Rating upgrade and Japan

Maintaining fiscal soundness should be prioritized

Moody’s Investors Service has raised its sovereign rating on Korea by one notch from A1 to Aa3.

As reasons for its rating upgrade, the global credit appraiser cited the country’s strong fiscal fundamentals, resilience to external economic shocks and the continued status quo of geopolitical risks from North Korea. The rating is Moody’s fourth-highest investment grade and the highest one it has ever granted to Korea.

We welcome the rating upgrade that has very important significance to the nation in that Korea is now on a par with Japan in sovereign credit ratings at a time when the neighboring countries are engaged in heated debate concerning Dokdo and Japan’s wartime wrongdoings.

It’s encouraging that Moody’s, one of the world’s three major credit rating agencies, has highly evaluated the Korean economy, which has been building up its economic resilience following the Lehman Brothers debacle in 2008.

The upgrade is especially meaningful because the fourth-largest Asian economy faces cloudy prospects in years to come. More than anything else, the nation’s gross domestic product (GDP) grew 0.4 percent in the second quarter of this year, the slowest gain since the 0.3 percent expansion in the fourth quarter of last year. The growth represents a sharp deceleration from the 0.9 percent quarter-on-quarter expansion in the January-March period.

Household debt, the potential time bomb that could shake the Korean economy, is close to 1,000 trillion won, putting the financial authorities in a quandary. The slumping property market has also fanned fears of asset deflation in Korea where belief in the myth that land was a surefire investment was a norm for decades. Most recently, exports have dwindled, affected by the eurozone crisis and China’s economic slowdown.

Moody’s rating upgrade must be a blessing for the Korean economy because it will help reduce borrowing costs for the government and the private sector and attract foreign investment. In addition, the upgrade could prompt appreciation of the Korean currency, which would make the prices of imported goods cheaper, contributing to price stability domestically.

That Moody’s cited fiscal fundamentals as the top reason for its rating upgrade gives us many things to ponder, given that many countries, including such PIIGS nations as Spain and Italy, wrestle with snowballing budget deficits and swelling national debt. This explains why Korea should maintain its fiscal health under any circumstances.

True, it’s necessary to accept demands for expanded welfare and economic justice to a certain extent, given widening economic polarization, but the bottom line is that such desires should be restrained below the level where the nation’s fiscal soundness is not hurt.

In recent weeks, Koreans have vented their fury against Japan’s mistaken assertions on Dokdo, the country’s easternmost islets, forced sex slaves and other distortions of history. The key to preventing Japan’s provocations lies in making the country a powerhouse in the world and in this respect, the upgrade will hopefully serve as a catalyst for Korea to surge ahead of the island nation. <The Korea Times>

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