NEW YORK, Jan 17: The US ratings agency Standard and Poor's yesterday revised the credit prospects of South Korea and 11 South Korean banks from `negative' to `developing'.``Developing implications mean the ratings may move upward or downward in the near term,'' the agency said.
But it added that both the government and the banks would remain on its `credit watch'.
The agency said the change in the evaluation of South Korea reflected an ``easing of foreign exchange liquidity pressures'' as well as expectations that external events will not interfere with negotiations to roll over 33 billion dollars in short-term bank debt.
The report comes as international bankers are due to meet here with senior financial officials from Seoul on January 21 to discuss further steps to restructure some of the short-term debt held by South Korean banks.
International banks have already agreed to `roll over' to the end of March a portion of South Korea's bank debt that fell due at the beginning of the year.
A
willingness now by Standard and Poor's to consider upgrading its rating on South Korea could have a significant impact on the debt restructuring negotiations that resume next week.
An upgrade -- holding out the possibility of easier credit terms -- would make it easier for the South Korean authorities to agree to convert the debt to medium-and long-term bonds.
``The `developing' credit watch listing recognises that Korea's credit standing now turns on the successful and prompt conclusion of negotiations to refinance the short-term external debt of Korean banks,'' said a statement from Standard and Poor's .
It noted that while Seoul was still considering several options, ``it is likely to offer to guarantee up to 27 billion dollars of the banks' short-term external debt in exchange for an agreement with creditors to extend the term of their advances.''
Standard and Poor's added that it would probably change its ratings on South Korea once the current round of negotiations with creditor banks ends.
``Depending on the outcome of these discussions, the ratings could move by as much as one category.''
The agency said that since it downgraded South Korea's foreign currency ratings on December 22, government policy makers had bolstered their commitment to economic reforms demanded by the International Monetary Fund (IMF) in exchange for financial assistance.
They in addition had adopted a more prudent reserve policy, according to Standard and Poor's, which reported that available foreign reserves had risen from 4.7 billion dollars at the time of the last downgrade to more than 11 billion. The government had also taken steps to open South Korea's capital account to foreign investment in the equity and bond markets and relaxed restrictions on foreign ownership of domestic companies and banks.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
