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The Korea Herald
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THE INVESTOR
March 29, 2024

Economy

Korea reassures economy intact despite NK tension

  • PUBLISHED :September 28, 2017 - 17:05
  • UPDATED :September 28, 2017 - 17:05
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[THE INVESTOR] The South Korean government on on Sept. 28 continued to reassure the economy’s stability despite the escalating security tension on the Korean peninsula, as pundits also raised caution that the new level of risk may put dents in the markets.

Deputy Prime Minister for economy and Finance Minister Kim Dong-yeon on Sept. 28 held a ministerial-level meeting to review and discuss the pending situation and economic policies in Seoul.

“The persisting North Korea risk is touching off a bit of concerns, but Korea’s economy remains unshaken,” Kim said, citing signs of strong fundamentals such as the all-time high foreign currency deposit in the nation and credit rating for Korea showing stable outlook.

He said North Korea risk would be short-lived, while the latest foreign sell-off on Korea’s main stock market -- worth some 1.05 trillion won ($913.8 million) over the past eight trading days -- was an act of profit-taking and had little to do with the North Korea risk.

But to take precaution against any impact, Kim also told reporters after the meeting that the authorities will maintain a 24-hour monitoring of foreign markets and take immediate measures when necessary.

The South Korean government has been focusing on soothing jittery sentiment following the increased tension between Pyongyang and Washington, such as by meeting with key US investors and credit rating agency chiefs during a summit trip to Washington earlier this month.

Local economists, meanwhile, have advised a need for caution, suggesting that the “unparalleled North Korea risk” is likely to “cause a ripple effect” on South Korea’s economy. 

Kim Byung-yeon, economics professor at Seoul National University, said the North Korean factor to the financial market has recently taken a new turn with Pyongyang’s testing of intercontinental ballistic missiles, escalating uncertainties both for the peninsula and the United States.

“The nuclear threat can not only spark regional security woes but also shake the economy (in South Korea), as long as uncertainties endure,” wrote professor Kim on a monthly journal by the state-run Korea Development Institute published on Sept. 28.
 
Kim Young-il, a researcher at KDI, warned in the same publication that financial markets might be neglecting the potential impact of the North Korea issue if it sticks to the past pattern.

“Financial markets will not be able to detect a black swan based on the data of the bygone days,” Kim of KDI wrote. 

Another writer of the publication, Mirae Asset Daewoo strategist Kim Hak-kyun, pointed to the tense relations among East Asian nations, in part due to South Korea’s deployment of Terminal High Altitude Area Defense battery. He wrote South Korea now faces a change in environment and needs to seek a fresh way to evaluate the impact from North Korea’s nuclear provocation.

Until Sept. 27, the main bourse index Kospi climbed down for seven consecutive trading days. The Wednesday closing at 2,372.57 was 1.89 percent lower than on Sept. 18. The Kospi edged up 0.02 percent on Sept. 28.

Days before, the credit default swap premium for South Korea‘s five-year foreign exchange stabilization bond reached the highest in 19 months at 74.71 basis points on Sept. 26, up 2.18 percent from Sept. 25, according to data by multinational market tracker Markit on Sept. 27. It was the highest since Feb. 11, 2016, when the premium reached 78.86 basis points. The higher the premium goes, the more losses are covered when the bond defaults. 

By Son Ji-hyoung/The Korea Herald (consnow@heraldcorp.com)

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