&#91FOUNTAIN&#93Signalers of a brewing storm

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[FOUNTAIN]Signalers of a brewing storm

They're back. During the currency crisis, officials from Moody's Investors Service, the renowned U.S.-based credit rating agency, were like messengers from the underworld. They arrived with chilly smiles.

Moody's is considered one of the top three credit raters, along with Standard & Poor's of the United States and Fitch Ratings Ltd. of Britain. John Moody founded Moody's in 1900. The company rated bonds issued by U.S. railroads in 1909, labeling them from Aaa to C. Moody's has maintained this credit rating structure. Grades range from Aaa to Baa3, which is 10th from the top. These categories are investment grades, and another group, Ba1 to C3, which is 25th from the top, are speculative grades. Before the monetary crisis Korea's sovereign debt rating was A1. During the economic crisis in 1998, it fell to Ba1, but rose back to A3.

Moody's earned its reputation during the global economic depression of the 1930s. Moody's became a legend by recommending bonds that turned profits. However, only relatively recently did Moody's acquired the enormous power it has now. In 1975, S&P and Moody's earned the official recognition of the U.S. Securities Exchange Commission, and since then its influence has ballooned.

In 1997, the Japanese, who were proud of being the largest creditor in the world, questioned how credit rating agencies in United States, then the biggest debtor in the world, dared to grade them. In the end, the ratings issued by these agencies accompanied Japan's economic problems. Several financial giants, like Sanyo Securities, Hokkaido Takushoku Bank and Yamaichi Securities, went bankrupt because of the debt ratings they received.

The local financial market stumbled after Moody's recently lowered Korea's outlook from positive to negative. Although the announcement will not lead to another crisis in Korea, it is making things worse for an already difficult economy. Seoul's comments, such as "Government efforts will move the rating back up soon," and in relation to North Korea's nuclear development, which is seen as a direct cause of the downgrade, that "We cannot always side with the United States," only make us sigh. These are similar to comments made five years ago. "There is no problem in our economic fundamentals," an official said -- just before the financial fallout.


by Yoo Jae-sik

The writer is Berlin correspondent of the JoongAng Ilbo.

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