Moody’s Investors Service on Monday raised the possibility that it could downgrade South Korea’s sovereign rating due to escalating tension on the Korean Peninsula.
Casting a sort of warning over the nation’s sovereign risk, the U.S.-based rating agency said North Korea’s relaunch of nuclear plant operations is negatively affecting the South’s credit standing.
“North Korea’s belligerent actions are credit negative for South Korea because they have increased the chance of a serious military clash,” Moody’s said on April 8.
“This is particularly so as both sides have new leaders. North Korea has the untested 30-something Kim Jong-un, who could feel pressure to take action to prove his merit with the military,” it said.
Moody’s pointed to the North’s action announcing that it would restart production of weapons-grade plutonium at the Yongbyon nuclear complex.
Though the firm has not changed Seoul’s credit rating, which is set at “Aa3 stable,” its report in the April 8 issue stressed that the situation is unpredictable as tensions are beyond mere rhetoric.
“It had minimal adverse effects on market sentiment in Seoul or on South Korea’s economic fundamentals. However, the current situation has now moved beyond North Korea’s typical rhetoric and thus is more dangerous,” it said.
The rating firm also took the stalled inter-Korean business operations seriously. The North began preventing South Koreans from crossing the border to the Gaesong industrial zone, where the South’s companies employ 53,500 North Korean workers.
Moody’s, however, shared the view among most Korean research analysts that Seoul’s economic fundamentals are strong and have proved resilient to past provocations by Pyongyang.
On the same day, the Korean currency continued to lose ground against the U.S. dollar, falling to the lowest in about nine months.
The dollar gained versus the won for the third trading session to close at 1,140.1 won, up 8.3 won from Friday.
The Korea Composite Stock Price Index also lost further to close at 1,918.69, down 8.54 points from the previous trading session.
In particular, foreign investors kept on their net selling mode on the main bourse. Following their massive disposal of Korean stocks last week, they net sold shares worth 373.2 billion won ($327 million) on Monday.
Deputy Prime Minister and Finance Minister Hyun Oh-seok also issued a warning that the North Korean risks could not be downplayed this time during his meeting with foreign correspondents in Seoul.
“North Korea’s military threats seem to be an extraordinary one, compared to past cases,” he said.
He stressed that the Korean government will strengthen risk management to better insulate the Korean economy from external and internal shocks.
By Kim Yon-se (
kys@heraldcorp.com)
