Fitch upgrades outlook for Korea's sovereign rating to 'stable'

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By Koh Byung-joon
SEOUL, Sept. 2 (Yonhap) --- Global credit appraiser Fitch Ratings said Wednesday
it has reaffirmed the sovereign credit rating for South Korea but upgraded its
rating outlook to "stable," amid growing signs the economic downturn is easing
and that market confidence is stabilizing.

The upgrade comes after Fitch lowered its outlook for South Korea's rating from
"stable" to "negative" in November last year along with other six countries
following the collapse of Lehman Brothers, which sent the global economy into
chaos.
A negative outlook means a nation's sovereign rating could be lowered in a few
months while stable indicates a rating will likely be maintained for the time
being.
"South Korea's sovereign credit fundamentals have regained ground against the 'A'
peer group, warranting an outlook revision to stable," Fitch said in a statement.

Fitch, however, reaffirmed its sovereign rating for South Korea at "A plus," the
fifth-highest investment grade, which it has held since October 2005. That is a
step lower than the "AA minus" that the country held just before the Asian
financial crisis in the late 1990s.
The decision was based on a three-day visit by a Fitch delegation in July to
assess the country's economic and financial conditions.
The latest outlook upgrade could augment optimism in South Korea that the worst
of the economic downturn might be nearing an end, with diverse market indicators
pointing to a recovery.
In the wake of the collapse of U.S. investment giant Lehman Brothers last
September, South Korea's financial system and export-driven economy suffered
sharp fluctuations.
Credit dried up for local banks, spawning rumors that they might fail to pay
maturing short-term debts and face a repeat of the 1997-98 financial meltdown.
Against this backdrop, the government and the central bank rushed to provide a
helping hand by unveiling a series of aggressive fiscal spending measures,
passing a large-scale extra budget and cutting key interest rates to a record low
level.
Those efforts seem to be paying off, as financial markets have been stabilizing
in recent months with the return of foreign investors. The nation's benchmark
KOSPI stock index has surged to a record high for this year and the local
currency has gained ground against the greenback.
South Korea's economy is also recovering at the fastest pace among major
developed countries with its gross domestic product expanding a
better-than-expected 2.3 percent in the second quarter of this year. In the last
quarter of 2008, its GDP plunged 5.1 percent.
The Seoul government credited the upgrade to its active efforts to tide over the
financial and economic crises as well as other improving macroeconomic signals
and thawing foreign liquidity.
"Fitch's move to raise the Korean outlook can be understood as a sign that it
acknowledges our efforts as successful to get over the global economic crisis,
prompted by the Lehman collapse last September," the finance ministry said in a
statement.
"The reduced sovereign risk is expected to enhance South Korea's outside
credibility, which will result in significantly improved overseas funding
conditions for local financial institutions and companies," it added.
kokobj@yna.co.kr
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