DPRK risk ‘biggest drag on Seoul’s credit rating’

According to the Choson Ilbo:

Korean reunification risk is the biggest drag on South Korea’s sovereign rating, according to an expert at ratings agency Standard and Poor’s.

David Beers of S&P on Monday said, “Korea unification, that’s going to be very economically and financially challenging for South Korea, because of the huge gap in income levels of the two countries.”

German reunification cost a lot of money despite the narrower economic gap between East and West Germany. The U.S-based global credit agency has kept South Korea’s sovereign rating unchanged at A since July 2005 — two notches lower than AA-, the rating given before the Asian financial crisis in the late 1990s, because the potential cost of the Korean reunification has been increasing, he said.

Beers also pointed to the war risk between South and North Korea as a hurdle to raising South Korea’s rating, even though the likelihood is slim.

The “stable” outlook means that there is a slim chance of a change in the country’s rating for two years to come, he added.

Beers was positive about the country’s reduction of short-term foreign debts since the global financial crisis in 2008 and predicted it will be ready to avert another global liquidity crisis.

An S&P inspection team led by Beers is in Seoul to attend an annual consultation about the rating from Wednesday to Friday.

Read the full story here:
N.Korean Risk ‘Biggest Drag on Seoul’s Credit Rating’
Choson Ilbo


2 Responses to “DPRK risk ‘biggest drag on Seoul’s credit rating’”

  1. Michael says:

    German reunification costs may to a certain degree be a misleading indicator for any potential Korean reunification scenario.
    Yes, on one hand East Germany in economic terms was certainly developed higher than present day DPRK. Income levels in the GDR were comparatively high (and there was a constant lack of goods to buy), so the bank deposits of the east German population were rather large.
    This in mind, the exchange rate that was fixed in the German treaty of the monetary union in 1990 defined an applicable exchange rate of 1:1 (up to amounts of 6000 Marks per person; for amounts over 6000 Marks the rate was fixed at 1:2 there was no limitation as to the total amount!), while the previous (much more realistic) black market exchange rate was something like 1:5.
    The real big lump of German “reunification costs” was a politically desired, strongly “subsidized” exchange of otherwise valueless East German marks into the strong Deutsche Mark, in order to protect the lifetime savings of the East German population (and secure their political loyality!).
    As we can assume that there are no such large savings of North Korean won, the problem will not arise (or in rather minimal dimensions).
    What indeed may be compared, are the required huge investments in the run down infrastructure.

    Best regards

  2. tibor gaal says:

    I agree with Michael. I think the problem is with the analisys that the two koreas are only talking about reunifications for 65 years, but, i don’t see when they’ll be unified. The costs of unification has only theoretical value and this shouldn’t affects the current credit rating of South or North Korea.