Finance minister scrambling to downplay N. Korea risks

Strategy and Finance Minister Kim Dong-yeon, left, talks with Standard & Poor’s sovereign ratings global head Craig Parmelee during their meeting at Standard & Poor’s headquarters in New York, Sept. 21 (local time). / Courtesy of Ministry of Strategy and Finance

By Nam Hyun-woo

Strategy and Finance Minister Kim Dong-yeon is expected to meet senior executives of the world’s top credit rating houses in the United States, in what seems to be a preemptive effort to prevent a cut in South Korea’s sovereign rating amid escalating tensions on the Korean Peninsula.

According to the Ministry of Strategy and Finance, Kim is scheduled to meet officials at Moody’s, Standard & Poor’s and Fitch Ratings during his visit to Washington D.C. to attend the 2017 Annual Meetings of the World Bank Group and the International Monetary Fund slated for Oct. 13 to 15.

Kim’s meeting with ratings officials will come less than a month after he told ranking officials at the firms that South Korea’s economic fundamentals are solid and risks coming from North Korea’s continued provocations are contained during President Moon Jae-in’s visit to the U.S. in September.

Given the frequency of their meetings, it is interpreted that the South Korean government’s efforts to control the country’s sovereign ratings preemptively, in order to prevent a massive capital flight or other financially negative events stemming from a potential rate cut.

Currently, South Korea’s sovereign rate is Aa2 stable at Moody’s and AA at Standard & Poor’s -- the third highest level in their respective rating scales. Fitch Ratings currently rates Korea’s credit rating at AA-, the fourth highest.

Though the ratings firms have been reaffirming South Korea’s credit rating despite the North’s pursuit of nuclear programs, Moody’s last month raised its view on the possibility of any outright military conflicts on the Korean Peninsula to “low” from “very low.”

The government believes that an abrupt adjustment in South Korea’s rating is not likely.

In an economic ministerial meeting on Sept. 28, Kim said the CEOs of the ratings houses clearly recognize the South Korean economy’s solidity and they said “they are not considering any change in Korea’s rating” during his September meeting.

“One of the ratings firms said Korea was supposed to get a higher rating if there were no North Korea issues,” Kim said.

Despite the government’s optimism, foreign investors showed keen reactions to the development of the North Korea situation. Before South Korea was to have 10 days of Chuseok holiday, foreign investors offloaded bonds, mostly treasury bonds, worth 3 trillion won from Sept. 26 to 27.

On Sept. 27, South Korea’s CDS premium rose to 75 basis points, the highest level this year. CDS Premium is a credit derivative showing a country’s default risk.

Kim said that those moves were done as part of realizing a temporary benefit and do not seem to be connected to North Korea risks.