Policy Responses To North Korean Provocation To: Jeung-Hyun Yoon, Minister of Strategy and Finance From: Kimchi Park, Department of Crisis Management,

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Presentation transcript:

Policy Responses To North Korean Provocation To: Jeung-Hyun Yoon, Minister of Strategy and Finance From: Kimchi Park, Department of Crisis Management, MOSF Bottom Line: Recommend approving plan for monetary policy in case of unusually large NK attack.

Currently… Status-quo of “low level” provocations e.g. ROKS Cheonan, Yeonpyeong Island Low casualties (< dead), relatively infrequent (≥ six months) …Market Confidence Crying wolf

Currency Reaction to Yeonpyeong

Contingency plan activated… Non status-quo provocation i.e. larger and/or sooner than usual Market reaction would be stronger For:

Contingency Plan Activated… By… Observation Hotline partners Financial and foreign exchange authorities Commercial banks

Objectives 2. Stabilize exchange rate 3. Prevent massive losses in stock market 4. Preserve trade in resources and commodities 1. Prevent market panic and herd behavior

Contingency Plan Prevent capital outflow: Close KOSPI stock exchange Exempt foreigners from withholding tax Tax funds remitted abroad Maintain exchange rate: Purchase won with large foreign reserves Public relations: Press conferences Credit rating agencies

Bottom Line Korean economy relatively resistant to exogenous shocks Increasing trade Current account surplus High savings rate Large foreign reserves US support Market shows history of confidence in Korea Lack of confidence in North Korean credibility President Lee Myung-bak

But… “Let’s smash them with a single blow!”

Questions?

Currency Reaction to Cheonan