United Korea could be economic powerhouse, says bank

A UNITED Korea – combining Asia's fourth-biggest economy with one of its poorest – could surpass that of Germany or Japan in economic might in the next 30 to 40 years, US investment bank Goldman Sachs said yesterday.

Though North Korea's planned economy system looks to be on the edge of collapse, it offers a large and cheap workforce, a wealth of minerals that the resource-poor South currently has to import to feed its industry and the likelihood of gains in productivity and its currency once economic reforms take hold.

"We project that a united Korea could overtake France, Germany and possibly Japan in 30-40 years in terms of GDP in US dollar terms," the bank said.

The two Koreas have been separated for more than half a century and have yet to sign a peace treaty to formally end the 1950-53 Korean War.

The Goldman Sachs report was published as the communist North, under Kim Jong Il, has shown signs of being willing to re-engage with the outside world, from which it has been all but cut off after a series of nuclear and missile tests this year.

It also comes as the conservative government in Seoul has become tougher in dealings with its prickly neighbour, ending years of aid until Pyongyang starts to dismantle its nuclear weapons programme.

The cost of reunification has long been seen as one of the biggest risks facing the South Korean economy.

Many analysts warn the South's rise to an economic powerhouse in the region could be undone by the burden of absorbing its neighbour, whose per capita income is about 5 per cent the size.

But Goldman Sachs said it could be affordable by having the appropriate policies and by following the China/Hong Kong reunification model, which allows two political and economic systems to co-exist, with limited inter-Korean migration.

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