ID :
73925
Thu, 08/06/2009 - 09:18
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https://oananews.org//node/73925
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(News Focus) Korean financial system recovering from global crisis
By Koh Byung-joon
SEOUL, Aug. 5 (Yonhap) -- South Korea is quickly recovering from the global financial meltdown tipped off by the collapse of Lehman Brothers last year, government officials and experts said Wednesday, suggesting the worst is "virtually" over.
Stock and foreign exchange markets here are stabilizing as foreign investors
widen their exposure. Economic indicators are also showing improvements in
industrial output, exports and private consumption, reflecting a stark turnaround
from conditions seen a year ago, they added.
"All of the recent foreign currency and economy-related indicators are pointing
to a marked improvement and recovery," said a Seoul finance ministry official,
asking not to be named. "The foreign currency market is stabilizing especially
fast to levels seen before the Lehman collapse."
"At this moment, I can say that chances are very slim that the nation will face
yet another foreign currency crisis."
Since the fall of the U.S. investment giant last September, South Korea had been
dogged by persistent speculation that its finance system might face a crisis.
Fears swirled that cash-strapped local banks would not be able to pay back
maturing short-term foreign debts, sending investors packing and causing local
stock and currency markets to lose substantial ground.
The Korean won tumbled 25.7 percent against the U.S. currency last year along
amid concerns of a dollar shortage.
The latest indicators, however, support growing optimism about the nation's
financial market and overall economic conditions. On Tuesday, the local currency
finished at a near 10-month high of 1,218 against the greenback.
Its gain was attributed mainly to foreign stock buying and Korea's rising
exchange reserves. They totaled US$237.51 billion as of the end of July, up $5.78
billion from the previous month, according to the central bank.
Spreads on South Korea's credit default swaps (CDSs) are also returning to
levels seen prior to the Lehman bust, attracting foreign investors. Five-year
dollar-denominated currency stabilization bonds reached 126 basis points last
Friday, sharply down from a record 699 basis points seen on Oct. 27. The spread
on CDSs is the cost of hedging credit risk on corporate or sovereign debt and
represents the risk a country could go bankrupt.
A number of global investment banks have also recently revised up their 2009
growth outlooks for South Korea.
Encouraged by improving borrowing conditions, local banks are rushing to secure
foreign funding. In the first half of this year, borrowing of foreign funds with
a maturity of over one year amounted to $14.02 billion, up 189 percent from the
same period a year earlier, according to the nation's financial watchdog.
Against this backdrop, the government and central bank have begun retrieving the
foreign currency funds they earlier provided to the financial system --
supporting claims that liquidity conditions have improved significantly in recent
months.
According to data provided by the finance ministry and the Bank of Korea, they
have retrieved a combined 77.2 percent, or $43.6 billion, of the total foreign
currency liquidity injected into local markets since last September.
The two offered a total of $56.5 billion in dollar-denominated currency through
diverse channels, including a $30 billion swap line with the U.S.
Analysts agree that while South Korea may be out of the woods, it is still
unclear how fast its economy can make a recovery.
"It is true that the worst is over," said Jeon Seung-ji, a currency analyst at
Samsung Futures Inc. "Borrowing costs have declined significantly with the
nation's foreign reserves and CDS conditions improving."
"Now the focus is shifting toward how fast the economy can recover down the road.
A delayed recovery could spark turbulence in the stabilizing financial markets by
again stirring concerns over a credit crunch for local banks," she said. "Outside
factors also remain a drag on the local export-driven economy."
South Korea's economy is expected to shrink 1.5 percent this year, the first
negative growth in more than a decade. The government has said that it will
maintain its expansionary macroeconomic policy until a clear recovery
materializes.
SEOUL, Aug. 5 (Yonhap) -- South Korea is quickly recovering from the global financial meltdown tipped off by the collapse of Lehman Brothers last year, government officials and experts said Wednesday, suggesting the worst is "virtually" over.
Stock and foreign exchange markets here are stabilizing as foreign investors
widen their exposure. Economic indicators are also showing improvements in
industrial output, exports and private consumption, reflecting a stark turnaround
from conditions seen a year ago, they added.
"All of the recent foreign currency and economy-related indicators are pointing
to a marked improvement and recovery," said a Seoul finance ministry official,
asking not to be named. "The foreign currency market is stabilizing especially
fast to levels seen before the Lehman collapse."
"At this moment, I can say that chances are very slim that the nation will face
yet another foreign currency crisis."
Since the fall of the U.S. investment giant last September, South Korea had been
dogged by persistent speculation that its finance system might face a crisis.
Fears swirled that cash-strapped local banks would not be able to pay back
maturing short-term foreign debts, sending investors packing and causing local
stock and currency markets to lose substantial ground.
The Korean won tumbled 25.7 percent against the U.S. currency last year along
amid concerns of a dollar shortage.
The latest indicators, however, support growing optimism about the nation's
financial market and overall economic conditions. On Tuesday, the local currency
finished at a near 10-month high of 1,218 against the greenback.
Its gain was attributed mainly to foreign stock buying and Korea's rising
exchange reserves. They totaled US$237.51 billion as of the end of July, up $5.78
billion from the previous month, according to the central bank.
Spreads on South Korea's credit default swaps (CDSs) are also returning to
levels seen prior to the Lehman bust, attracting foreign investors. Five-year
dollar-denominated currency stabilization bonds reached 126 basis points last
Friday, sharply down from a record 699 basis points seen on Oct. 27. The spread
on CDSs is the cost of hedging credit risk on corporate or sovereign debt and
represents the risk a country could go bankrupt.
A number of global investment banks have also recently revised up their 2009
growth outlooks for South Korea.
Encouraged by improving borrowing conditions, local banks are rushing to secure
foreign funding. In the first half of this year, borrowing of foreign funds with
a maturity of over one year amounted to $14.02 billion, up 189 percent from the
same period a year earlier, according to the nation's financial watchdog.
Against this backdrop, the government and central bank have begun retrieving the
foreign currency funds they earlier provided to the financial system --
supporting claims that liquidity conditions have improved significantly in recent
months.
According to data provided by the finance ministry and the Bank of Korea, they
have retrieved a combined 77.2 percent, or $43.6 billion, of the total foreign
currency liquidity injected into local markets since last September.
The two offered a total of $56.5 billion in dollar-denominated currency through
diverse channels, including a $30 billion swap line with the U.S.
Analysts agree that while South Korea may be out of the woods, it is still
unclear how fast its economy can make a recovery.
"It is true that the worst is over," said Jeon Seung-ji, a currency analyst at
Samsung Futures Inc. "Borrowing costs have declined significantly with the
nation's foreign reserves and CDS conditions improving."
"Now the focus is shifting toward how fast the economy can recover down the road.
A delayed recovery could spark turbulence in the stabilizing financial markets by
again stirring concerns over a credit crunch for local banks," she said. "Outside
factors also remain a drag on the local export-driven economy."
South Korea's economy is expected to shrink 1.5 percent this year, the first
negative growth in more than a decade. The government has said that it will
maintain its expansionary macroeconomic policy until a clear recovery
materializes.
