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| North Korea economy heading for collapse; could badly damage South -- SP
SEOUL, Nov 3 (AFP) - Communist North Korea's economy is heading for collapse and could drag capitalist South Korea down with it, Standard and Poor's credit rating agency said Monday. "North Korea's economy cannot be sustained in its current state and we think it is highly likely to collapse," said Choi Jung-Tai, the agency's director for South Korea, adding: "When is uncertain." BizVantage – Beyond the news: indepth on business, investment and technology. South Korea, the world's 11th largest economy, will be hit hard when the Stalinist North implodes, he said. "We don't have an absolute figure but the cost to the South will be high -- two or three times GDP (Gross domestic product), something like that," Choi said. The impact will be deeper than in 1997 when the Asian financial crisis forced a South Korean economic meltdown, S and P said. John Chambers, the agency's managing director for sovereign ratings, told a seminar here earlier Monday that experts believed South Korea would be forced to foot a staggering bill -- up to three times its annual GDP. A year-long nuclear crisis and the economic risk posed by the forced reunification of the two Koreas, divided into communist North and capitalist South for more than half a century -- were key considerations in weighing South Korea's sovereign rating, said Choi. "The fact that North Korea has agreed to six party talks (on its nuclear weapons programme) in the future is a positive sign," said Choi. "But we think it will be a long time before these talks bear fruit so we are watching developments carefully for any impact that will effect South Korea's ratings." S and P rates South Korea's foreign long-term debt at A-minus and said in a report released earlier this year that the determination was based on a peaceful settlement of the nuclear crisis and a soft-landing for reunification. It said then that North Korea's economic collapse was "unlikely. " However S and P has since determined that North Korea is unlikely to stave of economic collapse through reform. Tentative reforms introduced last year had limited effect. "North Korea cannot continue with its current economic model. Although some other Asian nations that used to have centrally-planned economies have successfully moved to market-based systems, the North Korean leadership probably lacks the flexibility and the vision to undertake such a change," S and P said in a statement. North Korea agreed in principle last week to attend a new round of six-way talks with Japan, Russia, South Korea, the United States and China, following an inconclusive first round of talks in Beijing in August. The nuclear crisis erupted in October last year when Washington said the Stalinist state had broken a 1994 nuclear freeze by launching a clandestine nuclear weapons programme. Washington demands a complete and verifiable dismantlement of the North's nuclear weapons drive while Pyongyang wants a security guarantee and economic aid from the United States in return for scrapping the weapons. Although North Korea's participation at the talks is seen as a positive sign, Chambers argued at the seminar that North Korea could still cause geo-political uncertainty and hurt South Korea's economic standing, according to Choi. "If North Korea still pushes forward with its nuclear development ... we will be forced to look very carefully at South Korea's sovereign rating," he said. S and P said political risk was another factor, describing South Korean President Roh Moo Hyun's decision to call a referendum on his rule next month as "highly unusual." The former human rights lawyer, who campaigned on a clean government platform to win office last December, said he would step down if he lost the vote of confidence following a series of corruption scandals implicating his associates and family members. cw/bjn NKorea-nuclear-SKorea
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