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Favorable reviews of the Korean economy by credit rating agencies and influential foreign analysts and media have been a welcome antidote to gloomy assessments by domestic observers, a marked change from the external view during the 2008 financial crisis that the Korean economy was near the head of the queue for a collapse.

Korea has enough strength to sustain itself against the current economic problems, a senior Moody’s official said in a lecture to the Korea Society in New York on Thursday.

“The Korean economy is in much better condition than it was in 2008, not to mention in 1997,” said Tom Byrne, Moody’s spokesman and director of analysis for the firm’s sovereign risk group for Asia and the Middle East.

According to Byrne, the ratio of Korea’s short-term external debt to its foreign currency reserves fell to under 50 percent in the fourth quarter last year from above 80 percent in 2008. The ratio of bank savings to bank loans also dropped to a sustainable level because of preemptive government intervention. The Bank for International Settlements ratios of local banks also increased.

Huge foreign selling on the local stock market and a resultant rapid outflow of dollars occurred during the 2008 financial crisis, but the problem has moderated during this turbulent period. According to Byrne, foreign net selling amounted to $32 billion between January and September 2008 and $28.9 billion from January to September 2007, but was only $6.8 billion in the same period of 2011. Korea has foreign currency reserves of nearly $320 billion.

Korea is also more fiscally sound than other countries with similar credit ratings, Byrne said. Its national debt as a percentage of GDP is estimated at 32.7 percent this year and 32.9 percent next year, 10-12 percentage points below those ratios for countries with similar Moody’s ratings.

William Pesek, a Bloomberg columnist, said in a recent column that other Asian countries should follow Korea’s lead because the country already has a plan to balance its budget and reduce its national debt.

“It is devising plans to cut its fiscal deficit next year .?.?. just in case credit-rating agencies get ideas about downgrading Asia’s fourth biggest economy,” he wrote.

Pesek said the Korean government made the right decision given the turmoil in Europe.

The Financial Times also reported favorably on the country’s macroeconomic and financial police prudence, noting that current policies have led to a stabilization of the real estate market.

How times change. In 2008, Korea was being called “the next Iceland” in international media.

But Byrne of Moody’s did sound a few cautionary notes. He said Korean banks have too much exposure to household debt. If real estate prices continue to fall, that debt could go sour.

He also noted that local banks still face difficulties in getting their hands on enough foreign currency to meet their obligations during tough times.


By Jung Kyung-min, Limb Jae-un [jbiz91@joongang.co.kr]