Moody's Raises Korea's Credit Rating

      December 21, 2015 10:26

      Moody's on Friday raised Korea's sovereign credit rating by a notch from Aa3 to Aa2. The credit rating firm classifies ratings into 21 categories, and Aa2 is the third-highest.

      This is the highest rating Korea has ever received from any of the three global rating firms, making it the only country among 27 investment-grade nations that Moody's has upgraded.

      In September, Standard and Poor's raised Korea's sovereign credit rating by a notch from A+ to AA-.

      Moody's said Korea is managing to achieve relatively strong economic growth despite the global slump. Over the last three years, Korea's economy grew an average 2.8 percent, outpacing the U.S. (2.3 percent), the U.K. (2.1 percent), Canada (2.1 percent), Hong Kong (2.4 percent), Japan (1.1 percent), Germany (0.8 percent) and France (0.3 percent).

      Moody's forecast Korea will keep growing faster than advanced economies over the next five years, while per-capita GDP will approach levels of European nations.

      But the biggest factor determining the success or failure of Korea's economy is its ability to reform its economic structure. Moody's said Korea's track record in overcoming the 1998 Asian financial crisis places the nation at an advantage in restructuring the public sector, labor market and other sectors. But it warned that backtracking on reforms could lead to a lowered credit rating.

      Korea now has a higher rating than China and Japan. Moody's and Fitch have ranked Korea a notch above China and two notches above Japan, while Standard and Poor's gave Korea and China AA-, which is a notch above Japan's rating of A+.

      Until the global financial crisis, Japan had the highest sovereign credit rating of the three.

      China's credit rating has remained unchanged over the last five years, but Japan's took a dive in 2008 because the government took out huge amounts of fiscal debt to prevent an economic slump.

      Market researchers say Korea should learn lessons from Japan's mistakes. Korea's fiscal debt is snowballing as the government issues bonds to stimulate its sagging economy. Korea's debt surpassed W500 trillion this year and is expected to stand at 40 percent of GDP next year (US$1=W1,184).

      An upgrade in credit rating means a country is more capable of repaying its debts, but the ratings firms are neither omniscient nor fully independent of their banking clients.

      In 1997, just before the Asian financial crisis, Korea had the highest credit rating to date. Moody's gave Korea A1 and Standard and Poor's gave it AA-, the fifth and fourth highest levels respectively. But it only took six months for Korea's credit rating to deteriorate to junk status and 13 to 18 years to recover.

      "Credit rating firms evaluate a country using past statistical data and do not make predictions one year down the road. We mustn’t bask in the glory," said Kwon Tae-shin at the state-run Korea Development Institute.

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