Moodys, S&P to maintain Koreas sovereign rating

By Kim Jae-kyoung

Global credit rating agencies Moody’s Investors Service and Standard & Poor’s (S&P) said Wednesday that they will not change their sovereign ratings on South Korea despite the rising tension in the Korean Peninsula triggered by North Korea’s military attack.

The reactions came one day after North Korea fired dozens of coastal artillery shells on Yeonpyeong Island in the West Sea, spawning fears that the North’s brinkmanship will heighten geopolitical risks in the region.

In an email interview with The Korea Times, Moody’s Senior Vice President Tom Byrne said that it has no plan to downgrade its rating or outlook on South Korea, citing strong fundamentals and the country’s robust ties with the U.S.

“The most recent provocative actions by North Korea underscore what we perceive as the heightened uncertainty from North Korea as it undergoes a transition in leadership,” Byrne said, adding that the agency highlighted such concerns in its earlier report released in July.

“At the same time, we consider that the materialization of geopolitical event risk, a low probability but high severity event, is contained by the strategic interests of the U.S. and China and as such, geopolitical risks as currently assessed will not adversely affect South Korea's rating,” he added.

Byrne, who is sovereign regional credit officer for Asia and the Middle East, pointed out that its assessment remains that the robust state of military alliance between South Korea and the United States, and China's interest in stability on the peninsula, will deter Pyongyang from taking even more reckless provocations, possibly leading to war.

“We believe that South Korea's strong credit fundamentals continue to support the government's A1 rating and that the outlook remains stable,” he added.

Standard & Poor’s (S&P) also said that South Korea's sovereign foreign currency rating would remain unchanged despite the North’s provocative actions.

“Our ‘A’ foreign-currency ratings on South Korea incorporate the risks of military aggression such as we have seen with the North Korea shelling of Yeonpyeong. We do not believe that this incident will impair the financial account of Korea’s balance of payments or its other credit metrics,” S&P Communications Director Kyota Narimatsu told The Korea Times via email from Tokyo.

The global economist also echoed the view that recent cross-border violence is related to the leadership transition in North Korea.

“We think the provocations by the North are one-offs whose financial market impact will be transitory, not stepping stones to a financial Armageddon,” ING Group senior Asia economist Tim Condon said.

“We think China would prevent the North from starting a war because of the risk of an outcome unacceptable to Beijing, U.S. troops on China's border,” he added.