KIEP Presents Report to President Roh

An analysis reported that the worsened relationship between Korea and the U.S. will work as a major anxiety factor in the domestic financial market and the real economy.

In the report titled “The Effect of the Korea-U.S. Relationship on our Economy” proposed to President Roh Moo-hyun recently, KIEP (Korea Institute for International Economic Policy) pointed out that, “In the current situation, if a factor that can raise serious questions occurs, the financial and foreign exchange market can become largely unstable by a decline in the national credit rank, foreign capital secession from stock market, drop in stock prices, and an increase of risk premium of Korea-issued bonds.” This report will be published in the “Cheong Wa Dae Briefing” (www.president.go.kr) on July 7.

The KIEP report explained that, “This outlook is due to the activity of international financial market being greatly influenced by analysis and evaluations of American-based financial institutions, and the analysis and evaluations of these financial institutions on the individual countries’ political, economic, and security situation being affected by the consensus between the U.S. Department of Defense, Department of the Treasury, and the White House.”

This report also observed that, “The worsening of the relationship between Korea and the U.S. will go beyond the impact of the financial and foreign exchange market, and will have a large spread effect on the real economy through curtailment or suspension of foreigners’ direct investment influx, as consumption and investment psychology of household economies and enterprises experience shrinkage.”

In particular, the report pointed out that, “Even a small change in the Korea-U.S. relationship can significantly impact our economy,” and added, “Since the variable occurrence of the North Korea nuclear program, the current situation is one of high ‘sensitivity’ towards the market influence based on the Korea-U.S. relationship that usually would not have been impacted so much.”

Alongside, the report emphasized that, “The U.S. is the country currently leading the trend of the world economy, not to mention the international financial market, and the importance of U.S. in Korea’s import and export as well as in direct and indirect investment is still high.”

Ki-Jeong Ko koh@donga.com