Smashing whammiesNow that North Korea’s involvement in the sinking of the Cheonan warship has become an established fact, escalating tensions on the Korean Peninsula may present a geopolitical risk that is capable of undermining our economic recovery.
The Korean market has already turned slightly jittery over the prospects of a prolonged debt crisis in Europe, which could hamper our exports to the area as the value of the euro and the health of the region’s economy deteriorate. North Korea’s saber-rattling response to the results of the investigation into the Cheonan sinking is adding to the feeling of anxiety.
Korean Inc. may inevitably face a double whammy as it tries to fully emerge from the depths of the downturn. The uncertainties and fear over the prospects of the Korean market are likely to continue for some time. The collapse of the euro and a market slump in the euro zone are beyond our control.
We also cannot simply shrug off North Korea’s provocation and opt not to respond simply because we fear the economic repercussions.
Our concerns are that heightened tensions will create panic among foreign investors, which could cause them to unload their investments in the Korean market. A foreign capital run caused by financial market jitters and geopolitical concerns could take a toll on Korean equities and the nation’s currency as well as the entire economy.
Therefore, the government should immediately come up with a contingency plan in the event of an exodus of foreign capital. It must ready a mechanism to regulate the sudden flight of money ahead of time, or else it will miss its window to control the situation.
Authorities must also present stable and credible macroeconomic policies to calm economic players and convince them to go on with business as usual.
We should ensure that our economic fundamentals remain solid in the face of so many external risks to help ward off potential dangers and eliminate confusion. We must be more prudent in how we unwind policies enacted to support the economy during the slump.
The sudden risks at home and abroad have cast a shadow on the rosy prospects for the economy. The government, corporations and consumers must be fully aware of these new dangers to the economy and unite in efforts to fight these challenges together.