The Chosun Ilbo recently ran a story with the eye-catching “man bites dog” headline “Reunification ‘Would Boost Korea’s Credit‘.” And like the sucker who picks up the “Space Aliens Impregnate Elvis’ Granddaughter” issue of the National Enquirer in the supermarket check-out line, I had to look.
The story attributes the “reunification ‘would boost Korea’s credit’” view to a virtual Murderers Row of investment banks: Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, Macquarie and Morgan Stanley. According to the article “The Chosun Ilbo asked the six for their outlook for Korea’s sovereign credit rating, national brand value and economic health following reunification. With the exception of Morgan Stanley, they forecast the country’s sovereign credit rating would rise by more than two notches. Morgan Stanley noted that reunification costs would add to the fiscal burden but projected the sovereign credit rating would rise at least one notch over the mid to long-term.”
The story is curious for a couple of reasons. First, it flies in the face of all research that I am aware of on the issue (including some produced by the investment banks themselves) which concludes that unification would be an economic burden on the South. There is disagreement about how heavy a burden unification would be, and to be clear, the costs and benefits would be partly contingent on the policies adopted and the reaction of the international public and private sectors. But I don’t believe that I have ever met anyone who believes that it would contribute to an acceleration of South Korean growth (though it might well contribute to an acceleration of peninsular growth) or improve South Korea’s credit rating.
The second interesting thing about the story, is that it does not reference any actual credit ratings agencies. If one wants to know how an event will affect a credit rating, why ask an investment bank? Why not go directly to the source?
So I did. The response of the anonymous credit analyst: “South Korea’s social welfare rolls will jump by 25 million. Don’t see how that improves the government’s credit profile.”
OK, I am not going crazy.
The Chosun Ilbo may well be taking its cues from the Blue House. President Park Geun-hye has said that “Unification will allow the Korean economy to take a fresh leap forward and inject great vitality and energy.” Her recently announced three year plan can be viewed as partly motivated by a need to strengthen the economy in anticipation of the day when the South may have to absorb the North. But the President faces a hard sell: enthusiasm for unification is declining, and is particularly tepid among the young.