John Chambers, managing director of S&P'S Sovereign rating group, told Reuters that South Korea should not expect an upgrade right away but his committee planned to discuss a possible upgrade upon his return to New York.

Chambers is leading an S&P delegation that is meeting top government officials this week to review the country's ratings.

"Unless you have a labour strike, the opposition party exploding with the ruling coalition, foreign investors shooting out because they believe the stock market gain was not sustainable or financial problems, you should expect an upgrade in short to mid term," chambers said.

The international ratings agency on January 4 revised its outlook on South Korea's foreign currency ratings to positive from stable. South Korea's sovereign ratings are currently one notch below investment grade.

"The visits and the upgrade don't always correlate," he said. "A positive outlook is a positive indication but not all positive outlooks make it to an upgrade in rating."

Jun Kwang-woo, special adviser to South Korea's ministry of finance, told Reuters Television that the government expected an upgrade by the end of the first quarter of 1999.

S&P wants to see tangible signs that the giant family-run conglomerates or chaebol, which have announced ambitious plans to slim down, are actually cutting their debts, chambers said.

"We would like to see more signs of chaebol working on debt leverage through public offers of their shares and asset sales," chambers said.

Chambers said he didn't expect the chaebol would meet pledges to cut their debt-to-equity ratios to below 200 per cent by the end of 1999.

The chaebol reform blueprints, which included controversial company swaps to promote efficiency along core business lines, was a good step in the right direction.

"Asset swapping (big deals) doesn't in itself get you debt reduction or rationalise operations. But more importantly, selling off non-profitable businesses and offering shares would help them to achieve their goal of debt reduction," he said.

Chambers said he was impressed with the remarkable progress South Korea had made over the past year, especially the government's ability to shore up the country's foreign exchange reserves.

South Korea's usable foreign exchange reserves reached a record high of $48.51 billion by the end of 1998 from $8.87 billion a year earlier, official figures showed.

Chambers said he was also impressed with the government's ability to defuse labour opposition to the mass layoffs that have accompanied restructuring, while reining in the chaebol.

As for the financial sector, the government's recent agreement to sell its 51 per cent stake in Korea First Bank to the US-based investment company Newbridge Capital was a supporting factor for S&P's recent shift to a positive outlook on Korea's ratings.