By Lee Hyo-sik
Staff Reporter
Moody's Investors Service, one of the three major global credit ratings agencies, upgraded its ratings for South Korea by one notch to "A1" from "A2" Wednesday, citing the country's faster-than-expected recovery from the worldwide economic slump, and the government's aggressive and timely fiscal stimulus.
Improving fiscal soundness and financial market fundamentals also made Moody's the first major global ratings agency to restore Korea's sovereign rating back to its pre-currency crisis level of 12 years ago.
It cut its credit rating for Korea sharply to "Ba1" after the 1997-98 financial market meltdown. But it raised the rating to "A2" in July 2007 and had since kept it unchanged with a stable outlook. The other two ratings agencies ― Standard & Poor's and Fitch ― continue to keep their ratings for Asia's fourth largest economy at levels below those of the pre-currency crisis.
"The change has been prompted by Korea's demonstration of an exceptional level of economic resilience to the global crisis, while containing the government's budget deficit. The resiliency of Korea's economy was evident in its ability to withstand relatively well the contradictory forces which emanated from the global recession," Moody's Senior Vice President Thomas Byrne said in a statement issued from Singapore.
Byrne said Korea's open economy expanded 0.2 percent in 2009 from the previous year, and was likely to stage a robust recovery with a 5-percent growth rate in 2010, despite the waning fiscal stimulus.
"Additionally, the global financial crisis has not resulted in a large increase in central government debt, which remains at a moderate level, while the fiscal deficit in 2009 was relatively small. Such achievements place Korea in a favorable position when compared with most other A-rated countries," he said.
In response, Vice Strategy and Finance Minister Hur Kyung-wook welcomed Moody's ratings hike, saying Korea has successfully overcome the global downturn, while keeping its fiscal health sound.
"It is meaningful that Moody's restored our credit worthiness back to a pre-currency crisis level. More foreign investors will see Korea as an attractive place to do business. We will continue to make efforts to encourage the other two ratings agencies to do the same."
The senior vice president said the vulnerabilities exposed during the height of the global financial crisis, including the banking system's partial reliance on off-shore funding, are being addressed and reduced, adding regulatory measures have recently been introduced to reduce other risks arising from the banks' relatively high loan-to-deposit ratios.