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Last Updated: Monday, 3 November, 2003, 13:19 GMT
N Korea economy 'faces collapse'

By Mark Gregory
BBC World Service business reporter

North Korea is heading for "economic collapse", S&P says
The powerful international credit ratings agency Standard & Poor's (S&P) has warned that it is simply a matter of time before the economy of communist North Korea disintegrates.

"The economic model of North Korea is not sustainable," said the chairman of S&P's sovereign ratings committee, John Chambers.

S&P, which monitors the financial stability of governments and big companies, also said the cost to neighbouring South Korea of dealing with the emergency when it does occur would be massive.

"When the North collapses, the unification is going to be quite expensive," Mr Chambers said.

"South Korea would be the responsible party for sorting out the mess, and it would be a huge mess," said Hank Morris at the investment bank IRC in Seoul.

"It would make East and West German unification look like child's' play."

Huge burden

The bill for feeding North Korea's starving people and rebuilding its shattered economy and basic services could amount to between 40 and 300% of South Korea's annual wealth, S&P predicted.

In other words capitalist South Korea must prepare for a huge and crushing economic burden when the economy of the socialist North finally does implode, S&P said.

Mr Chambers could not predict when North Korea's regime would "crumble under its own weight" beyond saying it could take weeks or months, or even a decade.

However, there were already some early signs that things were going wrong in the country.

"Some of the recent actions by the North to extract money from the South and from [other] governments could be seen in the light of its pressing fiscal needs," he said.

Close to the edge

S&P is also doubtful about the ability of North Korea's regime to sort it out.

"We think the political leadership in North Korea does not have the capacity to undertake the reforms that, say, China began in 1979 or Vietnam began in 1986."

"The North is still on the receiving end of donated food from China, Japan, the USA and South Korea," said Mr Morris.

"A sharp reduction in the assistance it is getting either from the West or from China... could push them over the edge," Mr Chambers predicted.

Standard & Poor's John Chambers
"We think the political leadership in North Korea does not have the capacity to undertake... reforms."

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