Vice Minister of Economy and Finance: "Impact of Ukraine Situation 'Still Limited'... Preparing for Contingencies"

1st Emergency Response TF Meeting on the Ukraine Crisis

Lee Eok-won, 1st Vice Minister of Strategy and Finance, is presiding over the 1st Emergency Response TF Meeting on the Ukraine situation held at the Government Seoul Office on the morning of the 4th. 2022.2.4 [Photo by Yonhap News]

[Asia Economy Sejong=Reporter Son Seon-hee] Amid rising military tensions around the border area between Russia and Ukraine, the government has assessed that the impact of the current situation on the domestic economy is 'still limited.' However, it stated that it will prepare responses in case the two countries actually enter into war, a 'worst-case scenario.'

Lee Eok-won, First Vice Minister of the Ministry of Economy and Finance, held the first emergency response task force (TF) meeting on the Ukraine situation at the Government Seoul Office Building on the morning of the day, saying, "So far, the economic impact appears limited," but added, "We are closely monitoring related developments and are making every effort to take preemptive measures in preparation for any possible situation."

The Vice Minister said, "The instability in Ukraine's situation could act as a risk factor for energy, raw materials, financial markets, and the real economy, so it needs to be carefully observed," and added, "Considering the importance of Ukraine in the grain and energy sectors, concerns about supply chain disruptions and rising energy prices have been raised." He recalled the example of last December when the Yamal gas pipeline, one of the Russia-Europe gas pipelines, was cut off, causing a sharp rise in natural gas prices within Europe.

He continued, "There is also a possibility of increased financial market volatility linked to the potential early interest rate hikes in the U.S. and the spread of the Omicron variant," and expressed concern that "if the instability leads to a decline in global trade, it could act as a downside factor for the recovering global economy."

However, he noted, "Although recent volatility in energy and raw material prices has somewhat increased, it is difficult to attribute this solely to the direct impact of the Ukraine situation," and forecasted, "Considering our energy stockpiles and reserves, the direct impact on our economy in the short term is expected to be limited." Regarding the impact on financial markets, he also described it as 'limited,' adding, "Considering the exposure level of domestic financial companies to Russia and Ukraine (0.4% of total overseas exposure), the direct impact on our financial market from the Ukraine situation is expected to be minimal."

Nevertheless, the Vice Minister warned, "If the instability deepens and prolongs, it cannot be ruled out that negative effects could spread throughout our economy via various channels such as supply chains for raw materials, finance, and the real economy," and urged, "We must maintain a high level of vigilance and focus on minimizing the impact of Ukraine's instability on our economy."

The government held the first TF meeting on the day and officially launched an intergovernmental response system. Attendees included officials from the Ministry of Economy and Finance, Ministry of Science and ICT, Ministry of Foreign Affairs, Ministry of Agriculture, Food and Rural Affairs, Ministry of Trade, Industry and Energy, Financial Services Commission, and Financial Supervisory Service.

The Vice Minister stated, "We will strengthen monitoring of international raw materials such as energy and thoroughly check the stock status of domestic reserves including strategic oil reserves, non-ferrous metals, and rare metals," and added, "We will prepare customized supply stabilization measures focusing on items with high dependence on Russia and Ukraine, difficult to substitute, and important for the economy, industry, and public life." He also said, "A comprehensive response plan in preparation for a worst-case scenario will be prepared and discussed and finalized through the External Economic Security Strategy Meeting scheduled for February."

This content was produced with the assistance of AI translation services.