S. Korea retrieves nearly 80 pct of foreign currency liquidity: finance ministry

SEOUL, July 31 (Yonhap) -- South Korea's government and the central bank have
retrieved nearly 80 percent of foreign currency funds injected into the economy
to ease a credit crunch that began last summer as borrowing conditions seem to be
improving, the finance ministry said Friday.

The government and the Bank of Korea (BOK) have retrieved a combined 77.2
percent, or US$43.6 billion, of the total foreign currency liquidity it injected
into local markets since last September after the collapse of U.S. investment
giant Lehman Brothers sparked a global financial crisis, according to the
Ministry of Strategy and Finance.
The turbulence prompted borrowing conditions to tighten, heightening worries
among local banks and exporters that they might not be able to meet their
financial needs or service short-term debts. It also caused the local currency to
lose substantial ground against the U.S. greenback last year.
The government and the central bank rushed to offer a helping hand by injecting a
total of $56.5 billion in dollar-denominated currency since September.
The liquidity was provided through diverse channels, including tapping a $30
billion currency swap line with the U.S. and purchases of export bills by the
state-run policy bank.
The finance ministry said it had retrieved all of the foreign currency liquidity
it supplied through the Export-Import Bank of Korea to local banks until last
month, while the BOK plans to withdraw outstanding liquidity it injected through
dollar auctions to cash-strapped financial institutes.
Still, both say they will keep their support for exporters and the currency swap
pipeline open for the time being on the principle that they will withdraw all
injected funds "in accordance with market conditions."
The move comes as South Korea's foreign currency liquidity condition has recently
improved as local banks beef up efforts to borrow from overseas and the country's
current account balance remained in the black.
With growing signs of rebounding economic and market indicators, experts have
begun to speculate about when the right time would be for the government to scale
back its stimulus and expansionary measures on concerns that excessive liquidity
could trigger serious side effects, such as rising inflation and an asset bubble.
The government has said that it will keep its expansionary macroeconomic policy
stance "for the time being" until the economic recovery fully materializes.
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