[“The North Koreans are
now using the propaganda in an extreme form to try to damage foreign direct
investments into South Korea,” said Thomas L. Coyner, a member of the American Chamber of Commerce in Korea and
the 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.”]
 |
Lee Jae-Won/Reuters
Currency dealers in Seoul last week. South Korea’s main stock index closed at a low on
Friday.
|
SEOUL, South Korea — Threats by North Korea and
displays of military resolve by South Korea and the United States have begun to
unsettle foreign investors’ confidence in the South, creating a secondary layer
of worries for Seoul and Washington.
South Korea’s main stock
index began slipping Monday and closed Friday at its lowest point since
November. On Thursday, General Motors said that it was making contingency plans
for employee safety at its South Korean plants and that further increases in
tensions would prompt it to consider moving production elsewhere.
The Philippines and
Thailand, which have thousands of citizens living in South Korea, said they
were drawing up evacuation plans in case the situation worsened.
“In the past, North
Korea-related events had little impact, or the markets recovered quickly,” the
South Korean vice finance minister, Choo Kyung-ho, said at a meeting of top
finance officials on Friday. “But recent threats from North Korea are stronger,
and the impact may therefore not disappear quickly.”
Financial jitters could
worsen if the North continues to block South Korean workers and supplies from
entering a joint industrial park in the North Korean town of Kaesong. The
blockade, which entered its fourth day on Saturday — the longest that South
Koreans have been shut out of the complex — was fast drying up materials for
123 South Korean factories there, forcing four of them to stop production.
The park, where the
South Korean factories employ low-cost North Korean workers, has been a major
source of hard currency for the North. But until last week, it had also been
the last major symbol of inter-Korean cooperation, one that South Koreans cited
to calm investors.
Its survival despite
years of political tensions, South Koreans said, indicated that North Korea’s
bellicose language was not always matched by its actions. A total closing of
the complex would further damage investors’ confidence and increase political
pressure on the South Korean president, Park Geun-hye.
The developments come as
South Korea and the United States were engaged a delicate diplomatic balancing
act. On one hand, they were trying to show the North’s youthful leader, Kim Jong-un, that they would not be
blackmailed by his bluster, breaking with a history in which the North
threatens and the allies offer negotiations or aid to calm tensions. But at the
same time, the allies do not want to escalate the tensions so much that they
lead to military hostilities or damage South Korea’s economy.
Although many South
Koreans have grown inured to decades of periodic threats from North Korea, they
worry that in any prolonged confrontation their globalized economy would have
more to lose than the one in the North, which is battered and isolated and hurt
by international sanctions.
“The North Koreans are
now using the propaganda in an extreme form to try to damage foreign direct
investments into South Korea,” said Thomas L. Coyner, a member of the American Chamber of Commerce in Korea and
the 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.”
John Delury, an American
who teaches at Yonsei University in Seoul, said that the economic impact of the
conflict posed a “serious challenge” to President Park, who was elected on
promises to bolster the economy and build trust with the North.
“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,” Mr. Delury said.
And even though many
analysts and diplomats believe the North will not follow through on its most
dangerous threats — pre-emptive strikes against the United States and South
Korea — he noted that the continuing alarm could still cause problems.
“Markets hate risk, even
if it is the perception rather than reality of risk,” Mr. Delury added.
South Korea’s economy
has suffered far worse disruptions, most recently during a global financial
meltdown in 2008, and proved resilient. But the conflict is an additional drag
on the economy at an inopportune time.
The once-supercharged
economy took a blow in 2011, during the global financial downturn, when the
growth rate dropped to 3.6 percent from 6.2 percent in 2010. It has since
slowed further, in part because of China’s increasing power as an exporter and,
more recently, as the weakened Japanese yen allowed Japan’s exports to better
compete with South Korea’s. The government revised its growth forecast for this
year to 2.3 percent from 3 percent.
In a report on Friday,
Citi Research said that “barring an outbreak of wide-scale military conflict,
we think North Korean brinkmanship will not impact the South Korean economic
fundamentals.” Thomas J. Byrne and Steffen Dyck at Moody’s Investors Service
expressed similar views last week, but also warned of “a heightened risk of
military adventurism or miscalculation by the 30-something Kim Jong-un.”
Han Beom-ho, an analyst
at Shinhan Investment, said that markets had traditionally tended to dismiss
North Korean threats.
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.”
South Korean officials
and analysts suspect that North Korea, no longer able to fight a conventional
war or even start a major skirmish with the South without suffering a
devastating counterstrike, is increasingly resorting to other forms of warfare,
like hacking the computer networks of 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 — but it needs to be taken seriously in the sense that it
is already proving to be effective,” said Mr. Coyner of the American Chamber of
Commerce in Korea. “It’s a very interesting, sophisticated economic attack on
South Korea.”
