S. Korea's foreign debt declines in 2008

SEOUL, Feb. 20 (Yonhap) -- South Korea's foreign debt fell in 2008 from a year
earlier, the first drop in seven years, as banks used dollars provided by
authorities to repay short-term borrowing, the central bank said Friday.

The country's foreign debt stood at US$380.5 billion as of the end of 2008, down
$2.66 billion from the previous year, according to the Bank of Korea (BOK). The
country's overseas debt fell for the first time since 2001 when it dipped by
$19.4 billion, it added.
Last quarter, its overseas debt fell by $45 billion, marking the largest
quarterly decline since the fourth quarter of 1994 when the BOK began to compile
related data. Short-term debt fell $9.19 billion on-year to $151.1 billion in
2008.
"South Korea's overseas debt declined last year as local banks repaid their debts
in the fourth quarter after tapping dollar liquidity provided by foreign exchange
authorities," an official at the BOK said.
The data comes as local banks, whose short-term debt reached high levels, have
been suffering from dollar shortages amid tightened credit conditions.
Last year, South Korea's foreign exchange reserves declined for the eighth
straight month before rebounding in December as authorities unloaded part of
their dollar holdings to stem the won's fall and to ease the deepening credit
squeeze. The country's foreign reserves, the world's sixth-largest, totaled
$201.74 billion as of end-January.
The banking sector's foreign debt stood at $171.7 billion as of the end of last
year, down $21.2 billion from the previous year as overseas borrowing declined
amid frozen global credit markets in the wake of the collapse of U.S. investment
giant Lehman Brothers Holdings Inc.
Despite a fall in the country's foreign debt, the local currency continued its
slide against the U.S dollar for the ninth consecutive session on Friday as
market jitters escalated over local banks' dollar liquidity conditions and
downbeat reports of teetering banks in Eastern Europe.
Speculation has been rampant that local lenders may not be able to repay foreign
debts due in March amid a dollar shortage, stoking worries the banking sector
could slip into a fresh credit crisis.
The local foreign exchange market is gripped by fears that Japanese financial
firms may pull their money out of the Seoul market in March when they close their
books. The government and the BOK shrugged off such rumors, saying that the
country could manage its debt burdens given its foreign reserves.
South Korea's net external debt reached $32.3 billion as of end-December,
compared with a net external credit of $37.4 billion the previous year, the BOK
added.
South Korea's growing foreign debt, coupled with a widening deficit of the
country's current account, led it to become a net debtor country for the first
time in eight years in the third quarter of 2008.
sooyeon@yna.co.kr
(END)