September 27, 2017 / 7:52 AM / in a year

Managing North Korea risks utmost priority for economy - South Korea deputy finance minister

SEJONG, South Korea (Reuters) - South Korea’s currency chief said on Wednesday that his top priority is managing risks to the country’s financial markets from rising tensions over North Korea, as the won slid to a six-week low.

Increasingly harsh exchanges between North Korea and the U.S. have unnerved foreign investors in recent weeks, with both South Korea’s central bank and the finance ministry warning that further provocations could lead to sudden capital outflows.

“For now, managing risks (related to North Korea) and making sure that our sovereign credit rating stands unscathed are our top priorities,” deputy finance minister Hwang Kun-il told Reuters in Sejong, south of Seoul.

“Short-term, its difficult to expect markets to recover fast (from North Korea related jitters),” Hwang said, adding that his team will be on stand-by to provide policy responses to any escalations that occur over the long Chuseok holiday from Oct. 2 through Oct. 9, when local financial markets will be closed.

Foreign investors ended a seven-month long buying spree and turned into net sellers of South Korean bonds in August. The yield on three-year treasury bonds rose 25 basis points to 1.832 percent on Wednesday amid a multi-trillion won selloff this week.

They also unloaded 2.4 trillion won (£1.57 billion) of South Korean stocks in August after buying 5.8 trillion won worth in July, data from the Financial Supervisory Service showed.

The won closed at a six-week low on Wednesday.

Still, global rating agencies won’t be adjusting their sovereign credit rating of South Korea anytime soon, Hwang said he confirmed recently, as their current rating of Asia’s fourth largest economy already reflects risks related to North Korean provocations.

Hwang said the finance ministry has “detailed” contingency plans in place for various risk scenarios, but added he could not disclose specifics of policy responses now.

Commenting on a bilateral currency swap deal with China, Hwang said Seoul is in talks with Beijing through “various channels” to discuss the agreement expiring in October.

Market participants see Seoul’s diplomatic standoff with Beijing over security issues as a hurdle in extending the $56 billion swap deal, given China continues to boycott made-in-Korea products over Korea’s decision to deploy a U.S. anti-missile defence system in the country.

Reporting by Shin-hyung Lee, Cynthia Kim; Editing by Kim Coghill

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