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South Koreans Worried North Korean Nuclear Crisis Could Harm Their Economy - 2003-02-24

Politicians and business leaders in South Korea fear global concerns about Pyongyang's nuclear programs could damage the South's economy. Some foreign businesses already are rethinking plans to invest in South Korea.

For the past few months, Tami Overby has been getting phone calls from overseas companies wanting to know if it is safe to invest in South Korea. The executive director of the American Chamber of Commerce in Seoul says she is convinced it is safe, and tells companies so.

Still, she says, worries over North Korea's nuclear programs have caused some investors to hold back, she says. I am aware of two or three investors that have said 'Well, we're just going to wait and see.

Tensions have been rising on the Korean Peninsula since October, when the United States said North Korea had admitted having an illegal nuclear weapons program. Since then, Pyongyang has pulled out of the Nuclear Non-proliferation Treaty, expelled nuclear monitors and has moved to restart nuclear facilities that could produce weapons.

In an almost daily flow of belligerent commentary, Pyongyang also has threatened to turn the Korean Peninsula into a "sea of fire" if it is attacked or if international sanctions are imposed on it.

Many political and business experts in South Korea say a war is very unlikely and they express confidence that the dispute will be resolved peacefully. Ms. Overby at the American Chamber of Commerce says for companies already in South Korea, it is business as usual, despite North Korea's actions. Expansion plans are going on, people who were planning to make those acquisitions are continuing with those acquisitions, she says.

The problem, however, is that confidence is key to investment, and North Korea's tough talk hurts confidence.

Park Yong-ok is a retired South Korean general and professor at the National Defense University. He says South Korea's new president, Roh Moo-hyun, is playing down military talk to shore up business confidence. [Roh] once said that if we emphasize the danger of war on the peninsula, who will invest in this land?

Building the economy is a central goal for Mr. Roh. While South Korea reported economic growth of 6.2 percent last year, it expects slower growth, around 5.7 percent, this year. The country's Central Bank has warned growth may shrink further if the tensions with North Korea do not ease.

Some damage already has been done. One U.S. businessman says his company has decided to hold off on new deals in South Korea.

And earlier this month, the credit ratings agency Moody's Investors Service cut its outlook for the South Korean economy to negative from positive. Moody's says a protracted dispute with North Korea will hurt the South's economy. For South Korean businesses, Moody's action means it could become tougher to borrow money overseas - money that is needed to expand operations and create jobs.