South Korea Goes Ahead With Firing Drill Despite War Threat

South Korea’s military confirmed the drill, delayed from the weekend by bad weather, had begun at 5:30 a.m. British time. The rumble of artillery fire echoed through air raid bunkers on the island of Yeonpyeong where the exercise was being held.

On November 23, the last time Seoul conducted firing drills from Yeonpyeong close to the disputed maritime border off the west coast of the peninsula, Pyongyang shelled the island, killing two civilians and two marines in the worst attack on South Korean territory since the Korean war ended in 1953.

North Korea warned last week that it would strike even harder if the latest drills went ahead. China and Russia have cautioned Seoul against holding the exercise, while the United States has backed South Korea’s right to hold the drills.

The tension hit Korean markets when they opened on Monday, with the won falling more than one percent to a four-week low against the dollar and stocks also down one percent in early trade. They cut their losses by early afternoon but were still underperforming most of Asia.

“Growing geopolitical tensions due to the drills and persistent worries about the euro zone put heavy pressure on the won,” said an analyst at a local futures firm.

Sunday’s announcement that Seoul would impose a levy on the foreign debt of banks from late 2011 also weighed on markets. The move was Seoul’s latest attempt to discourage too much speculative hot money flowing into South Korean assets, a reminder that local markets are bullish despite the tensions.

“The fact that foreign investors are continuing to buy comes as a reassuring sign,” said Kwak Joon-bo, analyst at Samsung Securities. “Unless North Korea takes actions that are akin to its artillery shelling of the island, the market will be relatively calm.”

Sunday’s announcement that Seoul would impose a levy on the foreign debt of banks from late 2011 also weighed on markets. The move was Seoul’s latest attempt to discourage too much speculative hot money flowing into South Korean assets, a reminder that local markets are bullish despite the tensions.

“The fact that foreign investors are continuing to buy comes as a reassuring sign,” said Kwak Joon-bo, analyst at Samsung Securities. “Unless North Korea takes actions that are akin to its artillery shelling of the island, the market will be relatively calm.”

FEARS OF ESCALATION

Both sides have said they will use force to defend what they say is their territory off the west coast, raising international concern that the standoff could quickly spiral out of control.

Yonhap quoted military officials as saying shells fired in the drill would land more than 10 km from the maritime border. But Pyongyang disputes the border and said last week that it would be a suicidal provocation for Seoul to hold the exercise.

South Korean officials said the North had been making military preparations similar to those observed ahead of last month’s deadly clash, removing covers from coastal artillery and forward-deploying some artillery batteries.

Seoul defends the drills as routine and says it has been holding them on a monthly basis for years. China and Russia say holding the exercise now will only worsen tensions.

“Let me reiterate very strong concern of the Russian Federation that within hours there may be a serious aggravation of tension, a serious conflict for that matter,” said Russia’s U.N. Ambassador, Vitaly Churkin. “It’s better to refrain from doing this exercise at this point in time.”

Russia had called Sunday’s emergency Security Council meeting to try to prevent an escalation on the Korean peninsula, but major powers failed to agree on a draft statement due to differences over whether to lay the blame on Pyongyang. Reuters