S&P: martial law in Korea highly unusual for AA-rated economy

Global credit ratings agency Standard & Poor’s (S&P) expressed concern over South Korea's recent imposition and swift repeal of martial law, describing it as an "unexpected event" for an economy with such high ratings. The agency warned that restoring investor confidence might take considerable time. Moody's, another major credit ratings agency, echoed these concerns, citing potential negative effects on South Korea's credibility if political strife persists.

In a Wednesday report, S&P stated, “The declaration and rapid repeal of martial law in South Korea is highly unusual for a sovereign nation with an ‘AA’ credit rating. The overnight events may have undermined perceptions of political stability among investors.” S&P has maintained South Korea’s AA rating—its third-highest tier in a 21-grade scale—since 2016.

While acknowledging that swift action by financial regulators and the Bank of Korea had limited market volatility, S&P emphasized that “normalizing investor sentiment will take more time. It will also take longer to fully assess the intensity of the economic, financial, and fiscal shocks stemming from this incident.” The agency added that well-coordinated political responses to reassure investors could help lower the risk premium associated with decisions involving South Korea.

S&P noted, however, that the parliamentary decision to promptly lift martial law without significant violence demonstrates the effectiveness of checks and balances within South Korea’s political system. “The likelihood of any change to South Korea’s credit rating within the next one to two years remains low,” it said.


신아형 abro@donga.com