Rocket fails to rattle markets or investors

North Korea’s rocket launch didn’t affect the South Korean economy, the country’s vice finance minister said yesterday, but further provocations could.

“There remain risks to the Korean economy if the international community moves to impose sanctions on the North or it takes further provocative actions including nuclear tests,” said Shin Je-yoon, vice minister of Strategy and Finance, at an emergency meeting yesterday.

After Wednesday’s surprise and successful rocket launch by the North, overseas markets and economic institutes remained calm about South Korea and its economy, the vice minister said.

The credit default swap premium for Korean bonds dipped 2 basis points to 61 basis points on the New York Stock Exchange yesterday, which means the country’s bankruptcy risks have been reduced.

The offshore exchange rate of the Korean won against the U.S. dollar fell 2.4 won, closing at 1,072.6 won in New York yesterday. In the local market, the won ended at 1,073.00 won against the greenback, up 2.00 won from Wednesday’s close.

All three international credit ratings agencies said there was no change in their ratings for Korea.

Moody’s and Fitch Ratings said the rocket launch won’t affect their outlooks for the Korean economy. Standard & Poor’s said the rocket development would have limited impact on geopolitical risks on the Korean peninsula.

“The local market is now mature enough to remain stable about such threats,” Shin said. “We learned it from previous rocket launches by the North and the death of Kim Jong-il.”

The North has conducted nuclear tests shortly after missile launches in the past, raising concerns about a third nuclear test.

Three months after the North launched the Taepodong-2 in July 2006, it carried out its first nuclear test. The second nuclear test followed one month after a failed rocket launch in April 2009.

Seoul’s main bourse Kospi slightly fell to the day-low of 1,966.91 at the news on Wednesday, but quickly recovered. Foreign investors kept purchasing Korean stocks and bonds, according to the finance ministry.

“Foreign currency liquidity also remains stable with no sign of worsening conditions for local businesses in borrowing money from overseas banks,” government officials concluded.

“If the North takes more action, it could add burdens to the economy,” said Shin.

By Song Su-hyun [ssh@joongang.co.kr]