Geo-political risk affecting S. Korea's sovereign rating: report

SEOUL, Oct. 24 (Yonhap) -- South Korea's geo-political risk is having an adverse
affect on the country's sovereign ratings, a report by a local think tank said
Sunday.
The Seoul-based Institute for International Trade (IIT) said that in terms of
various macroeconomic and sovereign ratings indicators, South Korea ranked third
out of 33 member countries of the Organization for Economic Cooperation and
Development (OECD).
It noted that the macroeconomic and sovereign indicators include the size of
gross domestic product (GDP), per capita income, economic growth, national debt
levels, current account balance and size of foreign reserves compared to
short-term debt ratios.
"Based solely on such figures, South Korea trailed only Switzerland and Norway in
the OECD, but its actual ranking fell off to 16th place when checked solely
against sovereign rating figures released by international credit rating
agencies," the institute run by the Korea International Trade Association said.
It said the sharp difference in ranking is mainly caused by overseas concerns
over North Korea's saber-rattling tactics, the sinking of a South Korean warship
in March, and moves to develop and test nuclear weapons in the North.
A sovereign ratings scheme is an indicator of a country's overall health and
business environment, and can affect investments, business tie-ups and interest
rates paid by local companies that borrow from abroad.
International rating agencies, such as Moody's and Standard & Poor's, maintain an
"A1-level" rating for South Korea.
The so-called PIIGS countries of Portugal, Italy, Ireland, Greece and Spain,
responsible for triggering the recent financial crisis in Europe, all maintain
higher sovereign rating levels, even though most only have larger nominal GDPs.
The IIT said that while there may be various factors that can determine sovereign
ratings, South Korea's ranking is "undervalued" vis-a-vis its economic potential
and stressed that concerns about the North Korean threat are exaggerated.
It pointed out that South Korea maintains a close-knit military alliance with the
United States, which can effectively deter aggression, and has forged close ties
with China, which wants peace and stability on the Korean Peninsula. China is
also North Korea's chief supporter and one of the few countries that can exert
influence on the communist country.
The report added that because of the huge difference in economic size, there is
very little risk of Pyongyang starting a full-fledged war.
The think tank, meanwhile, said the government needs to do more to alleviate
concerns about North Korea so the country's sovereign rating can go up in the
future. It claimed that international gatherings, such as the G-20 summit of the
world's leading economies set for Nov. 11-12, can help boost the country's image.
yonngong@yna.co.kr
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