Deputy Prime Minister Choi Kyung-hwan said Sunday that Moody’s recent upgrade of Korea’s credit rating mitigates the potential risk of capital flight from Korea, a key concern for emerging economies after the U.S. initiated its first interest rate hiking cycle in nearly a decade. 

"There have been worries that Korea could be at the same risk with newly emerging markets, but Moody’s move could be seen as giving some clarity that Korea is different,” Choi told reporters in an unscheduled press conference Sunday.

The U.S. Federal Reserve delivered its first interest rate hike in nine years last week and signaled further monetary tightening, which many experts say could redirect global capital from emerging-market assets to higher-yielding U.S. debt. Years of flush Fed liquidity that followed the 2007-2008 financial crisis were, according to experts, a key driver of stock market rallies worldwide. 

Choi, who doubles as finance minister, called the press conference in response to Moody’s decision Saturday to increase the rating for Korean debt to Aa2, the third-highest level, from Aa3.

It is the highest-ever rating given to Korea and one step above China and two above Japan. Standard & Poor’s and Fitch Ratings both rank South Korea at AA-, the fourth-highest level.

The rating upgrade, Choi said, will serve as a “safety valve” for the Korean economy in case of global market turbulence.

While welcoming the hike, the top economic policymaker also vowed to continue his push for economic reform and corporate restructuring, saying “dark clouds” would gather over the economy next year.

"If unfavorable events come all at once, our economy could be forced into an unforeseen situation. Mindful of this, it is imperative that we carry on our ongoing effort to boost the fundamental strength of the local economy. Corporate restructuring and reforms should continue,” he said.

By Lee Sun-young (milaya@heraldcorp.com)