Death unlikely to have immediate market effect

The death of former president Roh Moo-hyun will have limited impact on the local economy and financial markets, though social conflict arising from the tragedy could hold back signs of recovery, the Ministry of Strategy and Finance said Saturday.

“[Roh’s] death is unlikely to have a negative impact on Korea’s credit rating or the financial markets,” said an official at the ministry.

Those expectations, the ministry said, are based on previous economic responses to political incidents related to security and diplomacy. The benchmark Kospi fell just 0.79 percent following the death of North Korean leader Kim Il Sung in 1994. The markets were turbulent but did not panic when North Korea said it tested a nuclear weapon, with the Kospi down 2.4 percent but rebounding the next day.

Analysts say that, similarly, the events of the weekend will not directly affect the economy. Reactions from foreign investors remain to be seen.

“[Roh’s] death will not have a big impact on the Seoul bourse,” said Ku Hee-jin, a senior analyst at Daishin Securities.

But it may be too early to judge.

Some businesses are concerned that if the incident leads to long-term social conflict between conservatives and liberals, a recovery in the local economy could be delayed as investors retreat. Should the conflict lead to nationwide protests, analysts say, it could negatively affect the nation’s credit rating.

The Finance Ministry and the Korea Center for International Finance are currently monitoring the market and the reaction of foreign media and investors, and will take action if needed.

“The incident could negatively affect investment, but only short-term,” the finance center said Saturday. “The current financial market will focus not on the former president’s death but on the overall recovery.”

The ministry noted that presumably deepening social and political discord could delay several key economic bills at the upcoming parliamentary session in June, including new laws to govern labor unions, labor relations, corporate restructuring, news media and banking and commerce.

“Social conflict due to the incident might throw cold water on momentum for an economic recovery,” the ministry said, arguing that economic indicators show the nation’s economy is turning a corner. The GDP grew 0.51 percent in the first quarter, a contrast from the quarter earlier, when it shrank 5.1 percent, as reported by the Bank of Korea. The benchmark Kospi is hovering above 1,400 points.

By Lee Eun-joo [angie@joongang.co.kr]