By Kim Tong-hyung
Moody’s raised Korea’s sovereign debt rating to a par with Japan, Monday, expressing confidence about the country’s stock market and subsiding fears of a North Korea-related blow-up.
The rating on government bonds was lifted one notch from A1 to Aa3, the company’s fourth-highest grade, making Moody’s the first credit rating agency to rate the country AA.
The decision drew a collective sigh of relief from policymakers, who had been desperate for anything resembling good news after struggling mightily for months to cope with a blizzard of bad data on exports, consumption, jobs and household debt.
Strategy and Finance Minister Bahk Jae-wan beamed that the upgraded rating was the ultimate acknowledgement that the country’s efforts to strengthen its financial stability and shore up its defenses against global turmoil are working as prescribed.
Moody’s in a statement explained that Korea’s proven economic resilience and the reduced external vulnerability of its banking sector were weighed in its rating decision. It also observed the risk of a collapse in North Korea during the transition to new leadership is ``diminishing.’’ China, Belgium and Saudi Arabia are some of the other economies that are on Moody’s AA list.
``In these difficult times, our country has managed to receive its highest credit rating ever from Moody’s. This shows it’s critical for us to work and improve the economy’s ability to absorb shocks and this is an area where we should continue to be committed to improving,’’ Bahk told reporters at the Gwacheon government complex.
``The other rating agencies Fitch, and Standard and Poor’s still have our country at single A status so we will try to improve their confidence in our economy.’’
In lifting Korea’s credit ratings, Moody’s did point out that the economic weakness in Europe and the slowdown in China could adversely affect the country’s exports, its key driver of growth. There is increasing concern here over the country’s historically high levels of personal indebtedness, but Moody’s said it doesn’t believe such household debt poses an immediate risk to the banking sector.
``The Korean economy has demonstrated resilience to external shocks. It avoided a recession because of the global financial crisis in 2009, and rebounded strongly in 2010. Korea's trend growth has become closely aligned with that of global growth in the past decade, and is therefore stronger than that of the advanced industrial countries … Macro-prudential regulatory measures and improved risk management have proved effective in reducing banking sector vulnerabilities,’’ Moody’s said in its statement.
``A possible step-up in Pyongyang's economic engagement with Beijing, as seen in the announcement of three new industrial zones along the China-North Korea border, suggests that the risk of a collapse of the autarkic communist state during the leadership transition phase is diminishing.’’