&#91OUTLOOK&#93Removing threat of force is risky

I fail to understand the logic informing those who argue against the consideration of any coercive measures (i.e., sanctions, diplomatic isolation, interdiction, or military action) in dealing with North Korea’s nuclear truculence. Any diplomatic pressure, it is argued, could precipitate a lashing out by Pyeongyang or the collapse of the North Korean regime, the cost of which would be devastating to the South.
True. But has anyone calculated the costs of a North Korea with a mid-sized nuclear arsenal mated with a ballistic missile program? Unlike in Iraq, the preemptive withdrawal of all coercive diplomacy with North Korea is almost certain to result in some nuclear capability in the isolated and opaque nation. The long-term costs of this outcome are far from small.
On March 18, Goldman Sachs downgraded its evaluation of the Korean stock market and advised investors to reduce their investments in Korean shares. On the same day, JP Morgan issued a recommendation to investors against U.S. dollar-denominated liabilities issued by the Korean government. Merrill Lynch also recommended against buying Korean stocks earlier in the month. These evaluations by the powerful Wall Street investment houses followed the now well-reported decision by Moody’s on February 11 to downgrade South Korea’s sovereign credit rating and country outlook for the first time following successive years of positive assessments after the financial crisis five years ago.
These negative evaluations stemmed not from questions about South Korea’s economic recovery, nor from concerns about corporate restructuring efforts, labor problems, credit fundamentals or the new Roh Moo-hyun government’s economic competencies. Indeed, Goldman Sachs claimed that Korean share values were currently undervalued. But there was too much inherent instability and security concerns raised, as one report stated, by the lingering nuclear tensions on the peninsula.
For South Koreans, this might seem incredulous. Proximity to the North Korean threat for fifty-plus years perhaps leads to a jaded evaluation of North Korean cyclical truculence. Roh Moo-hyun sent his national security advisor to Wall Street to try to calm investors. But there has been little change. Most of the trading activity on the South Korean stock market is being done by South Koreans. Once the North Koreans start reprocessing plutonium for nuclear weapons, fire a long-range ballistic missile, or declare themselves a nuclear power (and there are indications that they will do so once the war is underway in Iraq), the slow trickle of market pessimism about South Korea could turn into a flood.
The cost of a nuclear North Korea, moreover, is not measured only in terms of short-term market fluctuations but long-term growth. The Korea Economic Research Institute predicted 2003 growth might shrink to 1.4 percent from 6.2 percent in 2002 because of the nuclear crisis. Concerns also exist that Japan’s small economic recovery and increase in demand could be stalled as well by the crisis.
Those who think that an eternally optimistic South Korean government, committed to the peaceful status quo and engagement with North Korea, will be able to muddle through are sorely mistaken. All it took was one short-range missile test by Pyeongyang into the East Sea (Sea of Japan) for the Kospi (Korean Composite Stock Market Price Index) to tumble almost 4 percent in one day last December despite a litany of parallel confidence-inducing events, including Roh Moo-hyun’s inauguration, the U.S. announcement of the resumption of food aid to the North and Secretary Powell’s statements in Seoul that the United States would eventually seek dialogue with North Korea.
After North Korea’s second short-range missile test, the Kospi dropped to its lowest level in 16 months; the Japanese Nikkei closed at its lowest level in 20 years, and the Korean won depreciated to a four-month low. And these numbers are not yet even factoring in the costs to be incurred by trying to roll back an extant mid-sized nuclear weapons program in North Korea.
The bottom line is that Washington and Seoul need to get back on the same page when dealing with North Korea both to resolve the current crisis and salvage the alliance. The costs of a nuclear North Korea to South Korea and her neighbors are much higher than we think. No one is advocating the use of force in preemptive fashion as in Iraq, but simply that the Roh government may want to rethink the basic cost calculation that causes them to take it off the table completely as an option. Historically, the most credible and successful engagement policy has been a proactive choice of the strong, rather than an expedient of the weak.

* The writer is a professor of government and D.S. Song-Korea Foundation chair at Georgetown University.

by Victor Cha