A vote of confidence

Standard & Poor’s has upgraded Korea’s credit rating by one notch from AA- to AA. That is Korea’s highest-ever rating by S&P. Given the international rating agencies’ recent lowering of the credit levels of advanced as well as emerging economies, S&P’s decision to raise our credit rating can be seen as exceptional. From the standards of S&P, only six regions — Germany, Canada, Australia, Singapore and Hong Kong, all rated AAA — and the United States with AA+ — have credit ratings higher than Korea. China (AA-) and Japan (A+) have lower ratings than Korea.

S&P based the upgrade on Korea’s continued economic growth, sufficient foreign reserves and stable fiscal policy. That is a perspective quite different from our own. The decision by S&P can be seen as embarrassing to us because local analysts express deep concerns about our slowed exports and lackluster domestic consumption.

We may be applying overly pessimistic and self-disparaging standards to the condition of our economy, forgetting that much depends on psychology. But S&P’s escalation of our credit rating also reflects its assessment that the Korean economy is vibrant enough to overcome unfavorable factors at home and abroad. We welcome the vote of confidence by S&P.

As the credit rating agency indicates, Korea’s GDP growth — currently at 2.6 percent — is noticeably higher than advanced economies’ numbers, which are in a range between 0.3 percent and 1.5 percent. When you take into account the global slump, Korea’s growth at 2.6 percent is not so bad. S&P also came up with an analysis that Korea’s slowed exports this year are still better than in other countries. The rating agency expected Korea’s exports to the U.S. to make up for some of the reduction in exports to China.

When a country’s credit rating goes up, it can enjoy many benefits. Above all, it becomes easier to borrow money from international financial markets. But a credit rating is only an indicator of a country’s ability to pay back its debt. Despite our big current account surplus, most of that comes from a reduction in our imports — not from an increase in exports.

The fears produced by our ultra-low birth rates and rapidly aging population also ring alarm bells on the economic front. It is time for the government — and the private sector — to do their best to tackle needed reforms and strengthen the fundamentals of our economy rather than pat ourselves on the back over S&P’s judgement.

JoongAng Ilbo, August 10, Page 30