BEIJING — South Korea’s sovereign debt rating was raised by Moody’s Investors Service on Monday to a level on par with Japan’s in recognition of a strengthened resilience to crises.
“Korea’s strong fiscal fundamentals enable a relatively large degree of policy space to cope with contingent domestic risks and external shocks,” the ratings agency said Monday in a statement.
Moody’s elevated South Korea’s rating by one notch, to Aa3, the fourth-highest ranking and one also shared with China.
The upgrade is a vote of confidence in President Lee Myung-bak’s efforts to strengthen the nation’s ability to cope with financial turbulence even as his popularity wanes near the end of a five-year term.
The move also reflects South Korea’s fiscal discipline, with government debt equaling 33 percent of gross domestic product, compared with 108 percent for advanced economies as a whole, according to the International Monetary Fund.
“The fiscal situation is the strongest aspect of Korea’s economy,” said Lim Ji-won, an economist at JPMorgan Chase in Seoul.
“A lot depends on how the government deals with the aging problem in the longer term, but in the next few years the fiscal situation will be relatively strong.”
Like Japan’s, South Korea’s population is aging after a decline in birthrate, potentially imposing a higher pension-cost burden on the economy as fewer workers support greater numbers of retirees.
Moody’s has the most positive outlook on South Korea among major ratings agencies.
Fitch Ratings rates the country’s debt at its fifth-highest level, while Standard & Poor’s ranks it one level lower.
Export competitiveness will help South Korea rebound from a slowdown as global growth recovers, Moody’s said.
The nation’s banks have been strengthened by improved regulation and a reduction in reliance on short-term external financing, it said.
The risk of a collapse in North Korea during the transition to a new leadership “is diminishing,” Moody’s also said Monday.
In December, Kim Jong-un became the third generation of his family to lead the North since the country was formed after World War II, with little public sign of resistance to the succession.
“The North Korean risk is and will always be there, but it seems the risk is increasingly known and stabilized,” said Kim Yong-hyun, a professor of North Korean studies at Dongguk University in Seoul.
Any eventual reunification with North Korea, which has relied on foreign aid to feed itself, could pose a fiscal hit to the South, said Ms. Lim of JPMorgan.
The move Monday by Moody’s underscored an appeal to the country that Goldman Sachs has highlighted as an alternative to investing in the so-called BRIC nations — Brazil, Russia, India and China.
Jim O’Neill, the chairman of Goldman Sachs Asset Management and the person who coined the term BRIC, is now talking about MIST, for Mexico, Indonesia, South Korea and Turkey — nations he considers to be among the 11 next big emerging markets.
South Korea “happens to be the only populated country that in my lifetime has transformed its income from that of an African country to being that of a G-7 country,” Mr. O’Neill said.
“It’s an example that all these other countries can learn from.”
nytimes.com
“Korea’s strong fiscal fundamentals enable a relatively large degree of policy space to cope with contingent domestic risks and external shocks,” the ratings agency said Monday in a statement.
Moody’s elevated South Korea’s rating by one notch, to Aa3, the fourth-highest ranking and one also shared with China.
The upgrade is a vote of confidence in President Lee Myung-bak’s efforts to strengthen the nation’s ability to cope with financial turbulence even as his popularity wanes near the end of a five-year term.
The move also reflects South Korea’s fiscal discipline, with government debt equaling 33 percent of gross domestic product, compared with 108 percent for advanced economies as a whole, according to the International Monetary Fund.
“The fiscal situation is the strongest aspect of Korea’s economy,” said Lim Ji-won, an economist at JPMorgan Chase in Seoul.
“A lot depends on how the government deals with the aging problem in the longer term, but in the next few years the fiscal situation will be relatively strong.”
Like Japan’s, South Korea’s population is aging after a decline in birthrate, potentially imposing a higher pension-cost burden on the economy as fewer workers support greater numbers of retirees.
Moody’s has the most positive outlook on South Korea among major ratings agencies.
Fitch Ratings rates the country’s debt at its fifth-highest level, while Standard & Poor’s ranks it one level lower.
Export competitiveness will help South Korea rebound from a slowdown as global growth recovers, Moody’s said.
The nation’s banks have been strengthened by improved regulation and a reduction in reliance on short-term external financing, it said.
The risk of a collapse in North Korea during the transition to a new leadership “is diminishing,” Moody’s also said Monday.
In December, Kim Jong-un became the third generation of his family to lead the North since the country was formed after World War II, with little public sign of resistance to the succession.
“The North Korean risk is and will always be there, but it seems the risk is increasingly known and stabilized,” said Kim Yong-hyun, a professor of North Korean studies at Dongguk University in Seoul.
Any eventual reunification with North Korea, which has relied on foreign aid to feed itself, could pose a fiscal hit to the South, said Ms. Lim of JPMorgan.
The move Monday by Moody’s underscored an appeal to the country that Goldman Sachs has highlighted as an alternative to investing in the so-called BRIC nations — Brazil, Russia, India and China.
Jim O’Neill, the chairman of Goldman Sachs Asset Management and the person who coined the term BRIC, is now talking about MIST, for Mexico, Indonesia, South Korea and Turkey — nations he considers to be among the 11 next big emerging markets.
South Korea “happens to be the only populated country that in my lifetime has transformed its income from that of an African country to being that of a G-7 country,” Mr. O’Neill said.
“It’s an example that all these other countries can learn from.”
nytimes.com
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