A Victim Emerges From The Heat Between U.S. And North Korea

http://ift.tt/2pb8gOs

A Victim Emerges From The Heat Between U.S. And North Korea

http://ift.tt/2qFwYIt

The America-North Korea show starts to feel like pure theater. U.S. Secretary of State Rex Tillerson said last week further development of North Korea’s nuclear and ballistic missiles could have major consequences. On May 1 the north's leader Kim Jong-un threatened to destroy an American naval submarine docked in South Korea if it got any closer to the north and sink the USS Carl Vinson aircraft carrier on the same conditions.

But war or otherwise, a growing presence of U.S. military hardware near North Korea plus future advances in Pyongyang’s missile development will eat away at the $1.4 trillion economy of South Korea, analysts fear. American ally South Korea shares a land border with the north and since their war in the 1950s each Korea has technically claimed sovereignty over the other. More military escalation up north plus more U.S. hostility will lead South Korea to spend more on defense and hurt revenues, Moody’s Investors Service said in a research note Tuesday. That recourse would have problems.

South Korean presidential candidate Moon Jae-In (C) of the Democratic Party of Korea prepares before a televised debate in Seoul on April 28, 2017. (JUNG YEON-JE/AFP/Getty Images)

“In such an environment, conflict risk would affect the spending decisions of businesses and households and, as a result, blunt the effectiveness of government policies,” Moody’s says. “Even in the absence of outright military conflict, a rise in investor and consumer perceptions that the risk of confrontation has increased could have negative credit implications.”

Geopolitical tension outside the country will be a “major theme” for South Korea this year especially as it converges on the May 9 election, says Trinh Nguyen, senior emerging Asia economist with the investment bank Natixis. The victor will replace impeached corruption suspect Park Geun-hye.

South Koreans, already smarting from a hit to tourism because of China’s wrath over a Terminal High Altitude Area Defense (THAAD) missile intercept system being developed with Washington, are used to being shaken around by the north, Nguyen adds. “We do not expect significant economic impact on the economy as Korean households are used to the volatility given the history of provocation by North Korea,” she says. 

Exports reached $537 billion in 2015 and anchor the economy should sustain modest GDP growth into this year and next regardless of geopolitics, analysts expect.  Motor vehicles and electronics by LG and Samsung are among the best known exports. The GDP will grow at 2.5% this year and 2% next year, Moody's says. 

But there's more. An election victory next week by progressive candidate Moon Jae-in could spark a rethink of South Korean-U.S. cooperation after 10 years. Moon, a human rights lawyer and election frontrunner, has indicated he might soften on reclusive, authoritarian North Korea and oppose Trump’s tough stance. That shakeup plus the rising heat from North Korea's military may eventually hurt the South’s credit ratings, says Steven Kim, a Korea scholar with a Ph.D. from the University of California, Berkeley.

“If this happens, foreign investment will drop and Korean firms and banks will pay higher interest rates,” he says. “This will not be good for the overall health of the economy, which is still suffering from economic slowdown. Any unfavorable ratings will affect the confidence of Korean consumers and businesses and increase the difficulty of the government in promoting economic recovery.”

Business

via Forbes - Entrepreneurs http://ift.tt/dTEDZf

May 4, 2017 at 10:48AM