S&P says North puts pressure on credit score

Uncertainty surrounding North Korea’s power transfer is weighing on South Korea’s sovereign credit rating because of the possibility of war and the potential for huge unification costs, a global rating agency said yesterday.

“Significant uncertainties remain from a possible succession in the near future in North Korea,” Standard & Poor’s (S&P) said. “We continue to view instability as an important constraint on the creditworthiness of South Korea.”

The credit appraiser warned that South Korean fiscal indicators will likely deteriorate severely if either the scenario of a war or sudden reunification between the two Koreas materializes.

S&P has maintained South Korea’s sovereign credit rating at “A” since it raised its rating by one notch in 2005. The current rating is the agency’s sixth-highest investment level, but is still two notches below the rating the country held before the 1997-98 Asian financial crisis and is one step lower than what S&P’s rival firms give to the country.

“An abrupt change of leadership (in North Korea) within the next two years or so would place an inexperienced leader with an uncertain support base in charge of the country,” S&P said. “This is likely to undermine stability in North Korea and raise the risks of either military conflict on the Korean Peninsula or a sudden Korean reunification.”

The credit rating agency said the South Korean presidential council estimated earlier this year that sudden unification could cost the country $2.14 trillion by 2040 and raise government debt to 147 percent of gross domestic product (GPD) in that year, compared with the government’s estimate of 36 percent by the end of this year.

Yonhap