Merrill Lynch: low chance of sovereign rating being upgraded

U.S. securities house Merrill Lynch remarked that the possibility of Korea¡¯s sovereign rating being upgraded is low.

Merrill Lynch publishes the Asian Strategy Monthly, and in the October issue, there was an article saying that the chance of Korea's sovereign credit rating being upgraded by S&P or Moody's was lower than it was 3 months ago. At the same time, Merrill Lynch downgraded its sovereign credit forecast for Korea from positive to moderately positive.

In the report, laggard reform efforts were cited as the reason for the downgrading. It also mentioned S&P's view that if corporate restructuring does not go forward, there would be no choice but to keep the sovereign credit rating at the present level. S&P and Moody¡¯s gave Korea respective credit ratings of BBB and Baa2, which is one step above the lowest investment grade. An official belonging to a local branch of a foreign securities company revealed that there are many instances such as the pre-reporting system for overseas remittances and exceptions in relation to corporate closures which are causing doubts regarding the Korean government's will for reform.

The Merrill Lynch report did positively evaluate the government's additional raising of public funds and the second round of financial restructuring, but stressed that in order to improve foreign investor sentiments, restructuring would have to be expeditiously implemented.

The estimated economic growth rates for this year and next year in the report remained at 8.3% and 5.7%, respectively. To add, the won-dollar exchange rate in the fourth quarter was to move within the range of 1,110 to 1,130 won. The exchange rate forecast was raised from 1,050 to 1,110 due to the rise in oil prices.