Kim Jong-un’s faulty bet
Published: 02 May. 2013, 21:08
From a purely business perspective, the Kaesong Industrial Complex, a South-North joint venture in North Korea, was a naive and blind investment. The symbolism of inter-Korean cooperation and harmony eclipsed any true business calculations or precautions. We simply placed faith in the idea that North Korea was equally innocent in pursuing the venture. It was a signpost to a rosier future for the peninsula. But as it turned out, North Koreans blocked South Korean workers from coming into the industrial park and suspended its operations with the one-sided claim that South Koreans had “insulted their supreme dignity.”
Yun Su-young, head of Kiwoom Asset Management, explains that international finance is ruled by the logic of power. Overseas investment is tantamount to the ability to redeem debt. If the United States senses its invested money may be at risk, it moves multinational creditor rating agencies to lower the debtor country’s sovereignty debt. If that does not work, it takes legal actions in international courts. In the end, it comes up with some kind of excuse to send warships to the country’s doorstep. We, on the other hand, had no way of guaranteeing the assets and businesses of South Korea’s 123 companies in Kaesong. We were plainly ripped off and forced to watch nearly 10 years of blood and sweat go down the drain. This is the pitiful state of inter-Korean relations.
The economic life of the Kaesong project was more or less ended when North Korea blocked entry to the industrial park a month ago. The proposal for dialogue, North Korea’s refusal and South Korea’s withdrawal followed inevitably. An enterprise and business sustains itself on credit. An entire business can crumble if any corner of its intricate web of finance and trade is disrupted. Two years ago, Japan’s Honda automaker saw its assembly lines inundated by floods in Thailand. The disruption of supplies of a few parts hampered production at Honda’s other lines around the world for six months. Natural disasters cannot be avoided, but who would dare to invest in a country that lives on the whims of its leader?
North Korea’s young leader Kim Jong-un proved to the world that he can be as unruly and violent as his father and grandfather. He faithfully referred to the cold war manuals of his earlier predecessors, playing the madman and yanking from his toybox the game of chicken among nuclear-armed global powers so beloved by his father and grandfather. Playing by their books, North Korea tested a long-range rocket on the pretext of sending a scientific satellite into space and conducted a nuclear test for the third time. It loudly warned it could test more nuclear weapons and long-range missiles. But the effect of that spectacle has already faded. The fear, tensions and anxieties that should be emanated by that strategy no longer work for long.
Since the terrorist attack in Boston, the world has lost interest in the Korean Peninsula. Foreign war correspondents packed up and left Seoul. Beijing is no longer the reliant and ever-understanding ally. It has joined with the UN Security Council to put mounting pressure on Pyongyang. To Pyongyang, Seoul has always been the easy scapegoat. It depended on South Korea to always yield to its demands. Every time North Korea flexed its muscles, South Koreans were swept up in conflict among themselves.
But times have changed. We are no longer intimidated. Regardless of the hysterical and violent rhetoric from Pyongyang, we were more engrossed with a stunning overseas performance by major leaguer Ryu Hyun-jin pitching for the Dodgers and international Korean pop star Psy. South Koreans are all too familiar with the cards North Korea keeps playing. Pyongyang cannot easily fire nuclear weapons nor go to war without the aid and support of Beijing. South Koreans sneer at the uproar aimed at strengthening the young leader’s position at home. They have grown resilient and nonchalant after all the skirmishes, threats and attacks on their Cheonan warship and Yeonpyeong Island.
Pyongyang’s biggest miscalculation was an underestimation of President Park Geun-hye. Park fired off an ultimatum at Pyongyang, giving it a single day to consider complying with her proposal for talks. When Pyongyang refused, she ordered South Korean workers to pack up and leave Kaesong. Such an abrupt action was surprising to Pyongyang. It forgot that Park can play hard ball. When a host of a radio talk show pushed her by repeating a question, the usually soft-spoken Park turned stern and retorted, “Do you want to pick a fight with me?” When the ruling Saenuri Party wrangled over nominations for election candidates, she silenced the noise by sternly telling members to follow orders from the leadership.
South Korean politicians are probably more fearful of the president than Pyongyang’s unruly leader. Since her decisive action on Kaesong, her approval rating has rebounded to above 50 percent. Even her aides are saying that North Korea has been more helpful to the president than her own loyal politicians.
But the price has been heavy as well. The Kaesong project has been damaged beyond repair. Business won’t be as before even if the two Koreas mend ties and reopen the complex. The sight of South Koreans fleeing their workplace in vehicles piled high with products and supplies left a humiliating and indelible scar. South Korean businessmen won’t want to return.
In South Korea, it takes four months on average for consumers to have their credit ratings upgraded by one notch. The rating falls down four notches within a week if a person fails to meet a credit card payment. North Korea has thrown away a credit South Korea has given free and willingly. The adage goes, “When you lose money, you lose some, but if you lose credit, you lose everything.” North Korean leader Kim must recall his earlier promise that he will not let his people go hungry in the future.
* The author is an editorial writer of the JoongAng Ilbo.
by Lee Chul-ho
with the Korea JoongAng Daily
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