Moody‘s Places South Korea’s Ratings on Review for Upgrade
Moody's change of outlook affects the Republic of Korea's A3 government long-term foreign-currency and local-currency ratings, the A1 country ceiling for foreign-currency bonds, the A3 country ceiling for foreign-currency bank deposits, and the P-2 short-term ceiling for bank deposits.The local-currency bond and bank deposit ceilings remain Aaa and Aa1, respectively.
"Korea's favorable macroeconomic performance will continue over the near term," said Moody's Senior Vice President Thomas Byrne. "Over the longer term, Korea's improved credit fundamentals reflect a renewed commitment to trade liberalization to boost potential economic growth, which was demonstrated by the successful agreement with the U.S. government for a free trade agreement, although enactment faces opposition in the US Congress, and by the initiation of negotiations for a similar treaty with the European Union."
He said the gradual rise in government debt in recent years was mainly caused by the fiscalization of contingent financial-sector liabilities from the regional financial crisis of 1997. The government has so far managed to accommodate rising social welfare demands and engagement with North Korea without exerting much pressure on the budget.
"Current policies, including the lack of significant intervention in the foreign exchange market will allow a gradual decline in government debt," said Byrne.
On the external front, he said, a substantial buildup in official foreign exchange reserves provides a fair amount of insulation from external shocks, which is of renewed importance in light of the recent rise in Korea's short-term external debt. Several key competitive industries have contributed to robust export performance, helping to support a relatively strong external payments position.
"Unfolding developments concerning possible implementation of February's six-party agreement may allay some concerns over geopolitical risks associated with North Korea, which are incorporated in South Korea's ratings," said Byrne. "Foremost is the threat North Korea's nuclear weapon program poses to regional security and to risks of proliferation of nuclear materials, which could lead to a re-escalation of military tensions on the Korean peninsula."
He said the future fiscal cost to South Korea from its engagement with North Korea is most likely manageable and is consistent with South Korea's credit ratings and ceilings.
"However, there could possibly be much larger costs to South Korea in the form of a ¡?Marshall Plan' for the North, but that such burden could be shared to some extent among the regional powers if the North were to engage the international community constructively and reform its economic, political, and foreign policies," said Byrne. "Whatever scenario unfolds, a cohesive approach by the five governments negotiating with North Korea seems essential for optimal political and economic outcomes."
He said Moody's review will assess the sustainability of Korea's favorable macroeconomic performance; prospects for a reduction in government debt; likely fiscal outcomes in the run-up to the presidential election this year, and under a new administration next year. It will also examine any effects on the budget from an expansion of economic aid to North Korea if progress is made on implementing six-party commitments.
"We will also look at factors behind the build-up in short-term debt and in the net foreign liability position of the banking system; and whether progress in the six-party talks will ensure continued containment of North Korean risks on South Korea's ratings, including economic as well as military risks," said Byrne.
Press releases of other ratings affected by this action will follow separately.
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2008년 10월 6일 16:30
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