Singapore, December 22, 2011 -- Moody's Investors Service says in its latest annual report on Korea
that the outlook for Korea's A1 local and foreign government bond
ratings remains stable, given the country's very high degree
of economic strength, as well as high degree of institutional and
government financial strengths.
At the same time, geopolitical risks, as currently assessed,
do not constrain Korea's ratings, even after factoring in
the death of Kim Jongil on 17 December.
Kim's demise does raise further uncertainties about the dynastic
leadership transition in the North and the stability of the government
in Pyongyang, but the robust state of the ROK-US alliance
will continue to provide a strong deterrence to war.
Moody's assessments were contained in its annual report released
today. Moody's ratings for Korea are based on four factors
-- economic strength, which is classified as Very High;
institutional strength, High; government financial strength,
High; and susceptibility to event risk, Moderate.
The report notes that the April 2010 rating upgrade to A1 was prompted
by Korea's exceptional level of economic resilience and effective policy
response to the 2008 global crisis.
Looking at the current situation, economic prospects remain relatively
favorable compared with most rating peers and with economies as large
as that of Korea. Unemployment is lower than any other G-20
country and while inflation recently rose outside the Bank of Korea's
policy range, historically, expectations in this area have
been well anchored.
The Moody's report notes that Korea's export-oriented
economy is facing headwinds from the lackluster economic recovery in the
US and from the Eurozone's banking and sovereign debt problems.
At the same time, such challenges would likely prompt an accommodative
policy stance, and Korea has ample fiscal headroom to help boost
growth.
The report also notes that the government has a strong fiscal position
and its debt has been contained at a moderate level. The budget
will likely remain in surplus over the near term, but non-financial
public sector debt is slightly larger than that of the central government.
Furthermore, an intensification of the Eurozone crisis and deterioration
in the global financial market conditions puts funding pressures on the
Korean banking system. Continued success in reducing contingent
vulnerabilities in the financial sector will be a key factor influencing
the rating outlook.
Returning to the question of the death of Kim Jongil, the report
says that the issue is whether the transfer of power to a young and inexperienced
leader, Kim Jongun, will occur without a power struggle which
increases the unpredictability of the North Korean military and without
provocative military actions taken against South Korea.
However, Moody's central scenario is that the status quo prevails,
but a collapse of the North would pose considerable challenges for the
South.
The report is entitled, "Korea." It can be found
at www.moodys.com
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Moody's: Korea's rating outlook not currently affected by geopolitical risks