S&P reaffirms nation’s A+ rating and outlook

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S&P reaffirms nation’s A+ rating and outlook

International rating agencies have reaffirmed Korea’s stable credit level, despite lingering external uncertainties like the timing of asset-purchase tapering by the U.S. Federal Reserve.

Standard & Poor’s, one of three credit rating agencies, announced yesterday it will keep the country’s A+ credit level with “stable” outlook, owing to favorable government policies and sound fiscal health.

“We are affirming the foreign currency and local currency credit ratings at ‘A+/A-1’ and ‘AA-/A-1+,’ respectively,” the agency said in a report. “Our ratings on Korea reflect its favorable policy environment, sound fiscal position and net external creditor position.”

S&P assessed the country’s debt level as “modest,” and consistent current account surpluses allow policy makers more flexibility in adverse economic conditions.

“The internationally and actively traded Korean won also helps to mitigate risks arising from the foreign currency indebtedness of the country’s financial sector,” it said.

Fitch, another global agency, reaffirmed Korea’s AA level in late August.

On Fitch’s list, Korea is rated higher that Japan and China. Moody’s ranks Korea at the same Aa3 level as its two neighbors.

S&P, however, cited geopolitical risks and unification-related contingent liabilities as vulnerabilities.

“The chief weaknesses in Korea’s credit fundamentals are contingent liabilities and geopolitical risks on the Korean Peninsula,” the report said. “Korea faces the prospects of bearing the uncertain, but likely heavy, costs of a reunification if the Democratic People’s Republic of Korea regime fails.”

The agency also warned it could reassess the country’s “stable” outlook if any signs of instability appear.

“We could lower the ratings on signs that political instability in the DPRK threatens to trigger a sudden reunification or prolong heightened security tensions on the Korean Peninsula. Depending on how the scenario unfolds, we would lower the sovereign ratings by one or more notches,” the report said.

BY song su-hyun [ssh@joongang.co.kr]
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