South Korea Ratings Outlook Raised to Stable by Fitch

By Heejin Koo

Sept. 2 (Bloomberg) -- South Korea’s credit-rating outlook was raised to “stable” from “negative” by Fitch Ratings, citing the resilience of the nation’s economy and banks.

The country’s investment grade A+ is the same the company applies to Taiwan and China. Fitch lowered the outlook to negative in November on concern South Korea’s foreign-exchange reserves may decline due to its unstable financial system and widening current deficits.

“The term structure of banks’ debt has improved,” Fitch said in an e-mailed statement today. “On the public-finances front, Korea is likely to have avoided large fiscal costs associated with the deleveraging of the banking sector.”

Asia’s fourth-largest economy expanded 2.3 percent last quarter, the fastest pace in almost six years, as exports and household spending jumped. South Korea’s foreign-exchange reserves rose for a sixth month in August and it posted a current-account surplus in July, boosted by exports.

Fitch’s outlook “appears to reflect increased confidence on the Korean economy,” said Kim Seung Hyun, head of research at Taurus Investment Securities Co. in Seoul.

The Bank of Korea will probably report tomorrow the economy grew at a faster pace in the second quarter than initially estimated, Finance Minister Yoon Jeung Hyun said. Yonhap News cited Yoon as saying today second-quarter growth was probably between 2.6 percent and 2.7 percent.

Exports Improve

“The Korean economy has been resilient in the latest global economic downturn compared to the past,” said Taurus’s Kim. “That’s because exporters successfully boosted their global market share by increasing technological competitiveness, and reduced volatility arising from the global economic performance.”

South Korea’s foreign-exchange reserves rose to $245.5 billion in August after it received funds from the International Monetary Fund and as a weaker U.S. dollar increased the value of holdings in other currencies.

“Korea’s economic resiliency and the authorities’ upcoming efforts to re-establish a conservative fiscal agenda will likely provide scope for the government to revert to a fiscal balance position by 2011, with Korea being only one of six amongst all Fitch-rated sovereigns to do so from a deficit position,” Fitch said in the statement.

North Korea

South Korea slashed interest rates to a record low 2 percent to try to boost exports and encourage corporate and consumer spending. The government also allocated extra funds and spent 68 percent of this year’s budget through July in an effort to boost the economy.

South Korea’s sovereign ratings continue to balance its credit strengths, including fiscal prudence and external finance improvements, against potential security risks and reunification costs from North Korea, Fitch said.

North Korea today re-established telephone lines with the South Korean military, a year after severing them, in the latest reconciliatory gesture from the regime since last month.

North Korean leader Kim Jong Il also met with South Korea’s Hyundai Group Chairwoman Hyun Jeong Eun and released a worker detained for more than four months after criticizing the regime at a jointly run industrial park.

The moves contrast with North Korea’s military threats earlier this year, when the regime also launched a ballistic missile and conducted its second nuclear-weapons test.

To contact the reporter on this story: Heejin Koo in Seoul at hjkoo@bloomberg.net