Risks Of Instability In North Korea Continue To Constrain The Rating On The Republic Of Korea

Tuesday 05 October 2010 08:59
Standard & Poor's Ratings Services said today that significant uncertainties remain from a possible succession in the near future in the Democratic People's Republic of Korea (North Korea). We continue to view instability as an important constraint on the creditworthiness of the Republic of Korea (South Korea; foreign currency A/Stable/A-1; local currency A+/Stable/A-1). This reflects the potential for fiscal indicators to deteriorate severely if either the scenario of a war or sudden reunification materializes.

Last week, the Workers' Party Congress appeared to anoint Kim Jong Un as the successor to current leader Kim Jong-Il. The former was appointed a general of the North Korean armed forces and a member of the Workers' Party Central Committee. We believe that these appointments are intended to secure support for Kim Jong Un among the military and party elite.

The current leader's health is widely believed to be weak. An abrupt change of leadership within the next two years or so would place an inexperienced leader with an uncertain support base in charge of the country. 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.

A South Korean Presidential Council estimated earlier this year that sudden reunification could cost the country US$2.14 trillion by 2040 to raise government debt to 147% of GDP in that year, compared with the government's estimate of 36% by the end of this year.

Media Contact:

Mimi Barker, New York (1) 212.438.5054, [email protected]

Analyst Contacts:

KimEng Tan, Singapore (65) 6239-6350

David T Beers, London (44) 20-7176-7101