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Moody’s, S&P Say Credit Negative for South Korea
Military Tensions in Korea Peninsular
Moody’s, S&P Say Credit Negative for South Korea
  • By matthew
  • May 2, 2013, 12:06
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International credit rating agencies such as Moody’s Investor Service and Standard and Poor’s have said that heightening tensions on the Korean peninsula will have a negative impact on South Korea’s credit rating.

According to Bloomberg on April 8, Moody’s said that North Korea’s decision to restart facilities at its Yongbyon nuclear site is credit negative for South Korea. In a report released by the credit rating agency that day, it said that the decision to restart production of weapons-grade platinum marks an escalation of tensions beyond rhetoric.

Moody’s said, “The North’s bellicose actions are credit negative for South Korea as they have increased the chance of a military clash,” adding “This is particularly so as both sides have new leaders.” The report sees a military clash as a possibility given that North Korea’s untested 30-something Kim Jung-eun is under pressure to prove himself to the country’s military, while South Korea’s newly-elected President Park Geun-hyu has pledged to respond to any provocation with military force. The ratings agency also noted, “The new stance by the Seoul government raises uncertainties about whether it will act as a deterrent or result in a spiral of military reprisals if the North were to lash out.”

S&P said that heightened inter-Korean tensions would have a negative impact on South Korea’s sovereign rating. The ratings agency said, “Currently, Korea’s credit rating reflects the fact that military clashes or severe physical damage is unlikely to be triggered by the North’s provocation,” adding, “If these things take place, they could negatively affect the South’s sovereign rating.”

Meanwhile, the government plans to reassure international ratings agencies that South Korea is on a solid footing in a bid to prevent military tensions with the north from having any negative impact on South Korea’s sovereign rating. The government aims to distribute materials detailing situations related to North Korea and the government’s response plan. Moody’s and S&P each currently assign A+ and Aa3 ratings to South Korea, respectively.

Despite North Korean Threats, S. Korea’s National Risk Ranked 17th out of 140 Nations

While the Korean Peninsula is caught in strong tensions due to North Korea’s recent provocations, such as nuclear testing, rocket launching and the shutdown of the South-North joint industrial complex in Gaeseong, it has been reported that South Korea’s national risk is at its lowest level since the second half of 2003.

The report was unveiled in the Spring 2013 issue of “North Korean Economy,” a seasonal magazine issued by Korea Eximbank, under the title “Major Organizations’ Assessment on South and North Koreas’ Country Risks”

Among others, the US-based investment risk analysis institute Political Risk Service (PRS) reported through its International Country Risk Guide (ICRG) that South Korea was ranked 17th out of 140 nations as of the end of last month. This is a three-step and six-step rise from September (20th) and March (23rd) last year, respectively, and the best record since 2003. South Korea was assessed as the 33rd safest country in the first half of 2009 and in the second half of 2005.

In contrast, North Korea’s country risk is at the worst level. North Korea was ranked 133rd out of 140 nations in the first half of this year, 134th in both the first half and second half of 2012, 133rd in both the first half and second half of 2011, 132nd in the first half of 2010, and 131st in the second half of 2010. Its best record was 107th in the first half of 2005.

Country risk analysis providers assess a total of 17 economic, social and political factors, such as tax discrimination, foreign exchange intervention, labor policies, investment limit, stability of social and political systems, transparency of policies, crime, and public protests.

In addition, North Korea was among the lowest group (7th grade) in the OECD Country Risk Assessment (0~7 grades) conducted in the first half of this year.