No time for optimism

North Korea has made its intentions clear with its latest powerful nuclear test. It sent a crystal-clear message that it won’t stop with nuclear and missile development unless the United States backs down. The North is demanding from the United States that Washington reverse its hostile policy towards Pyongyang through a bilateral peace treaty and follow-up actions.

Pyongyang has aimed to make its nuclear and missile programs a constant — not a variable — in dealing with the rest of the world. We were naïve to believe we could keep it as a variable in overall North Korean affairs through dialogue. Moreover, policymakers underrated the Pyongyang regime by thinking today’s leadership is no different from the past. They must face the ugly reality now. The North will go on with nuclear and missile advances and provocations regardless of diplomatic efforts and sanctions. There is no other option left except for military action, which is obviously out of the question.

So what now? More powerful sanctions are being called for. Sanctions can hardly deter the North’s nuclear and missile tests, but they can drastically increase the opportunity cost. As striking the United States would be suicidal for North Korea, its saber-rattling is aimed at bringing Washington to the negotiating table.

Pyongyang would have the upper hand when it responds to a dialogue unfazed by sanctions. But if it comes to the negotiating table humbled by sanctions, the result could work out more favorably for our side. North Korea must come to negotiations with an acute awareness that it could face enormous and painful economic consequences if it walks out of the talks. Otherwise, talks would make no progress as North Korea would go on insisting on withdrawal of U.S. troops from South Korea or a termination of the South Korea-U.S. military alliance.

The only workable options left on the sanctions list are cutting off oil supplies and banning recruitment of North Korean workers. But China and Russia — permanent members of the UN Security Council — will likely oppose those moves. As an alternative, South Korea could join the U.S. sanctions as Japan has been doing. Traders in China with business in North Korea are more connected with South Korea and Japan than the United States. Russia’s Far East development also can hardly be pursued without the support of South Korean and Japanese enterprises. That is a bargaining chip to use.

Sanctions from South Korea and Japan could be more painful on North Korea than those coming from the United States. If the European Union joins the sanctions, extra pressure could be mounted on Russia and China.

Second, we must try best to defend the economy from ill effects of the North Korean nuclear crisis. The firing of an intercontinental ballistic missile on July 28 that put U.S. territory in its range sent unprecedented turbulence to the Korean capital markets. While markets largely ignored the North’s provocations in the past, the Korean won and stock prices nose-dived. The markets stabilized only after U.S. Secretary of State Rex Tillerson and Defense Secretary James Mattis stressed diplomatic means to solve the crisis.

North Korean nuclear and missile threats have become a prime risk to the Korean capital markets. Those threats have become more alarming and real, and it has become unclear what actions the United States would take. The government must do all it can to minimize the volatilities in the markets and pay extra attention to the impact on the local currency.

When North Korea’s nuclear crisis escalates, foreign investors will check how much Seoul has in foreign exchange reserves. Seoul should immediately renew talks to extend a currency swap with Tokyo. Foreign investors could pull out en masse if they lose confidence in the country’s economic policy on top of the security threats.

Third, authorities must brace for the worst such as a pullout of U.S. troops or even a war and prepare contingency plans. In the meantime, they must tighten security alliances with the United States and Japan. They must seek closer ties with Tokyo. When Seoul and Tokyo strengthen military ties, the policy maneuvering space widens for Washington. The United States will intervene in military engagement in the South under its alliance with Japan even if bilateral ties between Seoul and Washington weaken.

There is no guarantee of a soft landing for the North Korea nuclear crisis. The North could push its nuclear weapons development to the limit. At one time, the president of South Korea may have to plead with his people to fight for their freedom. This is no time for optimism. The government must broaden its human resources pool to seek wisdom from the best strategists and experts in the foreign affairs, security and North Korean fields. Any sign of lack of will or a careful strategy from the government will cause alarm.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, Sept. 7, Page 31

*The author is a professor of economics at Seoul National University.

Kim Byung-yeon