South Korea Warns US Projects Remain in Limbo Without Visa Fix

The dollar value of the investment pledge with Washington amounts to more than 70% of South Korea’s foreign reserves, and the shock to the Korean economy would be severe without a currency swap agreement with the US, Kim said.

President Lee Jae Myung recently said in a Reuters interview that a swap agreement is needed to avoid an economic crisis similar to what South Korea experienced in 1997 during the Asian Financial Crisis if the nation tries to meet all the US demands.

Lee met with Treasury Secretary Scott Bessent on the sidelines of the United Nations General Assembly session in New York on Wednesday and said he hopes the trade talks will move forward in a mutually beneficial way.

Kim declined to go into details of ongoing negotiations but said a deal that puts a significant fiscal burden on South Korea may require parliamentary approval. He said he hoped talks over the deal wouldn’t extend into next year.

“There’s the feeling that it’s difficult for us to accept that, not just the negotiating team but also among the public,” Kim said, referring to US demands similar to those set out in Japan’s $550 billion investment pledge.

The Japanese deal gives Donald Trump the option to raise tariffs on Tokyo if it chooses not to fund projects he puts forward, or doesn’t provide funding within 45 days.

On security, South Korea is looking to raise its defense spending to 3.5% level of its GDP over the next 10 years as part of a broader push to strengthen its independent national defense, Kim said.

“Recently, we mentioned 3.5%, and we did so because we judged that this is a level we are capable of sustaining,” he said. South Korea plans to spend 2.32% of its GDP on defense this year.

Kim’s office later said that raising the country’s defense budget is still under discussion and that a decision hasn’t been made.

The nation’s overall budget also continues to grow, with the Lee administration’s efforts to stimulate the economy adding to the fiscal burden.

South Korea’s debt-to-GDP ratio is forecast to climb to the high-50% range within five years from about 51% now, the prime minister said, calling the level still manageable compared with advanced economies that run ratios above 70%.

“While debt management is important, the more urgent priority is to restore growth that has fallen below potential,” Kim said. “That requires investment to lift the growth rate, which is why we’re focusing policy on fiscal expansion.”

Kim flagged the nation’s low birthrate as the biggest structural challenge for the economy, noting that repeated spending programs have failed to reverse the trend, leaving demographic pressures as the toughest long-term hurdle for economic growth.

In the more immediate future, the drawn-out negotiations over the trade deal and the visa issue may inject awkwardness into another expected meeting between Lee and President Trump next month when the US leader visits South Korea to join a gathering of APEC leaders in Gyeongju.

As South Korea prepares to host the regional event, North Korean leader Kim Jong Un has floated a potential meeting with Trump saying he has “good memories” of the US leader and could talk with him again if Washington drops its denuclearization demands.

Asked about a potential meeting between Trump and North Korea’s Kim, the prime minister said he was not aware of concrete communications taking place between the US and North Korea. “Since unexpected events can always occur, I believe we can leave open the possibility.”

–With assistance from Jaehyun Eom, Kazunori Takada, Katria Alampay and Andy Hung.

(Updates with Lee-Bessent meeting and more comments from Kim.)

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