(News Focus) Pyongyang's rocket launch to have limited impact on economy, financial

SEOUL, April 5 (Yonhap) -- The latest rocket launch by North Korea might serve as a short-term drag on the domestic economy struggling with a protracted economic slowdown but the impact will likely be short-lived and limited as the geopolitical risk has long been priced-in by investors, experts said Sunday.

Earlier in the day, the Seoul government confirmed that the North launched what
it claims is a communications satellite, defying repeated warnings from the
international community. The "provocative" move is deemed by neighboring
countries as a disguise to test a long-range ballistic missile capable of hitting
Alaska.
"As North Korea's rocket firing was already anticipated, it will have a limited
impact on local financial markets," Chin Dong-soo, chairman of the Financial
Services Commission, said at a financial emergency meeting on Sunday. "But as
instability stemming from the global financial turmoil has not fully eased yet,
it is important to prevent possible market jitters from expanding."
The North's move comes as the Korean economy is fast slipping into the first
recession in 11 years, buffeted by a deepening global downturn and financial
instability.
The economy, Asia's fourth-largest, is expected to shrink 2 percent this year,
the first negative growth since the 1997-98 financial meltdown.
In the face of such grim figures, the government is stepping up its efforts to
revive the economy. Recently, it endorsed a record 28.9-trillion won extra budget
aimed at creating jobs and otherwise stimulating economic activity.
Up until last month, the local financial markets were highly volatile on rumors
that a large chunk of foreign capital could leave the country, making it
difficult for banks to pay back maturing overseas debts.
Recently, signs are showing that the economy is nearing bottom, with financial
markets gaining stability on an inflow of foreign capital into stock and bond
markets.
Right after the North's rocket firing, the government rushed to stem fears on the
nation's economy, saying that it will convene an emergency taskforce meeting
starting Monday headed by chief economic policymakers to assess its possible
implications.
"The rocket firing will not have a negative impact on the overall domestic
economy as it will not bring about a change in our economic fundamentals," the
Finance Ministry said in a statement after holding an emergency internal meeting.
"The impact is expected to be limited considering our experiences in the past."
Foreign analysts echoed the view. In an earlier email interview with Yonhap,
Fitch Ratings said that North Korea's latest rocket launch will likely
"jeopardize" the six-party denuclearization talks but will not have an immediate
effect on South Korea's sovereign ratings.
"South Korea's sovereign ratings remain constrained by political, security and
economic uncertainties regarding North Korea," said Ngiam Ai Ling, director of
Fitch's Asia Sovereign Ratings.
"Potential reunification costs are an important consideration and one that we
assess in the context of other political and security developments. Recent
developments have not given us any further guidance on these potential costs, and
thus our view is unchanged," she noted.
The global ratings agency lowered its outlook from "stable" to "negative" in
November, reflecting the impact of ongoing global financial turbulence on the
country's economy. It has kept its current grade for Asia's fourth-largest
economy unchanged since 2005.
Analysts agreed that there will not be a marked change in the nation's credit
status but a heightened geopolitical risk could result in an increase in the
overall borrowing costs when the nation is struggling to secure sufficient
liquidity.
The government is planning to sell debts in overseas markets sooner or later to
secure liquidity following a failure in late September when the global financial
market was hurled into a chaos after the collapse of Lehman Brothers.
The government said that it knows the risk, adding that it will step up efforts
to monitor the market conditions.
"More efforts should be made to ease possible jitters that foreign investors and
overseas media could have about our economy," said Chin Dong-soo, the head of the
Financial Services Commission.
Chin added the government needs to take systematic steps to keep the North's
rocket launch from spiraling into risk factors affecting the Korean economy and
markets.
kokobj@yna.co.kr
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