(EDITORIAL from the Korea Herald on Feb. 21) - Another crisis?

It is not unusual for Korea to witness fears being stoked about a financial crisis coming in the final month of a quarter. There was much talk of an impending September currency crisis last year. But September came and went, and there was no disruption in the domestic financial markets.

Again, talk of a March credit crisis is gaining momentum. It was prompted by
unsubstantiated rumors that Japanese lenders would demand their Korean clients
pay back their loans, instead of offering to roll them over.
Not surprisingly, the Bank of Korea and the administration are up in arms to
dispel the fears. They are right to take action promptly because such fears may
become self-fulfilling if left unaddressed. Moreover, stocks have continued to
fall, and the Korean currency has been dropping.
The central bank has reassured market participants that there is nothing to worry
about, saying that domestic commercial banks have much less debt repayment
obligations than before. The banks have $24.5 billion in foreign-currency debts
maturing this year, the central bank says. That amount is much smaller than the
total debts tallied at $67.8 billion as of Jan. 31.
The debts maturing this and next month amount to $10.4 billion, the central bank
says, adding that many of them will certainly be rolled over.
If so, have the stock and foreign exchange markets been acting irrationally
during the past several days? Not really.
Both domestic and international developments have been working together to fuel
instability in the market.
Among them is the recent decision by Woori Bank not to redeem $400 million of
callable subordinate debt maturing in 2014. That may have been the right decision
for the state-owned bank. But it fueled suspicions about the nation's
debt-servicing capacity and raised the cost of borrowing money in the swap market
for all Korean banks.
Another cause of financial instability is North Korea's threat to South Korean
security. Pyongyang has repeatedly been warning of a war against the South,
accusing President Lee Myung-bak's administration of fanning hostilities against
the North. In addition, it is preparing to launch a long-range missile,
heightening tensions on the Korean Peninsula.
Even more ominous is the fear of a worsening global credit crunch, which is
triggered by Eastern Europe's economic slump. Some emerging economies in Eastern
Europe are exposed to the risk of default, which reports say will undermine
international lenders' profitability and erode their capital base.
A looming credit crisis is testing the mettle of new Finance Minister Yoon
Jeung-hyun and his economic team, who are revamping economic policy. As he said
on Wednesday, it is urgent to stabilize the financial markets if the nation is to
put the brakes on its slide into recession.
But he has yet to unveil his crisis management plan. He is better positioned for
the job than his predecessor, who lost much of the public's confidence by
painting rosy picture about the nation's economic outlook.
On assuming the post of finance minister, Yoon lowered the 2009 growth outlook
from 3 percent to minus 2 percent. He also revised the administration's
employment forecast from an increase of 100,000 jobs to a loss of 200,000 this
year.
Based on these reassessments, he will have to present a rescue plan, including
additional spending, in the near future. As he acknowledged, however, a more
urgent task of his is to restore stability in financial markets.
He will soon have to make a decision on what steps to take to help domestic banks
get unhindered access to overseas credit, including the proposed provision of
debt guarantees for the banks beyond the June 30 deadline. He has little time to
waste.
(END)