Moody's, one of the world's three major credit rating agencies, diagnosed that the possibility of continued economic and political uncertainty in South Korea remains high despite the impeachment of former President Yoon Suk-yeol. It also warned that prolonged political tension could negatively affect creditworthiness.
According to a report by Yonhap News Agency published after the Constitutional Court's decision to uphold the impeachment of former President Yoon on the 13th, Moody's made this statement.
Moody's noted that "the impeachment of former President Yoon has opened a path to fill the leadership vacuum, but it appears that economic and political uncertainty will not be alleviated," adding that "given the highly divisive nature of this decision, it is expected that street protests will continue."
It forecasted, "Our fundamental principle is that institutions and policies operate smoothly, but if the escalating political tension that hinders economic activity and delays government responses to economic growth persists, it will negatively affect credit."
Moody's also predicted, "Considering the short election period and uncertainties regarding major candidates, particularly with the impeachment of former President Yoon causing deep fractures among members and the absence of a clear frontrunner in the People Power Party, the likelihood of political strife is high."
Moody's expressed concern that with just over 50 days until the presidential election, the tight schedule might lead to a lack of clarity in the economic policies proposed by candidates. It emphasized that given the various economic challenges South Korea is facing, clarity in economic policies is extremely important at this time.
The challenges facing the South Korean economy include potential changes in U.S. trade policies, the Inflation Reduction Act (IRA), and potential amendments to the Chips and Science Act (CHIPS). Consequently, it projected that the automotive, semiconductor, and battery industries may be negatively impacted.
Regarding Lee Jae-myung's policy promise of a 'basic income system,' Moody's remarked, "Expansionary fiscal policy could place additional upward pressure on South Korea's liability burden, and as the aging population increases pension and wage expenditure, this burden may grow larger."
Moody's further evaluated the process of the Constitutional Court's decision to uphold the impeachment of former President Yoon, stating, "The government's actions over the past few months, aimed at economic responses and policy formulation, demonstrate a sustained commitment to upholding constitutional order, suggesting that the rule of law is still functioning well."
It added, "The ability to maintain the efficiency of economic policies amid political instability supports the assessment that South Korea possesses relatively strong institutional strengths commensurate with its credit rating."
Meanwhile, Moody's has maintained South Korea's national credit rating at 'Aa2/stable' since 2015. In Moody's ratings, 'Aa2' is the third-highest grade after 'Aaa' and 'Aa1.'