Korea's economic fundamentals much stronger than a decade ago: IMF

By Hwang Doo-hyong
WASHINGTON, Oct. 24 (Yonhap) -- The International Monetary Fund (IMF) said Friday
that the fundamentals of South Korea's economy are much stronger now than they
were a decade ago, when the country was hit by the Asian financial crisis.
IMF Pacific region executive director Richard Murray cited South Korea's foreign
exchange reserves, which stand at over US$240 billion, and the government's
financial liberalization policies as reasons for the positive appraisal.
Murray, in an interview with Yonhap News Agency, described South Korea's current
economic fundamentals as "significantly different from the 1990s and much
stronger" than they were ten years ago.
He said the lending agency is considering establishing a currency swap measure to
help emerging economies gain easier access to hard currency to help them weather
the current global financial crisis, but he insisted they "would not be targeting
specific countries such as Korea."
South Korea's stock markets plummeted to below the psychologically important
1,000 point level Friday amid concerns over the possibility that the world's 13th
largest economy may be seeking its second bailout package in ten years.
Pakistan, Ukraine and several other developing economies are seeking emergency
funds from the IMF as fallout from the U.S. liquidity crisis has spilled over
into financially weaker countries.
Financial institutions in the U.S. and other advanced economies are pulling
investments out of emerging markets, including South Korea, citing weak economic
fundamentals and the need to shed bad assets to help them muddle through the
credit crunch caused by the U.S. subprime mortgage crisis.
South Korea's currency also hit a ten-year low Friday against the U.S. dollar and
other major currencies as demand for the greenback rose on foreign investors'
dumping of local shares.
Murray said the IMF measure for developing economies follows a similar one
announced last month by the Federal Reserve and the central banks of the European
Union, Japan, England, Canada and Switzerland to set aside US$180 billion in
additional swap lines valid until January 2009.
The move aims to head off a possible liquidity crisis as banks either refrain
from extending loans among themselves or demand higher than expected borrowing
costs amid worsening turmoil involving major U.S. financial institutions.
"There is no such facility with the emerging economies' central banks," he said,
adding that many emerging economies have "high levels" of foreign reserves that
they have been "using to address the U.S. dollar liquidity shortages in their
foreign exchange markets."
Despite this, Murray says there have been "some perceptions that the IMF could
fill that gap with its own liquidity facility for emerging economies."
The IMF's move comes amid criticism that the lending agency, led by the world's
wealthy nations, failed to function properly to stave off the current global
financial crisis.
In response to these charges, U.S. President George W. Bush Thursday invited
South Korea, China, India, Brazil and other major emerging economies to the G20
financial summit in Washington on Nov. 15.
Speculation abounds that the G20 financial summit could be used to discuss the
creation of a new financial regime to replace the International Monetary Fund and
the World Bank, which were launched soon after the end of World War II.
Asian and European leaders attending a biannual Asia Europe Meeting in Beijing
Friday called for a sweeping reform of the international financial and monetary
system to avoid further global economic havoc.
French President Nicolas Sarkozy recently talked about the need to introduce a
new global financial regime in which financial institutions are subjected to more
regulation, blaming the current financial turmoil on the failure by the U.S.
government to properly regulate financial institutions.
South Korean President Lee Myung-bak also stressed in an interview Tuesday the
need to reform the current global financial system.
"The ongoing financial crisis shows the current financial system has not kept up
with changes being made in the finance industry," he said. "Under the new
financial transaction environment, it is time for us either to greatly reform the
existing regime or to make a completely new one."
Murray said that the measure the IMF is introducing for emerging economies is "of
a short-term nature" that does not involve restraints in fiscal spending and
other macroeconomic policies for recipient countries. Those restraints drew
heated complaints from South Korea and several other recipient countries a decade
ago.
Instead, the lending agency will undergo a strict screening process to select
beneficiaries that are suffering from short-term liquidity shortages with
otherwise healthy economies in order to secure repayment, he said.
"It would also need to be for strongly-performing emerging economies as there
would probably be no conditionality attached to the facility," he said.
hdh@yna.co.kr
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