The death of North Korean leader Kim Jong-il means the relationship between North and South Korea will have to be “monitored closely”, Fitch Ratings says.
This morning, North Korean state media reported that Kim died of a massive heart attack on Saturday. Kim has ruled the communist nation since 1994, after assuming leadership on the death of his father Kim Il-sung, who also died of a heart attack.
Markets across the globe fell on the news, while speculation started that his son and heir apparent Kim Jong-un could sabre-rattle with South Korea to establish himself.
Fitch says Kim’s death has no immediate implications for South Korea’s A+ rating with positive outlook but adds that the possibility of the country’s relationship with the North souring is a “source of risk”.
“It is too early to say how the situation will evolve after Kim Jong-il’s death, but political developments demand close attention,” a statement by the ratings agency says.
“We noted in November that the risk of an accidental escalation in tension would be higher during the North’s transition to the leadership of Kim Jong-il’s designated successor, his son Kim Jong-un.”
Fitch also says an all-out conflict between the two countries or regime collapse in North Korea would “almost certainly” cause a downgrade of South Korea, as it would face high reconstruction or relief costs.
In addition, the agency notes that South Korea has no explicit fiscal provision for this eventuality. However, president Lee Myung-bak has suggested that a $50 billion (£32.2 billion) reconstruction fund could be financed by private voluntary contributions.
To receive more relevant articles like this one, why not sign up to our briefings and breaking alerts by clicking here.