The Korea Herald


Gaeseong complex closure negative for S. Korean credit ratings: Moody's

By 신용배

Published : Feb. 15, 2016 - 13:45

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The recent shutdown of the inter-Korean industrial complex in North Korea's border town of Gaeseong could have adverse impacts on South Korea's credit ratings, Moody's Investors Service said Monday.

Last week, Seoul suspended the Gaeseong Industrial Complex as punishment for Pyongyang's launch of a long-range rocket which came on the heels of its fourth nuclear test last month.

Bashing the South for the move, the North expelled all workers and froze all assets belonging to South Korean firms. 

"The closure of this last remaining symbol of inter-Korean reconciliation is credit negative for the South, as it heightens geopolitical risk," the global credit rating agency said in a report, noting that its main scenario is based upon the premise that the status quo will prevail.   

In December last year, Moody's upgraded South Korea's credit rating to Aa2 from Aa3, the highest-ever rating Asia's fourth-largest economy has received from the agency.

The Aa2 rating is the third-highest rating given by Moody's, with only six other countries out of the Group of 20 advanced and developing nations currently with that rating, according to the finance ministry.

Noting that the complete closure by the South is unprecedented, Moody's pointed out that merely the perception of geopolitical risk "can hurt a country's capital, current and fiscal accounts, making it harder for it to service its debts ... and can lead to lower foreign direct investment and higher funding costs for the public and private sectors." 

The joint complex had been shut only once before, for five months in 2013, amid heightened tensions following North Korea's third nuclear test.
Declaring the shutdown, the Seoul government said some 70 percent of the U.S. dollars paid for North Korean workers at Gaeseong had been diverted by the regime to develop nuclear weapons and missiles and luxury goods for its leader Kim Jong-un. 

Some 55,000 North Koreans hired by the 124 small- and medium-sized South Korean manufacturers got an average of $160 per month including bonuses and overtime.

The agency, however, said the shutdown itself would have little effect on the South Korean economy as the Gaeseong zone accounted for only about 0.04 percent of the South's gross domestic product, with the Seoul government's borrowing costs being unaffected so far. 

After the first inter-Korean summit in 2000, the two Koreas agreed to build the joint complex, and opened it in Gaeseong in 2004 to facilitate reconciliation and economic cooperation. (Yonhap)