Seoul, Feb 19 (IANS) The recent shutdown of an inter-Korean industrial complex will have little impact on the South Korean economy, South Korea’s finance minister said on Friday amid rising concerns about heightened geopolitical risks and an economic downturn.
Seoul closed the joint factory park in the North Korean border city of Kaesong, the last remaining symbol of South-North cooperation, in retaliation for Pyongyang’s nuclear test on January 6 and long-range rocket launch in February, Yonhap news agency reported.
The measure has drawn mixed views on its effect, given the fact that 124 local manufacturers had run factory lines there with their output amounting to over $500 million last year.
“The production from Kaesong accounted for 0.04 percent of the total gross domestic product,” Finance Minister Yoo Il-ho said.
“Many global credit rating agencies, including Moody’s, have mentioned the Kaesong issue, but they made it clear that they will not change the country’s grade.”
Earlier this week Moody’s said the closure of the Kaesong complex will be “credit negative” for South Korea due to the heightened geopolitical risks, but it left the country’s rating unchanged.
The agency upgraded South Korea’s credit rating to Aa2, the third-highest on the company’s sovereign table, in 2015.
Yoo did not give details on speculation that North Korea used the money paid to its workers at the joint industrial park to fund its nuclear and missile programmes.
To aggressively cope with fast-escalating uncertainties in the world economy such as the cooldown in China, the finance minister said the government may take further expansionary fiscal policy measures down the road.
Earlier this month, the finance ministry announced an additional 21 trillion won ($17.4 billion) pump-priming stimulus for the first quarter including a six-month extension of a consumption tax cut programme.
“We don’t consider an expansionary fiscal policy at this point, but it will be necessary if we face further challenges in the future,” Yoo said.
“We need to carry out short-run measures to some extent because an excessive short-term shock can undermine a country’s long-term growth potential.”
To rein in the growth pace, the financial authorities came up with a plan to stiffen the loan screening process by money lenders and encourage fixed-rate loan programs.
Against this backdrop, Yoo said it is not necessary to tighten a set of mortgage regulations of the loan-to-value (LTV) or debt-to-income (DTI) ratios.
The LTV and DTI were eased in mid-2014 in order to give homebuyers greater access to mortgages and thus help boost the sluggish local housing market, as well as the overall economy.
The finance minister also said the government has no plans to lower taxes imposed on gasoline amid rising concerns that the local fuel tariffs have kept gas prices at the pump from going further down despite falling crude prices.