The latest flare-up of a territorial dispute between South Korea and Japan shouldn’t prevent economic cooperation between the two nations, Seoul’s finance minister said in Moscow.
Responding to Tokyo’s suggestion that it may reconsider agreements to bring the two economies closer together, Bahk Jae-wan said there should be a firewall between economic and political matters.
“The territorial issue and the issue of the mutual economic cooperation between our two countries should be dealt with as two separate issues,” Bahk said in an interview Wednesday, ahead of a meeting of finance ministers from the Asia-Pacific Economic Cooperation forum.
A visit to the Liancourt Rocks on August 10 by South Korean President Lee Myung-bak, the first by a Korean president, reignited a long-running dispute over the islets, known as Dokdo in Korea and Takeshima in Japan. Lee further irritated Tokyo by saying the Japanese emperor should apologise to Koreans for his country’s wartime actions if he wants to visit South Korea.
Japan protested President Lee’s islet visit by temporarily recalling its ambassador from Seoul. It called for the countries to settle the dispute in an international court, a suggestion Seoul rejected.
Japan also brought the dispute into the economic sphere, with Finance minister Jun Azumi canceling a planned meeting with his South Korean counterpart and indicating that Tokyo may let an expanded currency-swap agreement between the countries expire in October rather than renew it. Japan also said it may reconsider a plan to buy South Korean sovereign debt.
“We may have different positions regarding territorial issues,” Bahk said. “However, mutual cooperation is based on mutual interests of two countries.” He added that the currency-swap agreement has an “implicit message” that it’s “in a broader sense designed to benefit the global economy.”
Bahk said he hasn’t yet received an official position from Japan regarding the currency-swap agreement, which is mainly designed to give South Korea access to foreign currency during times of crisis.
The minister also said a fresh round of monetary easing in the US and euro zone, which he called “inevitable,” may help the global economy – but possibly with undesirable spillover effects for emerging economies such as South Korea.
Minutes from the latest Federal Reserve meeting, released last week, indicated the US central bank was ready to pump more cash in the economy if the recovery doesn’t pick up. Over in the euro zone, expectations are building for another round of measures from the European Central Bank to help member countries struggling with high interest rates.
Such easing steps may lead to a surge of capital into South Korea, Bahk said, though he added the country “can cope with such problems.” Measures taken by Seoul to mitigate sharp capital flows, such as a cap on banks’ foreign-exchange forward positions, have been effective, he said, and no further steps are in the pipeline.
Bahk said South Korea’s economy still faces significant risks from the global economic weakness, but actual growth for this year likely won’t deviate much from the 3.3 percent the government forecast in June. Inflation may be may be lower than the predicted 2.8 percent level for this year, he said, but the recent emergence of food inflation and the rise of oil prices has increased upward price pressure.