Korea`s Sovereign Rating Jumped Up 2 Steps

The sovereign rating of Korea is recovered to the A rating 4 year 3 months after the foreign exchange crisis.

The Ministry of Finance and Economy announced yesterday that Moody`s raised the sovereign rating of Korea from Baa2 to A3, which is the lowest rating of the A rating. Korea had the A3 rating during Nov. 28th through Dec. 11th, 1997, and it is 2 steps down compared to the A1 rating that Korea had before the foreign exchange crisis.

By the adjustment of the sovereign rating, the credit rating of Korea Insurance Deposit Corporation and 3 major state-run banks including the Korea Development Bank, The Export-Import Bank of Korea, and Industrial Bank of Korea will be raised 2 notches upward as well.

Moody`s rating agency explained that the rating adjustment was supported by the continuous reduction of foreign debts, foreign exchange holding over 100 billion dollars, a flexible exchange rate policy, diversified industrial structure, and the balanced growth policy of the Korean government.

By the unexpected adjustment of the Korea`s sovereign rating by Moody`s, S&P and Fitch IBCA are likely to take similar actions. S&P and Fitch IBCA raised the Korea`s rating to BBB+, which is right next to the A rating in November last year and March 2000 respectively.

The Ministry of Finance and Economy anticipated that this adjustment might benefit Korea over 1 billion dollars by the decrease of interests applied to the national bonds and other bond issued by KDB and the national credibility in the international market would be significantly improved. Meanwhile, Moody`s recommended Korea to continue on the reformation of the financial and business areas.

Rae-Jeong Park ecopark@donga.com