March 28, 2024

Tensions With North Korea Unsettle South’s Economy

The development magnified the challenge 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 here, and 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 on Friday. “But recent threats from North Korea are stronger and the impact may therefore not disappear quickly.”

His comment came hours after General Motors’ chief executive, Dan Akerson, underscored the increased worry by saying that his company was making contingency plans for employee safety at its South Korean plants and that further increases in tensions would even prompt GM to look at moving production elsewhere long term. In an interview with CNBC, 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 on Friday in a selling spree among foreign investors that analysts attributed to jitters over North Korea. The 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 targeting 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.

What made the situation different too 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 revised 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.”

Government officials said that the military tensions have so far had only limited impact on the markets. But for the South Korean economy, the North Korean imbroglio is an additional drag that comes 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.

Officials vowed to ensure stability if the situation worsens.

Article source: http://www.nytimes.com/2013/04/06/world/asia/tensions-with-north-korea-unsettle-souths-economy.html?partner=rss&emc=rss

Struggling to Stoke Economic Growth in Greece

So when George Peristeris, the chief executive of Gek Terna, a large energy company, wanted to plow funds into an offshore wind project, he thought he would be welcomed with open arms. But it turned out that the government decided it could run things better.

“Private investors with money in hand were shut out,” Mr. Peristeris said. “At first I thought it was a joke. But now we’ve lost an entire year that would have been crucial for the economy.”

With Greece essentially bankrupt, the country desperately needs to generate sustainable growth and lift competitiveness if it ever is to pay down its debt and disengage itself from a chain of international bailouts that is now threatening the stability of the European monetary union.

But while Mr. Papandreou’s government has made some strides, it is still falling far short of what is needed, economists say. That raises the risk that the country will be unable to avoid defaulting on its debts, putting Europe and its still-fragile banking system at great risk.

While that may be what it takes to clear the way — if anything will — for a Greek economic rival, putting the country on a growth track will be almost impossible unless politicians in this increasingly chaotic society manage to follow through with fundamental changes.

“We’re not talking about two or three years to get to recovery,” said Yanos Gramatidis, the president of the American Chamber of Commerce in Greece. “It’s easily going to take up to 10 years to create a surplus and stabilize the economy, especially if persistent political turbulence hinders the ability to enforce reforms.”

Almost no one in Athens believes International Monetary Fund forecasts that the Greek economy will grow 1.1 percent next year, after two years of the deepest recession of any country in Europe.

Under pressure from its European partners to meet the terms required to receive its next €12 billion, or $17.2 billion, installment of financial aid, Greece has little choice but to accept the requirement that it impose more austerity measures. That is why structural changes to lift productivity and attract investors like Mr. Peristeris are so important. These include opening protected sectors and labor markets to competition, reducing bloated government payrolls and addressing pernicious tax evasion, which robs the treasury of an estimated €50 billion in income each year.

But after sweeping social unrest led Mr. Papandreou to shake up his cabinet last week, many economists — and most ordinary Greeks — believe that it will me many years before the country can generate sustainable growth, even if the government approves new austerity measures.

“If they just continue with the European Union’s austerity program, they’re going to be in slow growth or recession as far as the eye can see, and at the end of the day they’re still going to default,” said Kenneth S. Rogoff, a former chief economist at the I.M.F. who is now a Harvard professor. “They have to raise productivity spectacularly.”

To be sure, some of Greece’s efforts are paying off. Although the economy contracted 4.5 percent last year and is forecast to shrink an additional 3 percent this year, Greece has managed to cut its deficit by a substantial five percentage points of gross domestic product, although it is still high at 9.6 percent of G.D.P, according to the I.M.F.

In addition to domestic investors like Mr. Peristeris, foreign investors from China, Germany and elsewhere are looking for bargains in the Greek economy, including in the tourism industry, which accounts for a third of G.D.P., and in the lucrative shipping business.

Article source: http://feeds.nytimes.com/click.phdo?i=9eb406bb8a1fa331ef09d7ccdd59e6cf