(Bloomberg) -- North Korea said it would deploy troops into areas on its side of the border where it had joint projects with South Korea, further escalating tensions with its neighbor a day after destroying a liaison office the two once shared.
The General Staff of the Korean People’s Army will send the troops in the areas around a joint factory park in the western border city of Kaesong, where the liaison office was located, and to the Mount Kumgang tourist area, the official Korean Central News Agency said Wednesday, citing a spokesman.
The two Koreas agreed to remove troops from those areas to make way for the joint projects that had once been seen as symbols of reconciliation. Such projects are now a focal point of a pressure campaign by Kim Jong Un’s to force President Moon Jae-in to break from a sanctions regime led by the U.S.
Kim Jong Un Raises Pressure on South Korea to Split With Trump
Kim Yo Jong, the North Korean leader’s sister, “flatly rejected” a request from Moon’s government to send National Security Adviser Chung Eui-yong and spy agency chief Suh Hoon as special envoys, KCNA said separately. She called it a “tactless and sinister proposal,” KCNA said.
The South Korean won dropped 0.5% to 1,213.45 against the dollar as of 9:19 a.m. Seoul time as North Korea moved to send troops near its border with the South. The yield of the nation’s 10-year government bond was little changed at 1.4%.
South Korea infrastructure stocks, which are seen as benefiting from inter-Korean businesses, fell on Wednesday amid the rising tensions on the Korean Peninsula. Hyundai Rotem Co., a maker of train cars, dropped as much as 6% in early trading, while Hyundai Elevator Co. slipped as much as 5.1%. Defense stocks rose, such as LIG Nex1 Co. rose as much as 8.4%.
North Korea has blamed the deterioration in ties on defector-led activist groups in South Korea sending anti-Pyongyang leaflets by balloon across the border. While millions of such leaflets have been sent into North Korea over the years, the more recent campaigns after a flurry of speculation about Kim’s health and grip on power after a series of extended absences from public view.
Kim has shown increasing frustration with Moon since the long-time proponent of peace with North Korea has nonetheless maintained his support for the U.S.-led sanctions campaign. President Donald Trump has refused to relax the sanctions after three face-to-face meetings with Kim failed to produced what they U.S. side viewed as an acceptable plan to reduce North Korea’s nuclear program.
In recent weeks, Moon has renewed his pledges to restore economic cooperation and sought to lower tensions by seeking to cancel the licenses of the two groups over the leaflets. So far, the South Korean president has shown almost no appetite for retaliating against the Kim regime at the risk of derailing a pledge he made to his supporters to bring the Koreas closer together.
South Korea’s country’s National Security Council on Tuesday warned North Korea of a strong response if it took further actions, but gave no indication of imminent retaliation.
Still, North Korea also published a statement from the director of the ruling Worker’s Party of Korea’s United Front Department denouncing Moon, describing him as the “chief culprit” and a “provocateur” who allowed ties to fall apart. The statement from Jang Kum Chol illustrated the South Korean president’s dilemma in trying to please both North Korea and his own constituents at home, mocking his “humiliating policy of low posture and the policy of behaving at the beck and call of the north.”
Rachel Minyoung Lee, a former analyst for the U.S. government specializing in North Korea, said Kim’s government was likely to further escalate tensions. The country may later direct its attention to Trump to pressure him to make concessions in sputtering nuclear disarmament talks as the presidential election nears.
Last week, North Korea accused the U.S. of breaking promises it made at a historic summit two years ago, saying the Trump administration had turned dreams for peace into “a dark nightmare” and it saw no benefit in engaging with Washington.
“That would be great a way to get back at Trump,” Lee told Bloomberg Television, adding it may be a chance “to show off to the world North Korea’s strategic-weapons capability.”
(Updates with North Korean statements in third paragraph, markets in fourth paragraph)
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