North, South Korea Exchange Deadly Salvoes, Roiling Markets
Nov. 23 -- North Korea lobbed shells at a South Korean island near their border, setting fire to houses and killing two soldiers in the worst attack on its neighbor in at least eight months.
South Korea returned fire with 80 shells and scrambled fighter jets as President Lee Myung Bak vowed to respond "sternly." Local television channel YTN showed smoke billowing from Yeonpyeong island off South Korea's northwest coast and said residents took cover in bomb shelters. Stocks and U.S. futures dropped while the dollar and Swiss franc strengthened.
Today's skirmish comes three days after U.S. President Barack Obama dispatched envoy Stephen Bosworth to Asia after reports by a U.S. scientist that North Korea had revealed a "stunning" uranium-enrichment plant. Tensions with Kim Jong Il's regime have risen in the past year after the sinking of the South Korean warship Cheonan in March that killed 46 sailors.
"They want to direct attention to themselves, to say: 'Look we are here, we are dangerous and we cannot just be ignored," said Andrei Lankov, an associate professor at Kookmin University in Seoul. The U.S. position had been to engage in talks when there was a prospect of democratization in the North, he said. "Now the chances for democratization are virtually zero, so they have nothing to talk about."
The MSCI Asia-Pacific excluding Japan Index declined 2.3 percent to 454.14 as of 6:00 p.m. in Hong Kong, set for its biggest loss since June 29, while the Stoxx Europe 600 Index fell 0.9 percent. Standard & Poor's 500 Index futures sank 1 percent. The dollar rose against all of its major counterparts except the Swiss franc as the Korean crossfire fueled demand for safer assets.
'Tinder Box'
"The North Korean issue is a tinder-box for the region," said Gavin Parry, managing director of Hong Kong-based Parry International Trading Ltd. "They like to saber rattle for attention, but on the heels of a nuclear inspection that indicated they could have bomb capabilities, markets can't afford to ignore any instability for the region."
By attacking Yeonpyeong Island, 2 miles (3.2 kilometers) south from the border, North Korea has escalated its provocations against the South and its U.S. ally, according to Kenneth Quinones, former U.S. State Department director of North Korean affairs, and now a professor at Akita International University in Japan.
"This is one of the most serious North Korean provocations in at least two decades," he said. The latest attack "was on a civilian-occupied island, unlike the Cheonan, which was a naval warship. This is very serious."
Reasons Why?
North Korea may be trying to force a change in U.S. policy that, under Obama, has shunned talks with Kim's regime until it ends provocations and lives up to commitments on ending its nuclear weapons program, Lankov said. The attack may also signal domestic instability as the ailing Kim seeks to cement the handover of power to his youngest son, Kim Jong Un.
"My gut feeling is that Kim Jong Il is having a very hard time controlling his generals," Quinones said. "The North Korean military is asserting itself at a time when Kim is weak both physically and militarily. Kim Jong Un means nothing; he's a puppet."
Kim Jong Un made his public debut in September, when he was named a general and vice commissioner of the Central Military Commission, the nation's most powerful body. Those were his first public appointments and were followed by a succession of appearances alongside his father.
The power transition comes as North Korea labors under United Nations sanctions over its two previous nuclear tests. Attempts to force Kim's regime back to disarmament talks have foundered after North Korea quit the six-party forum last year. The talks include the U.S., Russia, Japan, South Korea and China, the North's main political ally and source of financial aid.
China Concerns
China expressed "concern" over the North Korean shelling.
"We hope the parties do more to contribute to peace and stability on the Korean Peninsula," Foreign Ministry Spokesman Hong Lei told reporters in Beijing today. Reports on North Korea's new uranium-enrichment plant underscore the need for disarmament talks, Hong said.
"What is important is to restart six-party nuclear talks at an early date," he said.
The U.S. condemned the North's shelling and said it was "firmly committed" to defending South Korea, according to a statement released by the White House.
The South Korean military was undertaking military exercises on Yeonpyeong, close to the site of two deadly naval skirmishes between the two nations in 1999 and 2002. North Korea last fired artillery near the island in August.
North History
North Korea has a history of attacks on the South since the two sides fought to a standstill in their 1950-1953 civil war. China backed the North and the United States led an international force fighting on the side of the South, laying out a Cold War relationship that endures to this day.
The U.S. stations about 25,000 troops in the South and Obama said during a Nov. 10 Veterans Day speech in Seoul that America's resolve to stand alongside its ally will never waver.
The U.S. has called on China to do more to influence the North's behavior, which has proved a source of friction amid growing trade ties in the region.
Previous incidents have included the bombing of a civilian airliner, two assassination attempts on the president and incursions by mini-submarines carrying commandoes.
South Korean President Lee Myung Bak called an emergency meeting, his office said.
High Alert
The military has been put on high alert and will "respond strongly" to further provocation, the defense official said, speaking on condition of anonymity because of departmental rules.
"What can South Korea do apart from a bit of chest beating?" Lankov said. "They are not going to start a war. I think they will try to play it down."
While the uranium program is "another in a series of provocative moves," it doesn't pose a crisis, Bosworth said yesterday in Seoul. The envoy is in China, after visiting Japan.
North Korea's reported progress in developing its nuclear energy industry casts doubt on the effectiveness of tougher United Nations sanctions imposed for its second nuclear test in May 2009. The U.S. is pushing for a global effort to choke off funds to the regime in a bid to squeeze military-related industries and force Kim back to six-party talks
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