Global agency Moody’s said yesterday it had upgraded its rating on South Korea’s government bonds because of the country’s “exceptional resilience” to the global economic crisis.
Moody’s Investors Service said in a statement it had changed the ratings to A1 from A2 and maintained a stable outlook, despite concern over a potential threat posed by North Korea.
“The change has been prompted by [South] Korea’s demonstration of an exceptional level of economic resilience to the global crisis, while containing the government’s budget deficit,” senior vice president Tom Byrne said.
Moody’s said Asia’s fourth-largest economy was responding rapidly to the improving global outlook and the government had put policy measures in place that should help sustain growth over time.
It also moved the ceiling applied to foreign currency bonds issued in South Korea to Aa2 from Aa3 and changed the ceiling applied to foreign currency bank deposits to A1 from A2.
Byrne said in the statement the country managed growth of 0.2 percent last year “and is likely to stage a robust recovery with a 5 percent growth rate in 2010, even as fiscal stimulus measures are wound down.”
The South Korean finance ministry also forecasts 5 percent growth this year, while the central bank raised its prediction to 5.2 percent on Monday.
Moody’s said government debt remained moderate despite the global crisis and last year’s fiscal deficit was relatively small.
FAVORABLE POSITION
“Such achievements place [South] Korea in a favorable position when compared with most other A-rated countries,” Moody’s said.
The agency said the government was on course to wipe out its deficit in the next two to three years. Policymakers were also tackling vulnerabilities, such as the banking system’s partial reliance on foreign funding and the sector was sound overall.
Foreign exchange reserves had risen to a record US$270 billion and the current account was likely to stay in surplus this year, it added.
Moody’s noted South Korea’s challenges over the next 10 to 15 years because of an ageing population, but said assets in the national pension system would keep growing robustly.
It cited two concerns — the rise in the debt of the South’s state-owned corporations and North Korea’s potential threat.
It noted that six-party nuclear disarmament talks remain deadlocked “and the possibilities of military provocations which threaten regional peace are always present.”
Those fears, however, were counterbalanced by South Korea’s strong alliance with the US and a shared interest among regional powers — notably China — in stability on the peninsula. Moody’s said a positive transformation of the Pyongyang regime would mean the future cost of engaging or stabilizing the North would be manageable.
It said the prospect of “a catastrophic collapse” north of the border could not be ruled out, although the effect of this was difficult to quantify.
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