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(News Focus) S. Korea's credit ratings return to pre-crisis levels
SEOUL, Sept. 14 (Yonhap) -- South Korea's sovereign credit ratings have recovered to the levels seen before the 1997-98 financial crisis, as Standard & Poor's joined the other two major agencies on Friday in raising the grade on Asia's fourth-largest economy.

   S&P said in an e-mailed statement that it has upgraded its sovereign ratings on South Korea by one notch to A plus, the fifth-highest level on its rating scale, citing eased geopolitical risks from North Korea.

   The upgrade comes just weeks after Moody's and Fitch raised their ratings on Korea to Aa3 and Aa-, based on their positive assessment on the improved fiscal health of the country.

   This is the first time in about 15 years that South Korea has finally recovered its credit ratings before the 1997-98 foreign exchange crisis, which put the country on the brink of bankruptcy and threw its financial system into chaos.

   "We have now fully returned to the pre-crisis credit rating levels," Choi Jong-ku, a senior finance ministry official, told reporters. "It is also very unusual to receive upgrades from all three agencies at a time when many major countries have seen their ratings downgraded."

   All three cited, almost in unison, the improved fiscal soundness of South Korea as a reason for their upgrades.

   In the wake of the financial chaos sparked by the collapse of Lehman Brothers in 2008, South Korea was quick to join other countries in unveiling diverse stimulus measures aimed at boosting its slumping economy shrouded by seemingly unstoppable uncertainty.

   The government frontloaded its budget spending and unveiled a supplementary budget to jumpstart the economic recovery. Many experts see such stimulus efforts as successful in getting the economy back on track.

   Expanded fiscal spending, however, boomeranged as a heavy burden on many countries later on, raising concerns that worsening fiscal health could turn the global economy into yet another crisis.

   The eurozone was hit hardest by a spending spree, with Greece and other European countries suffering from soaring debts and less capacity to boost their sluggish economies.

   In a bid to stop the country from falling prey again to the global crisis, the government has been maintaining a conservative stance in running its fiscal policies and working to strengthen its fiscal soundness against what is deemed to be a protracted eurozone crisis and other external uncertainties.

   Moody's earlier said that Korea's relatively "strong fiscal fundamentals" give a "large degree of policy space" to cope with contingent domestic risks and external shocks.

   Fitch also echoed, "The upgrade reflects Korea's continued economic and financial stability in a volatile global environment and a strong macroeconomic policy framework including sustained fiscal discipline."

   S&P, in particular, cited geopolitical risks from North Korea have eased thanks to the "smooth change of leadership" in the reclusive communist country.

   "We believe that this transition has reduced risks that the DPRK regime could abruptly collapse or that it would escalate military confrontations," the agency said an e-mailed statement.

   The assessment on the North comes as some are cautiously hoping that a wind of liberalization and reform could blow there, as Kim Jong-un took the helm of the reclusive country after the death of his father Kim Jong-il.

   North Korea has been frequently blamed for the so-called "Korea discount" that underestimates the value of stocks and bonds due to threat from the communist neighbor.

   The agency added that a spike in tension could lead to a downgrade on South Korea at any time.

   "We could lower the ratings on signs that political instability in the DPRK threatens to trigger a sudden reunification or prolong heightened security tensions on the Korean peninsula," the agency said.

   Meanwhile, analysts see the rating upgrades by the three major agencies would have a positive impact on overall market conditions.

   Upgraded credit ratings could bring many benefits by reducing the overall borrowing costs, attracting more foreign investment and possibly boosting exports by improving the overall national brand image.

   But some worry that the upgrades could spark a surge in capital inflows into the domestic market, which could pose a "double-edged" sword to the Korean economy when the global economic conditions worsen, triggering a massive capital exodus.

   "There is a possibility that the rating upgrades could bolster capital flows into the domestic market," Choi of the finance ministry said. "The government will keep a close eye on any possible negative impact."

   kokobj@yna.co.kr
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