SEOUL– South Korea will closely monitor the escalating tensions in Ukraine on concerns it could increase market volatility and negatively affect the domestic economy, top government and central bank official said Tuesday.
Russian President Vladimir Putin on Monday ordered the deployment of troops to two breakaway regions of eastern Ukraine after recognizing their independence, which raised the possibility of Russia invading Ukraine, dampening hopes for a diplomatic solution.
Policymakers and market watchers are paying keen attention to developments surrounding Ukraine as a military clash could have negative impact on South Korea’s economy as it relies on imports of energy and other raw materials from the region.
Finance Minister Hong Nam-ki said the government will swiftly take measures to stabilize the financial market if needed, based on its contingency plans to respond to the situation.
“The Ukraine crisis has shown signs of escalating into a regional conflict amid lingering economic risks at home and abroad, such as the global economic slowdown and U.S. monetary tightening,” Hong said.
Bank of Korea (BOK) Gov. Lee Ju-yeol also called for vigilance against the economic fallout of the Ukraine tensions.
“There is a need to closely monitor the related developments for 24 hours and the impact on financial markets and economic conditions at home and abroad,” Lee said.
Heightening tensions in Ukraine sent the benchmark stock index sharply lower. The local currency also lost ground against the U.S. dollar.
The KOSPI lost 37.01 points or 1.35 percent to end at 2,706.79. The Korean currency closed at 1,192.70 won against the U.S. dollar, down 0.6 won from the previous session’s close.
The trade ministry checked the possible impact of the Ukraine crisis on South Korea’s exports, energy costs and supply chains.
As South Korea’s exports to Russia and Ukraine took up a mere 1.5 percent and 1 percent of the total outbound shipments, respectively, the Ukraine crisis is not likely to have significant impacts on the country’s exports, according to the government.
As the country has secured sufficient supplies of energy and raw materials with long-term contracts, there would be no problem in ensuring energy supplies, it said.
But the heightened geopolitical risk over Ukraine has driven up already high oil prices. Russia is one of the largest oil producers.
Dubai crude, South Korea’s benchmark, soared to $93.05 per barrel on Feb. 15, up from $77.12 at the end of last year. South Korea depends mainly on imports for its energy needs.
At a meeting of the National Security Council, President Moon Jae-in also voiced concerns that if the U.S. and its allies impose stringent sanctions against Russia, it could have a negative effect on Asia’s fourth-largest economy.
Surging energy costs and the won’s weakness are feared to further boost the country’s import bills, exerting upward pressure on consumer inflation.
In January, the country’s consumer prices rose 3.6 percent from a year ago, compared with a 3.7 percent on-year gain in December last year. Consumer inflation grew more than 3 percent for the fourth straight month. The BOK aims to keep annual inflation at 2 percent over the medium term.
Source: Yonhap News Agency