Kim Jong-il Sways Seoul Financial Market
By Kim Tae-gyu
Staff Reporter
When International Monetary Fund (IMF) chief economist Olivier Blanchard visited South Korea late last month, he met with a high-ranking official at the Financial Services Commission (FSC).
Blanchard asked if the North's nuclear and missile tests disturbed the South's financial markets.
To the surprise of Blanchard, the FSC official said that he thanked North Korea as all the maneuvers helped South Korean firms maintain competitiveness in the global markets.
His logic: The North's missiles and nuclear tests prevent the won-dollar rate from plummeting too sharply. If the rate is too low, dollar-denominated Korean products will lose price competitiveness.
The won-dollar exchange rate soared to approach 1,600 won early March due to the global economic turmoil but it has stabilized to below 1,300 won as of late.
Blanchard agreed since he knew the South relies heavily on exports. In addition, he learned how much North Korean issues affect the South's financial markets.
``It was a joke. But it carries some truth. We always keep a tab on North Korea because the state influences our markets in a big way more often than not,'' the FSC official said.
Similar events took place early this week ― the stock market faced a free fall this Monday after news leaked that the North's leader Kim Jong-il was sick.
As soon as it was reported Monday that Kim may be suffering from life-threatening pancreatic cancer, the domestic currency depreciated 2.52 percent against the green back to close at 1,315 won per dollar, maybe too abrupt a rise even from the perspective of the anonymous FSC official.
The benchmark KOSPI also dipped 50.5 points to end at 1,378.12, which is the steepest plunge since Feb. 20 this year.
``A couple of factors worked Monday to generate the bearish run including the weak financial markets of the United States,'' Woori Investment Securities analyst Lawrence Kim said.
``If the North Korean leader is really sick, it will increase uncertainties. As you know investors do not love uncertainties. I got a fresh lesson of how North Korean issues can weigh on the South's markets,'' he said.
Good Morning Shinhan Securities economist Lee Sun-yup concurs.
``I usually downplay the impact of North Korean issues. But things are different this time around and the South Korean investors have good reason to tremble now,'' Lee said.
``If he is really seriously sick as reported, I am afraid that it will continue to chill investors' sentiment down the road. It is very bad news,'' Lee said.