By Lee Hyo-sik
Staff Reporter
A senior finance ministry official said Thursday that the local foreign exchange market will regain stability in coming days as fears over a September crisis have evaporated and the international financial market is in better shape following the U.S. government's bailout of two mortgage lenders earlier this week.
Vice Strategy and Finance Minister Kim Dong-soo said the won-dollar rate should be determined by market supply and demand in principle. ``But if the local currency weakens against the greenback at an excessive pace, the government should study market movements and do what is necessary,'' Kim stressed, indicating financial authorities will continue to intervene in the market by selling dollars to prop up the won's value.
Another Vice Strategy and Finance Minister Bae Kook-hwan also said Thursday that it is the government's mandate to stabilize the currency market if speculative forces, not market supply and demand, dictate the foreign exchange rate.
Touching on the September crisis, Kim said it stemmed from fears that foreigners would redeem maturing state bonds worth $6.7 billion this week and take dollars out of the country en masse, creating a dollar shortage, hiking the won-dollar rate and eventually making Korea vulnerable to outside shocks.
``However, foreign investors reinvested or rolled over a large portion of state bonds that were due Tuesday and Wednesday. In particular, foreigners net purchased state bonds worth 600 billion won Wednesday, bringing the cumulative buying to 2 trillion won this month. Investors will likely continue to buy local treasury bonds,'' Kim said.
He said the government will try to issue dollar-denominated foreign exchange stabilization bonds worth roughly $1 billion overseas today as scheduled. ``The overall financial market is still shaky. But we will closely monitor market changes and do our best to sell currency stabilization bonds at a favorable rate as planned,'' Kim noted.
Deputy Strategy and Finance Minister Shin Je-yoon and other ministry officials have held a series of road shows in Hong Kong, London and New York since early this week to sell 10-year maturity currency stabilization bonds abroad.
But some market analysts raised the possibility that the government could delay the issuance as unfavorable market conditions and increasing geopolitical risks will likely raise bond yields, forcing the government to pay higher interest to investors.
Despite the U.S. government's rescue of Fannie Mae and Freddie Mac earlier this week, stock markets across the globe continued to head down on lingering concerns about the U.S. financial sector.
Also, the news of North Korean leader Kim Jong-il's deteriorating health condition fanned geopolitical uncertainties surrounding South Korea, making it difficult for the government to sell bonds at lower interest rates.