Week 2 - Wednesday (News Summary Blog Assignments)

            Escalating tension on the Korean Peninsula between North Korea and South Korea has raised the possibility that the situation could downgrade South Korea's credit rating. Credit rating evaluates the credit of a debtor of a government in our case depending on the debtor's ability to pay back the debt and the likelihood of default (in which a debtor is unable to pay back). With bad credit rating comes decrease in demand for stocks distributed by Korean companies. With decrease in demand curve comes drop in price and quantity of Korean stocks.

            The tension stems from North Korea's re-launch of nuclear plant operation, which negatively impacts South's credit standing. The news of restart of production of weapons-grade plutonium at the Yongbyon nuclear complex was startling to the South and America. The situation is not sudden or unexpected. This situation can go way back to Cold War and rivalry between Soviet Union and the United States. Thus there is no solution to this situation that would fix everything. However, the best policy would be to prepare for the attack that might come from the North.

            The actual credit rating, which is set at “Aa3 stable,” has not changed, but many are in agreement that the situation is unpredictable and beyond mere talk. South's companies employ over 50,000 North Korean workers, but with the North preventing South Koreans from crossing the border to the Gaesong industrial zone, the rating firm also took the stalled inter-Korean business operations seriously. The counterpart also argue that Seoul’s economic fundamentals are strong and have proved resilient to past provocations by Pyongyang. However, the Korean currency continued to lose ground against the U.S. dollar, falling to the lowest in about nine months. The Korea Composite Stock Price Index also lost further to close at 1,918.69, down 8.54 points from the previous trading session. Deputy Prime Minister and Finance Minister Hyun Oh-seok issued a warning that the North Korean risks could not be downplayed this time, stressing that the Korean government will strengthen risk management to better insulate the Korean economy from external and internal shocks.

Bibliography:

"N.K. Risks May Harm Seoul Rating: Moody's-The Korea Herald." N.K. Risks May Harm Seoul Rating: Moody's-The Korea Herald. N.p., n.d. Web. 09 Apr. 2013.