninsula “back to a state of
war” and declared that it would launch “pre-emptive nuclear strikes” at
the United States and its allies. It also said it would never bargain
away its nuclear arsenal but rather expand it.
Also making this situation different was the way Washington and Seoul
responded. South Korea matched the tone by declaring that if provoked,
it would target the North Korean military leadership and by revising the
rules of engagement to let its military respond more swiftly,
forcefully and “without political consideration.” Meanwhile, the United
States flew nuclear-capable bombers over the peninsula on training
sorties and signed an agreement with Seoul to respond jointly to any
North Korean provocation.
“The relentless show of force on a daily basis by not just North Korea,
but also the U.S. and South Korea as part of their annual military
exercises, has captured the attention of the world, and made the Korean
Peninsula a place associated not with ‘Gangnam Style’ but with nuclear weapons and stealth bombers,” said John Delury, an American scholar who teaches at Yonsei University in Seoul.
“Markets hate risk, even if it is the perception, rather than reality of
risk,” he added. “This poses a serious challenge to President Park, who
was elected on the basis of promises to keep growing the South Korean
economy and improve relations with the North.”
Published: April 5, 2013
Government officials said that the military tensions had so far had only
limited effects on the markets. But for the South Korean economy, the
North Korean imbroglio is an additional drag at an inopportune time. In
the face of the weakening Japanese yen, which hurts South Korean
exporters, South Korea recently announced a sharp cut in growth
forecasts.
Multimedia
Related
-
British Premier Says Nuclear Risks Highlight Need for Deterrent (April 5, 2013)
-
North Korea Moves Missile to Coast, but Little Threat Is Seen (April 5, 2013)
Officials vowed to ensure stability if the situation got worse.
An important test is whether North Korea will go so far as to close down
a joint industrial park in the North Korean town of Kaesong. The
complex, where South Korean factories use low-cost North Korean labor,
is a major source of hard currency for Pyongyang and stands as the last
major symbol of inter-Korean cooperation. Seoul officials have cited the
project when they wanted to show foreign investors that North Korean
harsh rhetoric is not always matched by action.
In a “Global Political Insights” report Friday, Citi Research said that
“barring an outbreak of wide-scale military conflict, we think North
Korean brinksmanship will not impact the South Korean economic
fundamentals.” In a report earlier this week, Thomas J. Byrne and
Steffen Dyck at Moody’s Investors Service expressed similar views but
also mentioned “a heightened risk of military adventurism or
miscalculation by the 30-something Kim Jong-un.”
Lee Beom-ho, an analyst at Shinhan Investment Corp., said that markets
had traditionally tended to dismiss North Korean brinkmanship.
But this time, “the targets of North Korean threat have expanded and the
international community has become more sensitive,” he said, referring
to the North’s growing nuclear and missile capabilities and American
plans to deploy more interceptor missiles to the region. “At the same
time, there is doubt over the abilities of those who are supposed to
deter North Korea, especially China.”
Millions of South Koreans live within range of North Korean artillery,
with the area between Seoul and the border with North Korea developed
into forests of high-rise apartments in recent decades for people
commuting to the metropolis. Yet, previous provocations by North Korea
have usually had an ephemeral effect on South Korea’s equity and foreign
exchange markets, occasionally even presenting buying opportunities.
In a sign of how accustomed South Korea has grown to the security
provided by the military alliance with the United States, people in
South Korea have shown few signs of agitation in recent weeks, even as
North Korea has been bombarding their country almost daily with
apocalyptic threats of “final destruction.”
South Koreans remain more sensitive about foreign investors’ moves.
During a previous North Korean nuclear crisis in 1994, the market proved
resilient when a videotaped threat by a North Korean official to turn
Seoul into “a sea of fire” was leaked to the media. But later that year,
when Washington drew up plans to evacuate Americans from South Korea
before a planned surgical strike at the North Korean nuclear facilities,
South Koreans rushed to supermarkets, hoarding goods, and the stock
market took a dive.
Officials and analysts in South Korea suspect that North Korea, no
longer able to fight a conventional war or even start a major skirmish
with the South without suffering a humiliating strike-back, was
increasingly resorting to other forms of warfare, like hacking South
Korean banks and broadcasters.
“Most people say they are used to a lot of blustering and posturing by
North Korea and we should not take it too seriously,” Mr. Coyner said.
“But it needs to be taken seriously in the sense that it is already
proving to be effective where foreign multinationals are looking at
political risk contingency option.”
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