No Sovereign Ratings Upgrade Unless N. Korea Situation Changes

John Chambers, S&P`s head of global sovereign ratings, said Wednesday that unless North Korea carries out economic reform and takes more conciliatory stances, South Korea`s sovereign ratings, A- stable, will remain at its current level.

Asked about whether Korea`s sovereign ratings will be improved in line with rising possibilities of a peaceful resolution to the nuclear standoff, he answered, “The inter-Korean relationship will face difficulties in the future as well,” in an-email interview with The Dong-a Ilbo.

“If they carry out radical economic reform as China and Vietnam did in 1979 and 1986, respectively, and take a more conciliatory stance toward its neighboring countries, it will be helpful,” he said.

“But I do not expect such positive results from the upcoming six-way talks,” he predicted. “The progress of the talks will be slow, and the results will not be big enough to have effects.”

Despite Korea`s foreign currency reserve, which at present exceeds 130 billion dollars, healthy external positions such as overseas bonds and debt, and relatively high economic growth rates, the credit rating agency kept the nation`s sovereign ratings at a lower level due to the nuclear threat from the North.

Currently, most OECD member countries` sovereign ratings are over AA-, the fourth position among a total of 19 grades, while that of Korea remains at A-, the seventh position

“Since the sovereign ratings are decided from a long-term perspective, the global economy, interest rates, exchange rates, change of power, and oil prices do not affect a country`s credit ratings unless they are predictable,” he said regarding Korea`s possible credit ratings upgrade with the help of the economic recovery in the U.S. and the recent exchange rate changes of the Chinese yuan.

Yong-Ki Kim ykim@donga.com