Bangkok--7 Apr--Moody's
Moody's Investors Service will assign an A2 rating with a stable outlook to the Republic of Korea's forthcoming US dollar-denominated global bond issuance.
"The Korean government's A2 rating is supported by the effective inter-agency policy response to the global financial crisis and recession, and the ample degree of strength evident in the country's external payments position," says Tom Byrne, a Moody's Senior Vice President.
"Moody's also believes that Korea's diverse and competitive export industries should prove resilient and help restore growth to the Korean economy when the world economy recovers," says Byrne.
"Korea's holdings of official foreign-exchange reserves are large enough to provide a cushion against possible shocks in the international credit markets, and Moody's also believes that the Bank of Korea has ensured liquidity and the safety of its foreign-exchange assets."
The shift in the current account balance into surplus, despite the sharp contraction in exports, and a moderate reversal in previously large equity portfolio investment outflows are also supporting the external payments position, although risks lurk from a possible renewed bout of de-leveraging.
"Furthermore, the economy has benefited from the country's post-1997 process of deregulation, liberalization, domestic corporate de-leveraging and restructuring, and which have materially reduced the risk of a relapse into a financial crisis," says Byrne. "The authorities are taking a wide range of pre-emptive measures, both fiscally and financially, to offset the contractionary effects of the global recession on small- and medium-sized enterprises and ultimately on the banking system."
Moody's notes that the general government budget was in surplus from 2000 through 2008, although the fiscalization of 1997 financial crisis-related losses elevated government debt during that period.
The recession and fiscal stimulus programs currently envisaged will shift the budget into deficit in 2009, yet the increase in government debt to around 35% of GDP in 2009 and 2010 would be a sustainable level. While credit guarantees extended to the banking and SME sectors pose additional, contingent liabilities -- should economic conditions deteriorate much more -- they are currently at a moderate level.
Moreover, the vulnerabilities posed by direct, foreign currency government debt are readily manageable because such debt has been reduced to very low levels and well below those of most of Korea's rating peers.
Geopolitical event risk in relation to North Korea continues to pose economic and fiscal contingencies--the long-range rocket launch reflects such risks. But these have been contained by the six-party process for the denuclearization of the Korean peninsula and the reaffirmation of the ROK-US military alliance by the Lee and Obama administrations.
Geopolitical event risks are factored into the government's A2 rating and do not currently pose a constraint at that rating level.
Moody's also notes that Korea has a high level of per-capita income compared with its A-rated peers, and its institutional strengths are similar to those of its peers.
The principal methodology used in rating the government of the Republic of Korea is Moody's Sovereign Bond Methodology, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory on Moody's website.
London
Pierre Cailleteau
Managing Director
Sovereign Risk Group
Moody's Investors Service, Ltd.
JOURNALISTS: (44) 20 7772 5456
SUBSCRIBERS: (44) 20 7772 5454
Singapore
Thomas J. Byrne
Senior Vice President - Regional Credit Officer Sovereign Risk Group Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308
New York
Steven A. Hess
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653