Beef dispute may hurt South Korea economy: Moody's

By Yoo Choonsik

SEOUL (Reuters) - Protests over a deal to resume U.S. beef imports could hamper the long-term performance of South Korea's economy, a senior official at credit ratings agency Moody's told Reuters on Thursday.

Tom Byrne, senior vice president at Moody's, also said in an e-mail interview that some of the questions over North Korea's nuclear programs remained unanswered despite some progress made recently.

"The protests will probably have little effect on the near-term economic outlook, but the longer-term performance of the Korean economy could be harmed," he said.

"The protests may force the Lee government to delay and dilute the partial privatization of the state-owned financial institutions."

Thousands of South Koreans have been staging street protests for weeks over President Lee Myung-bak government's decision to resume U.S. beef imports out of fears about mad cow disease.

Byrne said the "nationalistic mood" within South Korea may also complicate and curtail foreign participation in the domestic financial system, making it difficult for the country to reform its financial system into a competitive, regional centre.

The dispute over beef imports could also endanger the ratification of a free trade agreement with the United States at the U.S. Congress, he said.

He also said the recent progress in an international standoff over North Korea's nuclear issue would not necessarily lead to an immediate change in South Korea's A2 sovereign rating.

"Yes, they should (help ease security concerns) provided that North Korea is seriously committed to nuclear disarmament and that concerns that the U.S. government has over a suspected dual track, uranium nuclear weapons program are allayed," he said.

"Despite apparent progress, definitive answers to those questions have not been revealed by the six party process yet."

The comments came soon after China announced North Korea would hand over a long-delayed account of its nuclear activities on Thursday. ID:nSEO294682

He also said a rise in South Korea's short-term external debt could cause ratings concerns if coupled with a large current account deficit.

"An unabated rise in short-term external debt coupled with a large current account deficit, an incoherent policy framework and a more adverse global economic environment could cause rating concerns," he said, although playing down the chances of the worst scenario getting materialized immediately.

The government is already battling raging inflation, which has accelerated to a seven-year high, threatening to push consumer confidence even lower.

(Editing by Kim Coghill)