Moody`s gives Korea `Aa2` for the first time

Korea has received its highest credit rating from international ratings agency Moody`s. This new rating will certainly be helpful for Korea to pull through the impact of the increase in U.S. interest rate. The LG Economic Research Institute, however, has forecasted that Korea`s growth rate next year will be 2.5 percent, while companies are having difficulties with exports and the actual economy is still sluggish.

The Ministry of Strategy and Finance announces on Sunday that Moody`s has raised Korea`s credit rating from Aa3 (affirmative) to Aa2 (stable). Aa2 is top third among a total of 21 ratings. Only seven countries, including the U.S., Germany, and Hong Kong, have higher ratings than Korea. China and Japan have one lower and two lower ratings, respectively. This is the first time Korea has received the top third rating from one of the Big Three credit-rating agencies, which include Moody`s, Standard & Poor`s, and Fitch Ratings.

Moody`s has raised Korea`s credit rating for three reasons: the growth rate is faster than developed countries, their fiscal sustainability, and their ability for structural reform. "This raise reflects Moody`s overall assessment on Korea`s economic achievements during the three years of Park Geun-hye administration," Deputy Prime Minister Choi Kyoung-hwan said on Sunday. "This will be our shield that protects the Korean economy from concerns surrounding the outflow of the foreign investment fund, the expansion of financial market variability, and a slowdown in real economy; all due to the increase in U.S. interest rate."

Unlike this positive assessment, the LG Economic Research Institute has lowered Korea`s GDP growth rate to 2.5 percent in its report "2016 Economic Forecast," published on Sunday. The institute explains that exports will continue to slow down and the recent recovery in consumer spending will not last throughout next year.

Experts say that because Moody`s credit rating assessment cannot reflect the overall economic status given that it only focuses on a country`s financial status and the ability to repay debt such as the foreign exchange reserve.

For this reason, some point out that Korea should pay more attention to the factors that may cause downgrading in future. On the other hand, Moody`s warns that Korea`s credit rating could go down if Korean government`s structural reforms do not work and government financial status, including public companies, worsens."

scud2007@donga.com