SKorea: Economy can withstand NKorea tensions

[May 14, 2010]  GWACHEON, South Korea (AP) -- South Korea's economy is strong enough to withstand ongoing tensions with rival North Korea and a recent ratings upgrade proves the point, a top Seoul finance mandarin says, as his country prepares to host high-profile meetings on the global financial system.

The country has made a robust recovery from the worldwide downturn that began in September 2008. Its economy, Asia's fourth largest, took a hit in the last three months of that year and contracted 4.5 percent, but has since roared back to record five straight quarters of growth.

Now, Seoul is hoping to show off that economic muscle and highlight what it sees as an important bridging role between developed and developing nations. South Korea is serving as chair of the Group of 20 forum this year. That means hosting a series of meetings, including a summit in November. The first test is a gathering of finance ministers and central bank governors set for June 4-5 in the southern port city of Busan.

The South's economy has proven quite resilient over the years to confrontations on the Korean peninsula, said Yim Jong-yong, first vice minister at the Ministry of Strategy and Finance. And a spike in tensions after a navy patrol ship, the Cheonan, sank in late March in waters near the disputed sea border with North Korea is unlikely to prove an exception.

"If you look at the recent upgrade of the nation's credit rating by Moody's, that was made after the Cheonan incident," he said in an interview this week at his office in the leafy government complex in Gwacheon, near Seoul, where a number of ministries are located. "That may reflect international perspective toward the South Korean economy."

Yim said that the country's crisis management skills and military alliance with the United States mean tensions over the ship sinking will have little impact.

Moody's Investors Service last month lifted South Korea's government bond ratings to A1 from A2, saying the country escaped the global downturn without a large increase in government debt and kept its fiscal deficit relatively small.

South Korea's benchmark stock index has largely held steady this year, gaining as much as 4.1 percent, though has mostly pared those gains amid concerns over Europe's debt woes. The country's currency, the won, has risen 3 percent against the dollar.

Seoul is conducting a probe into the ship sinking, in which 46 sailors died. While no conclusions have been announced, evidence uncovered so far, such as metal fragments and gunpowder traces, has heightened suspicions the vessel was brought down by a North Korean torpedo, which Pyongyang denies.

South Korean media have reported the results of the investigation could be released next week.

North Korea, which does not belong to the G-20, casts a long shadow in Asia and has a track record of stealing the limelight during international meetings held in the region .

Last year, South Korea imposed heavy security on the country's southern island of Jeju during a summit with Southeast Asian leaders following North Korean nuclear and missile tests, positioning a surface-to-air missile outside the venue.

Despite the North's propensity to grab headlines, Yim is confident Pyongyang will not spoil South Korea's G-20 leadership.

"I don't think the North Korea risk can be an issue at any of the G-20 meetings," he said. "The South Korean economy is on the way to a very fast recovery and, also, South Korea is a pivotal player in the G-20 so I don't think the North Korean factor will have any significant impact on the status of South Korea at the meetings."

Since the 2008 financial crisis, the G-20 has emerged as perhaps the key international forum for managing the global economy. Founded in 1999, it includes rich countries such as the United States, Japan, and Germany, emerging powers China and Brazil and developing economies including Indonesia and South Africa.

South Korea was one of the poorest countries in the world 50 years ago and even lagged industrially behind North Korea. Flash forward, however, and the tables have turned. The South has risen to become an industrial powerhouse and international aid donor, while its communist rival, though nuclear armed, relies on outside food assistance.

"Hosting the G-20 summit this year means that South Korea is now a very responsive member of the international community and also its status in the community has been enhanced and raised," Yim said.

Given its history, South Korea sees its leadership of the G-20, which comes as the global recovery remains fragile and amid jitters over the sovereign debt crisis in Europe, as a chance to bridge the developmental gap between nations and ensure that all voices are equally heard and respected.

"South Korea wants to be a mediator, or coordinator, between developed countries and developing countries," Yim said, and make sure that the concerns of emerging economies, such as a desire for a safety net against financial turmoil, are met.

[Associated Press; By KELLY OLSEN]

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