Moody`s Upgrades S. Korea`s Sovereign Rating

“It’s unfair to freeze (South) Korea’s sovereign rating while raising those of other countries that cannot be said to be in a better economic condition than Korea. Isn’t Korea financially far sounder than economies in southern Europe?”

This statement by a South Korean delegation is what embarrassed Moody’s representatives in a March 19 meeting at the credit rating agency’s headquarters in New York.

The delegation visited just days before a Moody’s trip to Seoul for a preliminary survey on a review of Korea’s sovereign rating. In addition, officials employed a new style of negotiating.

Seoul has turned more aggressive in dealing with international credit rating agencies in a shift from its defensive attitude that had been seen since the 1997 Asian financial crisis. The government’s “preemptive” pressure on Moody’s is said to have worked, culminating in an upgrade of one notch to “A1” Wednesday.

Judging that the economy was in a better situation for an upgrade, the government made thorough preparations from early this year.

“We had a good opportunity to pressure (Moody’s) because (South) Korea showed extraordinary economic growth and credit rating agencies were under criticism for not making timely rating readjustments and outlooks given the southern European financial crisis,” said Son Byeong-doo, director of the international finance department at the Strategy and Finance Ministry.

At the meeting with Moody’s, government delegates played many “cards” for the first time. The ministry used to simply give briefings on Korea’s economic situation but this time, delegates protested South Korea’s “undervalued” sovereign rating. They compared the grade with those of other economies getting upgrades despite less than favorable economic situations.

A ministry official who participated in the negotiations said, “The dialogue with Moody’s was very tense. In certain instances, voices were raised at working-level meetings.”

Officials also took a different approach toward national security. When the country’s geopolitical risk was raised, including worsened inter-Korean relations, officials in the past had focused on explaining how Seoul could bear reunification costs.

This time, however, South Korea asked the credit rating agencies why they focused on reunification costs yet never talked of the country’s greater potential after reunification and its positive impact?

The negotiators put particular emphasis on other parties to the six-way nuclear talks wanting no drastic change in North Korea, adding Seoul is fully capable of keeping the situation on the Korean Peninsula stable through the dialogue.

Despite such efforts, the sinking of the South Korean naval vessel Cheonan last month left many officials lamenting that the incident shattered hope of a rating upgrade. The ministry, however, sent a letter to Moody’s saying the incident will have a limited impact on the South Korean economy.

Consequently, Seoul received the rating upgrade it thought it would not see this time.

turtle@donga.com