Finance minister takes credit for Korea’s improved rating

Kim Hee-jin

GEOJE ISLAND - “I have met with them four times.”

During a rare trip with reporters to Geoje Island over the weekend, Finance Minister Choi Kyung-hwan proudly told reporters he made numerous attempts to show Standard & Poor’s ratings managers the growth in the Korean economy. The credit rating agency recently upgraded Korea’s level to AA-, the highest level since 1997.

Choi’s patting of his own back came after opposition lawmakers barraged him with questions on the sluggish economy at a parliamentary audit last week - and he proudly refuted an opposition lawmaker’s criticism by saying, “You said the economy is sinking because of me, then why do you think the credit rating agency [S&P] raised our grade?”

Although it is evident the upgrade was good news for Korea - in the midst of the latest data showing gloomy growth and analysts’ cuts in their outlook for the Korean economy to below 3 percent - the credibility of the ratings by the world’s leading rating agencies, including S&P, has been frequently questioned, particularly after the 2008 global financial meltdown and the 1997 Asian financial crisis.

In January, the agency agreed to pay $77 million to settle charges it inflated ratings on credibility of mortgage-backed securities (MBS). For Korea, it held its highest-level of AA- until August 1997, just before the country was hit by the 1997 financial crisis.

“Right after the highest rating [to AA-], our grade crashed to the lowest-lever after the [1997] financial crisis,” said Rep. Kim Hyun-mi from the opposition New Politics Alliance for Democracy, at a parliamentary hearing on Choi last week. “You should not be indulging in the numbers, and face the real situation of the country.”

A Seoul official also told the Korea JoongAng Daily, “I don’t understand why we should beg for a rate increase. In fact, those ratings are not that influential [for the economy.]”

Many banks, in fact, do not rely only on S&P’s rating because they have their own rating system, said Rajiv Biswas, a chief economist at the IHS, a research firm.

“Although ratings by the international ratings agencies are still closely watched by financial markets, many international banks also maintain their own credit rating systems to assess credit risk in countries they lend to worldwide, so they do not necessarily only rely on the ratings assigned by rating agencies,” Biswas said.

Analysts in stock markets were also pessimistic about the impact of a rating increase on their markets. A day after the announcement of the S&P upgrade, the benchmark Kospi rose nearly 2 percent on Sept. 16, but many analysts told the Korea JoongAng Daily that it was not because of the rating, but mainly the mounting expectations of a rate hike by the U.S. Fed.

The rating upgrade is one of the few achievements for Choi since he was inaugurated as finance minister last July.

Despite his “expansionary policy” - which includes a wide range of support for the economy such as supplementary budgets, stimulus packages, eased regulations on real estate markets and even an alleged push on the central bank for a cut in interest rates - Asia’s fourth-largest economy’s growth is sagging.

Export growth in August was the lowest in six years, Jeonse lease prices are surging, household debt exceeds 1,100 trillion won, inflation has never gotten above 1 percent for nine straight months and the country’s debt-to-GDP ratio reached its highest level of 40 percent. The current pace of tax collection is also raising worries about another fiscal deficit for this year, following the worst-ever fiscal outcome last year.

Leaving all the gloomy records behind, it is rumored that Choi will quit as minister and return to the National Assembly in December to prepare for the general election next year.

Expectation are rising that there would be few hurdles for Choi to win a race in his longtime constituency, Gyeongsan, North Gyeongsang, a traditional stronghold for the ruling Saenuri Party. Even the housing prices in the region may help him as Gyeongsan has recorded the highest growth in housing prices, 76 percent last month, year-on-year since 2011.

“He is a three-term lawmaker, a close aide to the president, and a former Finance Ministry official with a [career] full of working experiences,” a Finance Ministry official said. “We would never have a figure with such political influence next time.”

BY KIM HEE-JIN [kim.heejin@joongang.co.kr]