from the Korea Times:
Moody’s Investors Service said that chances are above 50 percent for South Korea to have higher sovereign credit ratings in the future, but containment of North Korea risks is one of the crucial factors, a senior credit analyst at Moody’s said.
“The chance is more than 50: 50,’’ said Tom Byrne, vice president and senior credit officer at Moody’s Investors Service, at a media briefing in Seoul to mark launch of its Web site in Korean, Tuesday.
He said it was on the same ground that Moody’s raised its outlook for Korea to “positive’’ from “stable’’ in April. Moody’s has rated Korea at A3 since March 2002.
Byrne suggested that continued fiscal conservatism, favorable macroeconomic prospects and containment of North Korean risks could change the rating upward.
Regarding the North Korean risk, he explained that what is needed is not a complete elimination of the threat but an appropriate control of the risk.
“Back in 2003, our primary concern was increased geopolitical risks related with North Korea’s renewed nuclear weapons development.’’
He said Moody’s outlook on Korea has been determined by two factors since then, geopolitical concerns and credit fundamentals.
Regarding recent concerns over North Korea’s threat to launch a missile, Byrne said it is “a part of the geopolitical risks.’’
“As things stand for now, however, it’s too early to say whether the geopolitical situation has deteriorated,’’ he said, declining to mention its direct impact on Korea’s credit rating.
He said it is important to consider all parties involved, and emphasized that governments of the U.S., Russia, China, South Korea and Japan all should make efforts to stop the situation from deteriorating.
Byrne said that it is important to realize that the U.S. government is feeling very insecure since the September 11 terrorist attack. Consequently, the United States is taking a firm stance against North Korea and Iran, he explained. He said North Korea’s nuclear issue would be major concern of not only Bush administration but also a Democrat administration.
Byrne cited foreign investment as another crucial factor for Korea’s economic growth. He pointed out that Korea was very smart in overcoming the financial crisis, as it increased financial liberalization instead of closing its market. He said Korea is a bit exceptional as many Korean companies do make significant investment abroad. However, more progress should be made in inbound foreign direct investment, as it plays a crucial role in a long-term growth, he said.
He expected the Korean economy to grow 5 percent this year, and estimated next year’s growth rate at 4.5 percent.
He said the Korean government would need financial headroom as there will be increasing social welfare demands, probably an income support program for farmers after the signing of the Korea-U.S. FTA, and perhaps increasing aide to North Korea.
In spite of the increasing aid to North Korea, he doubted whether it would be effectively used there, as the communist country has the lowest government effectiveness indicator. The South Korean government was less effective than other OECD member countries, but was doing better than the governments of countries in Central Europe.
