SEOUL, KOREA - Moody's Investors Service said on June 9 that Korea will see its economy grow 3.5-4.0 percent this year and next. In a report published on the same day, Moody's said the Korean economy's fundamentals are solid despite the problems of the mounting debt of state-run enterprises and households and the ferry sinking incident. 

 

It predicted that the economy would contract somewhat due to a reduced level of consumption following the tragic accident and the debt overhang, but the government would eventually be able to handle the problems.

 

The public-sector debt problem that may become an obstacle to further economic growth is slowly resolved by the government by improving the transparency of the enterprises' business operation.

 

As for the household debt issue, Moody's said there are still risks remaining such as the rising loan balance of low-income families with secondary lenders and the consequent possibility of consumption shrinking. The report said, however, the government is continuing its effort to relieve the problem through the Happiness Fund, which focuses on restructuring small-scale individual distressed debt. The fact that the growth rate of the household debt lately is a positive sign, the report added.

 

Moody's predicted that the key for the Korean economy to narrow the gap with advanced economies would be for the Park government to successfully implement the debt restructuring program, with the external economic conditions improving for the years to come.