World Economy

South Korea Debt-to-GDP Ratios Surpass Tipping Point

South Korea Debt-to-GDP Ratios Surpass Tipping Point
South Korea Debt-to-GDP Ratios Surpass Tipping Point

South Korean households and businesses' debt ratios against gross domestic product were much higher than the tipping point.

According to the Hyundai Research Institute on Sunday, the country's corporate debt to GDP ratio came to 99.4% in the third quarter of last year, Yonhap reported.

The figure is about 20 percentage points higher than the 80% seen as the tipping point by the World Economic Forum.

Household debt ratio against GDP reached 94.4% in the third quarter of last year, also higher than the forum's comparable tipping point figure of 75%.

The WEF says if the ratios exceed the tipping points for an extended period of time, they are a sign of slowed economic growth.

Meanwhile, US automobile giant General Motors Co. hinted at possible willingness to withdraw the planned debt-for-equity swap for GM Korea Co., in an apparent bid to induce the state creditor to pump more cash into the financially-troubled South Korean unit, industry sources said Sunday.

According to the sources, GM Executive Vice President Barry Engle met officials from the Korea Development Bank, the second-biggest shareholder, on Friday, and suggested a plan for the US headquarters to give loans to GM Korea, while the bank makes an investment.

The suggestion runs counter to GM's previous proposal. The company suggested a $2.7 billion debt-for-equity swap and $2.8 billion in investment over the next 10 years in return for financial aid through the KDB.

GM also claimed that GM Korea may file for court receivership on Friday this week if it fails to reach an agreement with the labor union. The US automobile giant said earlier it wishes to continue business in South Korean when closing down the Gunsan factory in February, revealing the debt-for-equity swap and investment plans.

Industry watchers, however, said GM is presumed to have shifted its stance recently to seek court receivership amid prolonged negotiations with the labor union and the KDB's investigation of GM Korea.

Accordingly, sources said GM may eventually shut down all production facilities in South Korea and relocate that production to China, leaving only research, design, and sales divisions here.

The potential exit of GM from the South Korean market is expected to adversely affect the country's automobile industry, as nearly half of GM Korea's 301 tier-one suppliers here depend on the company for more than 50% of their earnings. Up to 500,000 jobs could be affected by the exit of GM Korea, when considering other smaller subcontractors.

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