Bloomberg News

Korean Ties May Thaw After Election Even With North’s Rocket

December 05, 2012

Korean Ties May Thaw After Election Even as North Readies Rocket

A pedestrian walks past posters of presidential candidates in Sejong, South Korea. Photographer: SeongJoon Cho/Bloomberg

North Korean dictator Kim Jong Un can launch a rocket this month in defiance of international opprobrium and still look forward to better relations with South Korea’s next president.

The candidates in the Dec. 19 election to head Asia’s fourth-biggest economy are outdoing each other in pledges to re- engage with the totalitarian state, undeterred by Kim’s plan to fire a rocket as soon as next week. The ruling New Frontier Party’s Park Geun Hye vows to help the regime join global organizations and opposition nominee Moon Jae In promises to boost tourism and invite North Koreans to his inauguration.

Ties have soured during the five-year term of outgoing President Lee Myung Bak, highlighted by North Korean missile and atomic bomb tests and two clashes in 2010 that killed 50 South Koreans. Mending fences may offer companies in the South expanded access to a joint industrial zone while bringing aid to Kim, whose economy is one-fortieth the size of his rival.

“Voters know that inter-Korean relations are multifaceted and complex, and don’t hinge solely on the launch of one rocket,” said Yang Moo Jin, a professor at the University of North Korean Studies in Seoul. “The election allows Kim to do pretty much whatever he wants and still have a new South Korean counterpart that’s willing to talk.”

Lee, whose five-year term ends in February, abandoned his predecessor’s “Sunshine Policy” that encouraged cross-border tourism and family reunions, saying it rewarded North Korean provocative behavior. His popularity has fallen by more than half since taking office, and Park has repudiated his stance.

Park’s Lead

North Korea announced on Dec. 1 that it will fire a long- range rocket sometime between 7 a.m. and noon during a Dec. 10-22 liftoff window, to put a satellite into orbit. South Korea and the U.S. are negotiating with Japan and United Nations Security Council permanent member states China and Russia on options for new “proportional” sanctions against the North if it goes ahead with the launch, South Korean Foreign Minister Kim Sung Hwan told lawmakers today in Seoul.

Support for Park rose 1.9 percentage points to 49.7 percent since North Korea announced its launch plan on Dec. 1, while Democratic United Party nominee Moon’s rating fell 1 percentage point to 42.1 percent, according to a daily poll published today by Realmeter and JTBC, a television affiliate of the JoongAng Ilbo newspaper. The Dec. 4-5 survey of 1,500 people had a 2.5 percentage point margin of error.

Geopolitical Risks

Reducing tensions may benefit South Korea’s investment climate. The country’s sovereign debt rating was raised by Standard & Poor’s in September on reduced geopolitical risk due to a “smooth” leadership transition after Kim last year succeeded his late father Kim Jong Il. The upgrade followed similar moves by Fitch Ratings and Moody’s Investors Service and sent the won to a four-month high against the dollar.

The South Korean currency is up 6.6 percent this year, as is the benchmark Kospi (KOSPI) stock index.

“The majority view is that the current policy is too hard- line, which is why even Park is running to improve inter-Korean relations,” said John Delury, a political science professor at Yonsei University in Seoul.

Moon and Park both called on North Korea to halt plans to fire a rocket with a satellite sometime between Dec. 10-22. At the same time, neither has backed away from campaign promises to meet with Kim.

Kim’s Inheritance

The younger Kim, believed to be under 30, inherited an impoverished country that has more than 250 long-range artillery installations along the world’s most fortified border. South and North Korea technically remain at war after their 1950-1953 conflict ended without a peace treaty.

“I am willing to participate in summit talks,” Park, 60, said in a Dec. 5 debate with Moon, 59. “I will provide humanitarian support independent of political developments. I will also expand economic cooperation and social, cultural exchange.”

Moon at the debate called for expanding the joint Gaeseong industrial zone north of the border and reviving tourism at North Korea’s Mount Geumgang, a luxury resort that was closed after soldiers shot and killed a South Korean guest.

More than 120 South Korean companies including watchmaker Romanson Co. (026040) and underwear manufacturer Good People Co. (033340) employ about 50,000 North Korean workers at Gaeseong. Production at the complex rose 17 percent in 2011 to $1.7 billion, accounting for 99 percent of bilateral trade, according to South Korea’s Unification Ministry.

Joint Success

North Korea is working to increase foreign investment and Kim has made development a priority to boost an economy burdened by international sanctions imposed over its nuclear program. The regime launched a rocket in April that exploded shortly after takeoff, costing it a U.S. deal to provide food assistance for a population where two-thirds suffer from chronic malnutrition.

“Whoever wins, the new government will aggressively launch projects of economic cooperation as soon as it get settled because that’s the one area where quick results can be highlighted,” said Cho Bong Hyun, an economist at the Seoul- based IBK Economic Research Institute. “Inter-Korean relations have been so bad that they can only get better.”

To contact the reporter on this story: Sangwon Yoon in Seoul at syoon32@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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