South Korea's Credit Rating Raised to AA- by Standard & Poor's

  • Upgrade comes even amid goverment concern about exports
  • S&P points to relatively strong economic performance

South Korea’s credit rating was increased one level by Standard & Poor’s, which cited the nation’s sound fiscal position and relatively strong economic performance.

The decision may bolster confidence in Asia’s fourth-largest economy at a time when foreign investors have been withdrawing from the nation’s capital markets. Overseas funds cut holdings of both South Korean stocks and bonds for a third month in August as a slowdown in its neighbor China and the likelihood of interest rates rising in the U.S. reduced the appeal the nation’s assets.

S&P raised the rating for South Korean debt to AA-, the fourth highest level and the same as China and Japan. The new rating is supported by a decline in the external debt of Korean banks and a reduced share of short-term borrowing in total liabilities, according to a statement on Tuesday from S&P.

President Park Geun Hye’s administration announced record spending for next year as the government seeks to lift economic output. Government debt is expected to climb to a record 40.1 percent of gross domestic product, the finance ministry said in its budget proposal. Even so, there is still room for the government to boost spending to support growth.

“There were expectations that S&P would upgrade ratings, but it came sooner than I had thought.” said Park Sang Hyun, an economist for HI Investment & Securities Co. in Seoul. “This should differentiate South Korea’s bond markets from other emerging markets and ease concerns over capital outflow. As the concerns recede, depreciation pressure on the won will also weaken.”

South Korea’s won fell 6 percent versus the U.S. dollar since the end of June and about 8 percent against the yen, prices compiled by Bloomberg show.

“S&P’s decision to upgrade is very meaningful considering that other countries’ ratings are being lowered amid emerging market uncertainties,” the finance ministry said in a statement. “It will be a chance for South Korea to be recognized as an advanced economy to foreign investors.”

Speaking to lawmakers on Monday, Finance Minister Choi Kyung Hwan said South Korea’s exports were in a very difficult situation compared to past.

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