Possibility of Downgrading Korea’s Sovereign Credit Ratings

Moody’s is highly likely to downgrade Korea’s sovereign credit ratings unless there is progress in resolving the North Korean nuclear issue in the next two or three months.

“Moody’s has planned to downgrade Korea’s credit ratings on March 12, but decided to maintain the rating of ‘A3 Negative’ at the request of the Seoul government to give two or three more months,” said Director General for International Finance at the Ministry of Finance and Economy Kwon Tae-sin on Sunday.

Kwon has recently returned home after visiting the headquarters of the Wall Street credit-rating agency with Ban Ki-moon, President Roh’s foreign policy adviser.

In other words, the announcement of Moody’s to maintain the Korean credit ratings can be interpreted that it postponed adjusting the rating for the time being.

The ‘negative’ ratings outlook means that the credit ratings are very likely to be reduced in a few months.

“Wall Street financial institutions as well as Moody’s are forecasting that the possibility of war on the Korean Peninsula is very high,” said another official of the government delegation. “I was astonished that their concerns were much more serious than what we have at home.”

It is not clear yet if the credit-rating agency will wait another two to three months to go over Korea’s sovereign credit ratings at the request of the government.

As an analyst of Moody’s is expected to visit the country in mid-April to check into the North’s nuclear issue, a review to adjust the credit ratings may be advanced other than the date the government has requested.

The government will meet with analysts of Moody’s again at a meeting to explain the Korean economy in the US early next month, and explain developments of the nuclear threat and US-Korean cooperation on the matter.

“Further escalation of tension on the Korean Peninsula will pull down Korea’s sovereign credit rating in that it increases the possibility of military confrontation,” said the credit-rating agency in its announcement on March 12.

Kwang-Am Cheon iam@donga.com