ID :
33746
Wed, 12/03/2008 - 17:56
Auther :
Shortlink :
https://oananews.org//node/33746
The shortlink copeid
(News Focus) Further decline in foreign reserves feared to augment market
(ATTN: DELETS unnecessary comments in 13th para)
SEOUL, Dec. 3 (Yonhap) -- A further decline in South Korea's foreign currency
reserves could worsen market volatility as local companies increasingly encounter
difficulty in securing dollars amid frozen credit conditions, experts said
Wednesday.
With the worldwide risk-averse trend, the fall could also put additional downward
pressure on the nation's already-weakening currency against the U.S. dollar, they
said.
Earlier in the day, the Bank of Korea (BOK) said that the nation's foreign
reserves totaled US$200.51 billion at the end of November, down $11.74 billion
from a month ago.
This marked the eighth straight month of declines in foreign reserves, according
to the central bank. Foreign reserves consist of securities and deposits
denominated in overseas currencies along with International Monetary Fund reserve
positions, special drawing rights and gold bullion.
The decline stemmed mostly from dollar injections by the government and the
central bank into the nation's hard-hit financial system. Cash-strapped banks and
exporters have been crippled by growing fears over a liquidity crunch.
"Despite government efforts, it is a matter of time before the reserves fall
below the psychologically important level of $200 billion, as demand for more
dollars from the markets will intensify," said Jeon Seung-ji, a currency analyst
at Samsung Futures.
"General consensus is that the downward pace will slow down but a fall (in the
reserves) would augment pessimistic views by foreign investors of South Korea's
economy and could prompt an acceleration of the decline in foreign reserve
holdings down the road," she added.
South Korea's currency market has been suffering from a dollar shortage,
prompting companies to hoard the safer greenback on concerns the current
financial crisis will deepen. The won has lost more than 35 percent against the
greenback so far this year.
Since October, the government and the central bank have promised to provide a
combined $55 billion in additional liquidity to the market, of which $31.9
billion worth of dollars have been pumped in as of the end of last month,
according to the Finance Ministry.
The remainder is highly expected to be injected into the market in months to
come, which would lead to a further drop in foreign reserves, observers said.
The government, however, believes that foreign reserves will stay above the
US$200 billion level down the road as dollar supply conditions have improved
compared with several months ago when the nation was feared to lapse into a
financial crisis.
"Next year, we will see the current account balance turn to a surplus in
particular thanks to an improvement in the travel account balance," Finance
Minister Kang Man-soo told a recent government meeting. "The turnaround will
surely help the ongoing crisis management efforts.
According to a recent report by the central bank, the nation's current account
surplus reached $4.91 billion in October, compared with a deficit of $1.35
billion the previous month. The monthly surplus is the biggest since 1980 when
the central bank began to compile related data.
In other good news for the tightening foreign capital market, South Korea
recently started to inject dollars borrowed from the U.S. Federal Reserve under a
$300 billion currency swap deal reached in late October. Eased foreign sell-offs
in local stock markets also helped reduce dollar demand.
Earlier in the day, Vice Finance Minister Kim Dong-soo said that he expects
limited decline in foreign reserves, citing such favorable factors as an improved
current account balance and widened credit line with the United States.
Experts agree that South Korea has seen an improved dollar supply channel
compared with a couple of months ago, but they remain worried that under the
current "crisis" situation that if one thing goes wrong it could prompt an
immediate "domino effect" on the other parts of the economy.
Everything depends on the depth and duration of the U.S. economic recession, they
noted.
The U.S. economy has already been in a recession for almost a year, according to
the National Bureau of Economic Research, the U.S.'s top independent economic
authority.
"Chances are slim that foreign reserves will continue to decline at the pace they
have over the past few months, and whether they are above the $200 billion or not
is not that important," said Lee Sun-yup, an analyst at Goodmorning Shinhan
Securities.
"The key is the U.S. economy. If it goes down more seriously than expected, South
Korea's economy, which depends heavily on exports, would be among the hardest-hit
and market watchers could regard the current foreign reserves are not enough to
cushion the fallout, let alone a further decline," he added.
kokobj@yna.co.kr
(END)
SEOUL, Dec. 3 (Yonhap) -- A further decline in South Korea's foreign currency
reserves could worsen market volatility as local companies increasingly encounter
difficulty in securing dollars amid frozen credit conditions, experts said
Wednesday.
With the worldwide risk-averse trend, the fall could also put additional downward
pressure on the nation's already-weakening currency against the U.S. dollar, they
said.
Earlier in the day, the Bank of Korea (BOK) said that the nation's foreign
reserves totaled US$200.51 billion at the end of November, down $11.74 billion
from a month ago.
This marked the eighth straight month of declines in foreign reserves, according
to the central bank. Foreign reserves consist of securities and deposits
denominated in overseas currencies along with International Monetary Fund reserve
positions, special drawing rights and gold bullion.
The decline stemmed mostly from dollar injections by the government and the
central bank into the nation's hard-hit financial system. Cash-strapped banks and
exporters have been crippled by growing fears over a liquidity crunch.
"Despite government efforts, it is a matter of time before the reserves fall
below the psychologically important level of $200 billion, as demand for more
dollars from the markets will intensify," said Jeon Seung-ji, a currency analyst
at Samsung Futures.
"General consensus is that the downward pace will slow down but a fall (in the
reserves) would augment pessimistic views by foreign investors of South Korea's
economy and could prompt an acceleration of the decline in foreign reserve
holdings down the road," she added.
South Korea's currency market has been suffering from a dollar shortage,
prompting companies to hoard the safer greenback on concerns the current
financial crisis will deepen. The won has lost more than 35 percent against the
greenback so far this year.
Since October, the government and the central bank have promised to provide a
combined $55 billion in additional liquidity to the market, of which $31.9
billion worth of dollars have been pumped in as of the end of last month,
according to the Finance Ministry.
The remainder is highly expected to be injected into the market in months to
come, which would lead to a further drop in foreign reserves, observers said.
The government, however, believes that foreign reserves will stay above the
US$200 billion level down the road as dollar supply conditions have improved
compared with several months ago when the nation was feared to lapse into a
financial crisis.
"Next year, we will see the current account balance turn to a surplus in
particular thanks to an improvement in the travel account balance," Finance
Minister Kang Man-soo told a recent government meeting. "The turnaround will
surely help the ongoing crisis management efforts.
According to a recent report by the central bank, the nation's current account
surplus reached $4.91 billion in October, compared with a deficit of $1.35
billion the previous month. The monthly surplus is the biggest since 1980 when
the central bank began to compile related data.
In other good news for the tightening foreign capital market, South Korea
recently started to inject dollars borrowed from the U.S. Federal Reserve under a
$300 billion currency swap deal reached in late October. Eased foreign sell-offs
in local stock markets also helped reduce dollar demand.
Earlier in the day, Vice Finance Minister Kim Dong-soo said that he expects
limited decline in foreign reserves, citing such favorable factors as an improved
current account balance and widened credit line with the United States.
Experts agree that South Korea has seen an improved dollar supply channel
compared with a couple of months ago, but they remain worried that under the
current "crisis" situation that if one thing goes wrong it could prompt an
immediate "domino effect" on the other parts of the economy.
Everything depends on the depth and duration of the U.S. economic recession, they
noted.
The U.S. economy has already been in a recession for almost a year, according to
the National Bureau of Economic Research, the U.S.'s top independent economic
authority.
"Chances are slim that foreign reserves will continue to decline at the pace they
have over the past few months, and whether they are above the $200 billion or not
is not that important," said Lee Sun-yup, an analyst at Goodmorning Shinhan
Securities.
"The key is the U.S. economy. If it goes down more seriously than expected, South
Korea's economy, which depends heavily on exports, would be among the hardest-hit
and market watchers could regard the current foreign reserves are not enough to
cushion the fallout, let alone a further decline," he added.
kokobj@yna.co.kr
(END)
