Last April, Moody’s lifted its outlook on South Korea’s A3 sovereign credit rating to positive from stable. The A3 rating is Moody’s seventh highest, four steps above “junk” status.

Moody’s Senior Vice President Thomas Byrne said various factors were behind South Korea’s improved outlook, including better economic fundamentals, its free trade agreement with the United States and talks with the EU about a similar trade deal.

Byrne also highlighted Pyongyang’s deneclearization agreement in February with China, Japan, Russia, South Korea and the U.S., which was was delayed for months amid efforts to resolve a banking dispute with Washington though has recently gained momentum.

“(South) Korea’s favorable macroeconomic performance should continue over the near term,” Byrne said in a release, adding that recent moves by North Korea to implement the February accord “may allay some concerns over geopolitical risks associated with” the communist country.

Developments in impoverished but nuclear armed North Korea are a major concern for credit ratings agencies such as Moody’s that must factor in the potential cost of possible unification and the fiscal burden that would place on South Korea’s government finances.

Estimates of that cost vary widely. Takahira Ogawa, sovereign credit analyst at Standard & Poor’s Ratings Services in Singapore, said last year that they range from as low as 50 percent of South Korea’s gross domestic product to as much as 300 percent.

South Korea has been pursuing a policy of engagement with North Korea, hoping that the fostering of economic exchanges will gradually nudge the country toward a more open economy, raise living standards and lessen the fiscal impact of any sudden implosion.

So far, the two sides have opened an industrial zone in the North Korean border city of Kaesong, where local laborers work in South Korean-run factories, and a tourism project at a mountain resort visited by South Korean and foreign tourists.

Subscribe to The China Post and save.  Click hereSharePrintEmail

Write a Comment

Enter your comments - 800 characters max

Receive China Post promos

Respond to this email