Korea-US alliance to deter military conflict
‘Missile launch won’t have an immediate impact on ratings’
By Kim Jae-kyoung
Steffen Dyck, senior analyst of Moody’s Investors Service
SINGAPORE ― South Korea’s solid alliance with the United States will prevent geopolitical risks such as North Korea’s missile launches turning into a military conflict, according to Steffen Dyck, a senior analyst at Moody’s Investors Service.
He said that the real risk lies in the possibility of the reclusive country led by Kim Jung-un collapsing from within.
“We consider that Korea’s robust alliance with the U.S. will continue to contain the risk of renewed military conflict on the Korean peninsula,” Dyck told The Korea Times. Dyck is vice president of the agency’s sovereign risk group that evaluates Korea’s credit rating.
He pointed out that a conflict, which is a very low probability event, would have material credit implications through short-term disruptive effects on the functioning of the government in Seoul and the country’s payments system.
“From a sovereign credit perspective, geopolitical event risk lies more in the potential for an internal regime collapse in North Korea leading to acute financial strains for South Korea’s government for an extended period,” he said.
His comments came after Pyongyang fired a ballistic missile into waters off its east coast Sunday, the first provocation since U.S. President Donald Trump took office, Jan. 20.
Using a high thrust solid fuel-powered engine, the intermediate-range ballistic missile (IRBM) is posing a greater threat because it requires less time to prepare for a launch, making it harder to detect in advance.
UN Security Council, including China, unanimously condemned Pyongyang’s latest missile launch, describing it as a “grave violation” of UN resolutions.
Despite the growing geopolitical risk caused by Pyongyang's launch of a new type of missile, Dyck said the agency had no plans to modify its credit rating for South Korea.
“There is no immediate impact of the latest missile launch by North Korea on the government of Korea’s Aa2 stable government bond rating,” he said.
He explained that Moody’s sees geopolitical event risks stemming from tensions on the peninsula as a key credit challenge but a missile launch itself won’t affect its view on the rating.
“Particular episodes such as the missile launch do not affect Korea’s credit profile in so far as they do not materially affect the economy or policy making in Korea,” he said.
The U.S. ratings agency considers the latest political scandal surrounding President Park Geun-hye as a major drawback to South Korea.
In its 2017 credit report released recently, it said that the impeachment of President Park following an influence-peddling scandal further diminishes the likelihood of significant reforms in this administration.
“Korea has focused on corporate restructuring, given the adverse impact of slowing global trade growth on sectors such as shipbuilding and shipping,” he said. “Broader reforms of the labor market have proven politically challenging.”
“They are unlikely to be implemented until after the next election as the impeachment further reduces the ability of the government to pass policies without a parliamentary majority.”