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Meral Karasulu
IMF head in Korea |
‘Economy in Better Shape Now Than in 1997 Crisis’
By Kim Jae-kyoung
Staff Reporter
A number of foreign banks and global economic organizations, including the International Monetary Fund (IMF), have discounted widespread rumors about a September crisis for Korea, stressing that the country is now in much better shape than 1997.
They said that rumors about the crisis were groundless and comparing the current situation with 1997 was overblown. The ``September crisis'' is a rumor that Korea will face a financial meltdown this month due to massive capital outflow.
In a press release Wednesday, Meral Karasulu, the IMF's resident representative in Seoul, said that Korea's foreign reserves are sufficient to cushion the blow from the outside and concerns over a crisis should not be exaggeraged.
``The recent buildup in short-term external debt could increase financial market volatility. However, these risks should not be exaggerated, as the nature of the short-term external inflow is very different from a decade earlier,'' she said.
``Despite the recent increase, the outstanding external debt is still not unusually large when compared to the Korea's export earnings or international reserves, or when compared to other countries in the region,'' she added.
In its latest report Wednesday, Citigroup said that concern about the crisis stemmed from the maturing of foreign investors' bond holdings in September.
``We don't buy into a scenario about a crisis, as the $6.7 billion of foreign investors' bond holdings that will mature in September is too small to cause any meaningful problem in Korea,'' Citigroup economist Oh Suk-tae said.
He pointed out that the amount totals only around 14 percent of foreign investors' overall won-denominated bond holdings and only 2 percent of total sovereign bonds outstanding in Korea.
HSBC, the world's largest banking group, also said that Korea does not face an external payments crisis, and frequent comparisons with 1997 were overblown.
``Korea's current foreign exchange reserves comfortably cover the country's nominal short-term debt,'' it said in a press release. The nation's foreign reserves stood at $243.2 billion in August.
``The nominal short-term debt profile may overstate the country's underlying exposure given that part of the debt is hedging related and therefore backed up by implicit collateral in the form of future export revenue,'' it added.
It pointed out that economic growth in Korea, as elsewhere in Asia, would slow over the coming quarters, but an outright recession currently appears unlikely.
In an interview with Bloomberg Tuesday, Moody's Investors Service said that Korea won't face a repeat of the 1997 currency collapse because local banks and companies have more robust finances
``Korean corporations and banks are much healthier than they were before the 1997 crisis, and Korean exporters have proved to be resilient to the global slowdown,'' said Thomas Byrne, who is in charge of Moody's sovereign credit ratings for Asia and the Middle East.
JP Morgan economist Lim Ji-won said that the central bank eased up on its intervention due to the upcoming parliamentary inspection, which caused the steep loss of the won against the greenback.
``I think suspicions about a September crisis are groundless,'' she said, adding that a weaker won is the result of the widening current account deficit and the strengthening of the dollar.
kjk@koreatimes.co.kr
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