Labour hungry South Korea is temporarily blocking new arrivals from Vietnam, one of its biggest sources of migrant labour, because it is struggling to stop them from disappearing into the clandestine economy.

Immigrant labour is vital to Asia’s fourth-biggest economy because many young South Koreans shun manual labour, which is left to older workers and foreigners.

The moratorium could hit remittances to Vietnam at a time when its economy is struggling. After an extended period of rapid, credit-fuelled growth, Vietnam suffers from Asia’s highest inflation rate, a deeply-embedded lack of faith in the currency and concerns about growing bad debts in the banking sector.

Each year, government-owned labour export companies in Vietnam send several hundred thousand workers overseas, mainly from the country’s poorest provinces where there are few other job prospects. But, from Japan to Malaysia and Russia and Taiwan, many migrant workers quit their mandated jobs to look for better paid, illegal work.

To stem the flow of new Vietnamese workers, the South Korean government has postponed the latest Korean language exam for Vietnamese citizens, which is a pre-requisite for potential labour migrants, and had been set for August. Officials from both countries said that Seoul will only resume the Korean test for Vietnamese workers when it sees a reduction in the number of illegal Vietnamese immigrants in the country, currently thought to number around 9,000, out of a total of 60,000 workers that Vietnam has sent to South Korea since 2004.

The immigration problem is putting a strain on relations between the two Asian nations, which have deep and growing economic and cultural ties.

Nguyen Thanh Hoa, deputy minister of Vietnam’s labour ministry, said that nearly 9,000 of the Vietnamese in South Korea are now working illegally, either because they have overstayed their visa or have changed jobs without permission.

Mr Hoa fears that unless his country does more to bring back the illegal workers in South Korea, Seoul may permanently block Vietnamese workers.

“If we don’t do anything and if this number keeps growing then they will cut permission for all Vietnamese workers to go to South Korea,” he said.

In recent years, Vietnam has become increasingly dependent on the hard currency sent back by overseas workers, with remittances reaching $7.2bn last year, around 7 per cent of GDP, according to the World Bank. Vietnamese workers in Korea send back $600m-$700m a year, according to Mr Hoa.

Taiwan temporarily blocked Vietnamese migrant workers in 2005 because of widespread breaches of employment visa conditions. Although South Korea faces similar issues with workers from other Asian nations such as Cambodia and Indonesia, an official from South Korea’s labour ministry said that Vietnamese workers had the worst reputation for absconding, so the government has asked Hanoi to take strong measures to combat the problem.

The Vietnamese government is working on a plan to tackle the problem and may bring in more stringent punishments for workers who violate South Korean labour law, Mr Hoa said.

Some Vietnamese officials from poor provinces that rely on remittances from workers in South Korea have proposed draconian measures, including holding the property ownership documents of migrant workers in escrow until they return to Vietnam.

But a UN official familiar with the issue said that punishing illegal workers would not solve what was a structural problem.

“Due to the labour shortage in South Korea, migrant workers can get higher wages by leaving the companies to which they’re attached,” the official said. “So there’s a very strong incentive for workers to jump ship.”

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