Moody’s upgrades Korea rating to A1

Moody’s upgrades Korea rating to A1

Moody’s Investors Service has changed Korea’s government bond ratings to A1 from A2 in three years, citing the Korean economy’s “exceptional” resilience to the global crisis.

The ratings agency maintained the outlook for Korea at “stable.”

“The change has been prompted by Korea’s demonstration of an exceptional level of economic resilience to the global crisis, while containing the government’s budget deficit,” Moody’s senior vice president Tom Byrne said in an e-mailed statement.

The ratings agency said the Asia’s fourth-largest economy was responding quickly to the improving global economic environment.

The government’s supportive policy measures also helped sustain economic growth, Moody’s said.

“The resiliency of Korea’s economy was evident in its ability to withstand relatively well the concretionary forces which emanated from the global recession,” Byrne said.

Before the announcement from Moody’s today, some observers had expected that Moody’s would maintain Korea’s credit rating at A2 due to lingering concerns over the large proportion of short-term external debts in the banking sector.

However, Moody’s said the vulnerabilities coming from the banking industry’s reliance on external debts are “being addressed and reduced.”

Despite the upgrade, Byrne said that the eventual exit from the accommodative monetary policy by the Bank of Korea could slow growth momentum in the next one or two years.

The ratings agency also warned that Korea will face demographic challenges in the next 10-15 years.

It pointed out two major risks that could affect future ratings – one, the snowballing public-sector debt and the other, the risk posed by North Korea.

However, concerns over possibilities of military provocations can be counterbalanced by “South Korea’s robust alliance with the United States and shared interests among regional powers for stability on the peninsula,” it said.

The Korean economy averted a recession and pulled off the 0.2 percent growth in 2009, while most of the global regions were suffering from a recession.

The central bank recently revised the 2010 growth forecast for Korea to 5.2 percent from a previous 4.6 percent, citing robust exports and improving domestic demand.

Korean stocks sharply rose after Moody’s upgraded the country’s bond ratings to A1 and maintained a stable outlook.