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Panmunjom summit bodes well for S. Korea, but uncertainties remain: rating agencies

2018/04/30 14:30

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SEOUL, April 30 (Yonhap) -- The historic summit between South Korean President Moon Jae-in and North Korean leader Kim Jong-un bodes well for Asia's fourth largest economy, although the road toward a permanent resolution of inter-Korean tensions is still bumpy, global rating agencies said Monday.

On Friday, the leaders of the two Koreas held a summit at the border village of Panmunjom in which they vowed an end to hostilities, the complete denuclearization of the Korean Peninsula and the establishment of a permanent and solid peace regime.

"The Panmunjom Declaration is a prelude to more substantive negotiations and diffuses geopolitical tension that gained momentum in late 2017. If sustained, further irreversible actions that promote a smooth rapprochement between the Koreas would lower geopolitical risk and be credit positive for South Korea," Moody's Investors Service said in a statement.

The rating agency said despite the shared commitment by the two Koreas to advance the peace process, the path toward a definitive and permanent resolution of inter-Korean tensions is fraught with uncertainties and complexities involving other stakeholders, primarily the U.S. and China.

"For example, in the context of recent gains in North Korea's nuclear capabilities, the specific conditions needed to compel North Korea to give up its nuclear arsenal remain unclear," Moody's said.

Moreover, the pledge to carry out disarmament by both Koreas seems unlikely, at least in full, in the absence of more significant trust-building measures, it added.

"Similarly, the degree to which the U.S. and its allies would accommodate a reduced US military presence in Korea is not clear. Therefore, the outcome of the proposed bilateral summit between the U.S. and North Korea will set the tone for the implementation of the common goals set out in the Panmunjom Declaration," the rating agency said.

Fitch Ratings said the summit meeting between the leaders of North and South Korea does ease tensions on the peninsula but does not eliminate risks associated with the military stand-off.

"The constructive outcome of the Moon-Kim summit, which was unimaginable just weeks ago, should ease the heightened tensions between North and South Korea caused by last year's escalation of the North's nuclear weapons programme and the resulting confrontational rhetoric between the North and the U.S. We believe that outright conflict is unlikely - given the huge costs to both sides - while entering a period of detente would lower the risk that it could be triggered by an unexpected event or miscalculation," Fitch Ratings said in a statement.

Fitch, however, said it is unclear whether the summit signals the start of a permanent, structural easing of geopolitical tensions on the Korean peninsula.

The declaration left further details to be negotiated on measures to reduce military tensions and achieve greater economic co-operation, and the North has sometimes failed to abide by previous commitments, it added.

"The outcome of diplomatic activity in the coming months is hard to predict, and tensions could re-escalate quickly if the U.S. feels that summit diplomacy is not achieving its aim of denuclearization," it said.

Moody's upgraded the rating for South Korea to "Aa2" in 2015, the third-highest level on the company's table, while Standard and Poor's also gave the country a grade rise to "AA" in 2016. Fitch has maintained an "AA-" rating, its fourth-highest, for Asia's fourth-largest economy since 2012.

South Korean President Moon Jae-in (R) talks to North Korean leader Kim Jong-un during the historic inter-Korean summit at Peace House on the southern side of the DMZ in the truce village of Panmunjom on April 27, 2018. (Yonhap) South Korean President Moon Jae-in (R) talks to North Korean leader Kim Jong-un during the historic inter-Korean summit at Peace House on the southern side of the DMZ in the truce village of Panmunjom on April 27, 2018. (Yonhap)

sam@yna.co.kr

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